Point West Gr Ltd v Bassi & Ors (LANDLORD AND TENANT - SERVICE CHARGES - power of FTT to review and set aside its own decisions)

Factual and Procedural Background

This appeal concerns a large mixed residential and commercial development known as the Building, comprising 399 leasehold apartments and commercial space, where the landlord is entitled to recover service charges from leaseholders for services provided under the leases.

The dispute arose from leaseholders’ applications under section 27A of the Landlord and Tenant Act 1985 challenging their liability for service charges totaling approximately £577,577 for the years 2013, 2014, and 2015. The appellant is the head-leaseholder and landlord, having acquired the interest from the administrators of the predecessor landlord (the old Landlord) who was in administration from June 2012 until shortly after the sale in July 2014.

The First-tier Tribunal (FTT) initially issued a decision in August 2016 which partially reduced disputed charges by 50% while allowing others in full. It was later acknowledged that the FTT had misunderstood the evidence, effectively considering some charges twice.

Following an application for permission to appeal by the leaseholders, the FTT decided to review its original decision and held a further hearing in December 2017. The subsequent January 2018 decision favored the leaseholders, absolving them from liability for part of the disputed charges, but did not clearly explain the extent to which the original decision was set aside.

Both parties obtained permission to appeal the FTT’s January 2018 decision. The appeal raised issues concerning the FTT’s jurisdiction under the Tribunals, Courts and Enforcement Act 2007, the exercise of its power of review, the Upper Tribunal’s jurisdiction to hear the appeal, and the substantive rights of the parties regarding service charge liability.

Legal Issues Presented

1. What effect did the FTT’s 2018 decision have on its 2016 determinations regarding management fees, notional office rent, and surveyor’s fees?
2. Does the appellant have permission to challenge the scope of the review undertaken by the FTT?
3. Was the FTT’s decision to set aside the original decision on review an excluded decision which cannot be appealed, including whether the FTT’s power of review is restricted to points of law and whether the review should have been confined to the original grounds of appeal?
4. Was the FTT correct in concluding that no sums were payable because the appellant had no obligation to pay the old Landlord’s invoices?
5. How much, if any, of the disputed sum paid by the appellant to the old Landlord was recoverable through the service charge?

Arguments of the Parties

Appellant's Arguments

• The FTT’s 2018 decision did not set aside the entire 2016 decision and the parts not reviewed should stand.
• The disputed invoices represented costs properly incurred by the old Landlord while in administration and were recoverable through the service charge.
• The FTT exceeded its jurisdiction by conducting a full rehearing on new factual issues not raised in the grounds of appeal and by not restricting the review to points of law.
• The appellant was entitled to recover the disputed sums regardless of whether it was contractually obliged to pay the old Landlord’s invoices.
• The retrospective restatement of accounts and inclusion of additional charges was permissible.
• Section 20B of the 1985 Act limiting service charge demands on time grounds did not apply because costs were incurred when invoices were presented, not when services were provided.

Respondents' Arguments (Leaseholders)

• The FTT’s 2018 decision effectively set aside all parts of the 2016 decision concerning the disputed charges, including management fees, notional office rent, and surveyor’s fees.
• The disputed invoices were expenses of the administration, not recoverable service charge costs.
• The FTT had jurisdiction to review the decision fully and was correct to set aside the original decision.
• The appellant lacked contractual liability to pay the invoices and therefore could not recover those sums through the service charge.
• The retrospective addition of charges after accounts had been finalized was impermissible.
• Section 20B of the 1985 Act barred recovery of charges incurred more than 18 months before demand unless properly notified within that period; the disputed sums were not properly notified.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court first clarified that the FTT’s 2018 decision, although not clearly explained, was intended to set aside and remake its 2016 decision in full with respect to the disputed service charge items, including management fees, notional office rent, and professional fees. This was due to a fundamental misunderstanding in the 2016 decision about the nature of the charges and their duplication.

The Court held that the appellant was entitled to challenge the scope of the FTT’s review, as the scope had not been definitively settled until the 2018 decision, and the appellant had permission to appeal on this point.

Regarding whether the FTT’s decision to review and set aside part of its original decision was an excluded decision under the 2007 Act, the Court found that the original decision to review and the setting aside were indeed excluded decisions not subject to appeal. However, the final 2018 substantive decision was appealable.

The Court analyzed the FTT’s jurisdiction and powers under section 9 of the 2007 Act and the accompanying procedural rules. It concluded that the FTT’s power of review is limited to points of law and that the review must be based on grounds likely to succeed on appeal. Nevertheless, the scope of the review is not strictly limited to the original grounds of appeal if the review reveals more profound errors, provided the parties are given an opportunity to make submissions and present evidence.

Substantively, the Court found the FTT’s key reasoning—that the appellant was not contractually obliged to pay the old Landlord’s invoices and thus the costs were not reasonably incurred—was erroneous. The Court explained that leaseholders’ liability to pay service charges is not disrupted by a change in landlord and that costs incurred by the landlord at the time services were provided are recoverable through the service charge, regardless of the identity of the landlord at the time of payment.

The Court rejected the appellant’s reliance on the original 2016 decision to defend the disputed charges, given that the 2018 decision set aside the relevant parts of that decision.

On the recoverability of the disputed sums, the Court held that while the administrators’ fees for property management tasks could in principle be included in the service charge, there was insufficient evidence to support the increased management fees beyond the level previously charged by the old Landlord. Consequently, the additional management fees and additional accountancy fees included in the restated accounts were irrecoverable.

The Court accepted that the notional office rent and surveying fees were recoverable, subject to statutory limitations.

Regarding statutory limitations under section 20B of the 1985 Act, the Court held that the relevant date for incurring costs is when the landlord incurs the cost, not when invoices are presented or payments made. Therefore, many of the disputed charges were barred by the 18-month time limit for demands unless the leaseholders had been properly notified within that period. This barred the recovery of most of the disputed sums relating to earlier years but did not affect the notional office rent and surveying fees incurred within the allowable period.

Holding and Implications

The Court issued the following holding:

The appeal is ALLOWED in part and DISMISSED in part.

Specifically, the Court dismissed the appellant’s claim to recover £363,600 included in the first two disputed invoices, holding that no part of that sum was recoverable as a service charge from the leaseholders. Of the £157,608 in the third invoice, only £70,902 (comprising the notional office rent and surveying fees) was recoverable. The appeal is allowed to the extent of this recoverable sum, and the cross appeal by the leaseholders is allowed except for that amount.

The Court directed the parties to agree the consequences for individual leaseholders’ liabilities for the relevant years. If the parties cannot agree within one month, the Court will either deal with the outstanding matters or remit the case to the FTT for further consideration.

The decision clarifies the limits on the FTT’s power of review, confirming it is generally restricted to points of law and that substantive re-hearings should be carefully justified. It also affirms that leaseholders’ liability to pay service charges is linked to costs incurred by the landlord at the time services were provided, unaffected by changes in landlord identity. Finally, it confirms the application of statutory time limits on service charge demands under section 20B of the 1985 Act.