Talbot Group Limited v Kishorkumar Valji Khets Kotecha & Ors

Introduction

1. This is an appeal from a decision of the First-tier Tribunal as to whether interim service charges, demanded by the appellant landlord from the respondent tenants, were reasonable and payable. The appellant, Talbot Group Limited, is the freeholder of Talbot Court; the first and second respondents, Mr and Mrs Kotecha, are the leaseholders of Flat 14, and the third respondent Mrs Gonzalez holds the lease of Flat

19. The appellant was represented in the appeal by Mr James Castle of counsel, and Ms Montoya (Mrs Gonzalez’s daughter) presented the respondents’ case; I am grateful to them both. The legal background

2. The FTT has jurisdiction under section 27A of the Landlord and Tenant Act 1985 to determine whether leasehold service charges are payable and, if so, in what amount, to whom and when. Section 19 of the 1985 Act says this: “(1) Relevant costs shall be taken into account in determining the amount of a service charge payable for a period— (a) only to the extent that they are reasonably incurred, and (b) where they are incurred on the provision of services or the carrying out of works, only if the services or works are of a reasonable standard;  and the amount payable shall be limited accordingly. (2) Where a service charge is payable before the relevant costs are incurred, no greater amount than is reasonable is so payable, and after the relevant costs have been incurred any necessary adjustment shall be made by repayment, reduction or subsequent charges or otherwise.”

3. Subsection (2) is about interim charges, demanded in advance and before expenditure has been incurred. If such charges are found to have been unreasonable in amount, then to that extent they are not payable. The reasonableness of an advance payment is judged at the time when it is demanded, and the likelihood of the relevant work being carried out is obviously relevant to whether it is reasonable to charge the tenants in advance for it; in Knapper v Francis [2017] UKUT 3 (LC), the Tribunal (the Deputy President, Martin Rodger KC) said this at paragraphs 32 and 40: “32. The question of what sum ought reasonably to be paid on a particular date, or ought reasonably to have been paid at an earlier date, necessarily depends on circumstances in existence at that date, and should not vary depending on the point in time at which the question is asked. …

40. If there is doubt over the time at which the proposed expenditure may be incurred or whether it may have been incurred during the relevant accounting period at all, it may not be reasonable to require the whole payment in advance.” The leases of Flats 14 and 19

4. Talbot Court consists of 18 flats in three blocks, A, B and C. Flats 14 and 19, belonging to the respondents, are in Block C.

5. The lease of Flat 14 was granted in 1981 for 99-year term. It provides for the payment of rent on the usual quarter days. Clause 3 sets out the lessee’s covenant to pay a service charge: “to pay a proportionate part of the expenses and outgoings incurred by the Lessor in the repair and maintenance renewal and insurance of the building and the provision of services therein and the other heads of expenditure as the same are set out in the Fourth Schedule (hereinafter called ‘the service charge’)…..”

6. The Fourth Schedule sets out the landlord’s obligations to maintain and insure the building, to employ a caretaker, to keep the common parts clean and decorated and lit, and so on. There is no “sweeper clause” to allow for unforeseen or unspecified work to be done. There is no provision in the lease for the lessee to pay a management fee to the landlord.

7. Clause 3(f) provides for the service charge to include: “a sum or sums of money by way of reasonable provision for anticipated expenditure in respect thereof as the Lessor or his accountants or managing agents (as the case may be) may in their discretion allocate to the year in question as being fair and reasonable in the circumstances.”

8. Clause 3(g) explains how the service charge is to be paid: “The lessee shall with every quarterly payment of rent reserved hereunder pay to the Lessor the sum of twenty-five pounds in advance and on account of the service charge or such other sum as the Lessor or his accountants or managing agents (as the case may be) shall specify at their discretion to be a fair and reasonable interim payment.”

9. So the service charge is payable in advance, and is to be what the landlord or its agents decide is “a fair and reasonable interim payment”, payable on the quarter days with the rent.

10. The lease of Flat 19 was granted in 1982 on the same terms, but has since been extended, and t the time of the extension some of its terms were modified. In particular, it contains provision for the lessee to pay the landlord “reasonable administration expenses”, and provisions have been added to the Fourth Schedule including a sweeper clause. Clause 3(g) has been deleted and replaced with the following wording: “The Lessee shall pay to the Lessor in advance and on demand such additional sum as the Lessor or its Accountants or Managing Agents (as the case may be) shall reasonably consider to be a fair and reasonable interim payment for any of the purposes set out in the Fourth Schedule.”

11. So the lessee of Flat 19 has to pay an interim service charge on demand, rather than quarterly.

12. Both leases contain identical provisions for the service charge to be certified by the landlord’s auditors (or other agent) as soon as practicable after the end of the financial year (25th March each year), for the auditors’ certificate to set out the landlord’s expenditure for the year, and for a copy of the certificate to be provided free of charge to the lessee on request. Clause 3(h) says this: “As soon as practicable after the signature of the certificate the Lessor shall furnish to the Lessee an account of the service charge payable by the Lessee for the year in question due credit being given therein for all interim payments made by the Lessee in respect of the said year and … there shall be paid by the Lessee to the Lessor the amount of the service charge as aforesaid or any balance found payable or there shall be allowed by the Lessor to the Lessee any amount which may have been overpaid by the Lessee by way of interim payment as the case shall require.”

13. So the mechanism set up by the lease is that the lessee pays an interim service charge in advance (quarterly in the case of Flat 4, on demand in the case of Flat 19). At the end of the year after the March quarter day, ,the landlord has its expenditure certified and then calculates the service charge for each flat (apportioned across the 18 flats by rateable value; there is no dispute about apportionment). If the lessee has underpaid then he or she has to pay a balancing charge; if there has been an overpayment the landlord has to “allow” that to the lessee, presumably by crediting the lessee’s service charge account.

14. For the years in question in this appeal the appellant has demanded an interim maintenance charge in advance, but has failed to produce a certificate of its expenditure or to carry out the balancing exercise required by clause 3(h). No proper explanation for that failure has been given. I was told that the appellant wishes to avoid waiving its right to forfeit the lease for the period concerned; I do not understand how that can be right, in light of the fact that by demanding service charges the appellant has already acknowledged the continued existence of the leases for that period. Whatever the reason, the appellant is seeking recovery of unpaid interim maintenance charges while failing to fulfil its own obligations to account for its expenditure under the procedure prescribed by the lease. The proceedings and the decision in the FTT

15. The proceedings began in September 2021 as an action against Mr and Mrs Kotecha in the county court for arrears of service charges accrued during the period December 2018 to September 2021 (and therefore across four service charge years, 2018/19 to 2021/22) together with interest and costs. I have not been told why the story starts part-way through 2018. Proceedings were then issued in February 2023 against Mrs Gonzales for arrears over the same period. Both matters were referred to the FTT for a determination under section 27A of the 1985 Act as to whether those charges were payable, and the FTT managed and heard both claims together.

16. The landlord’s statement of case in the FTT asserted that the services charges due from Mr and Mrs Kotecha amounted to £15,112.29, and from Mrs Gonzalez to £11,200.83. For each of the two flats the landlord produced an “Account Statement” showing how that sum was made up.

17. For Flat 14 the statement showed an opening balance of £757.92 (indicating that that sum was due at the start of the period), and then quarterly service charges (varying from £449 to £493) for the periods from December 2018 to 25 September 2021, giving credit for a payment in May 2020. The statement also showed that on 2 October 2019 £9,393.97 was demanded for external works, then credited back to the lessee on 1 October 2020, then demanded again on 3 December 2020. That sum related to proposed major works to the roof; it seems that the roof work was not done in 2020 and so the sum demanded in advance was re-credited to the lessee, but demanded again December 2020 with a view to its being done in 2021. The total due, including an administration charge of £300 in relation to the collection of arrears, the quarterly charges and the one charge for the roof works, amounted to £15,112.29. Aside from the re-crediting of the charge for the roof works in October 2020 there are no credits or debits after the end of each year as the lease at clause 3(h) requires, and it is not in dispute that that balancing exercise has not been done.

18. A similar statement for Flat 19 showed an opening balance of £0, an administration charge of £300 in relation to the collection of arrears, quarterly charges (of £473 to £520), and a liability to pay for the roof works on 2 October 2019 in the sum of £9,892.23, credited to the lessee on 1 October 2020 and then demanded again on 3 December 2020. In the case of Flat 19, by contrast with Flat 14, the Statement of Account indicates that several instalments of service charges have been paid, amounting to around £2,400. Again there is an administration charge of £300, and the total due at the end of the period is £11,200.83.

19. The landlord’s statement of case explained that major works were required for the roofs of all three blocks, and that although the landlord holds funds for that purpose there was insufficient to start work because a number of lessees had not paid the interim payments demanded. The statement of case said nothing about the other service charges in the Account Statements for Flats 14 and

19.

20. Along with the two Statement of Account the landlord provided copies of the leases, copies of service charge and rent demands, and copies of the budgets showing how the interim service charges were calculated for Talbot Court. They revealed that the interim charges were to cover a variety of items including gutter clearing, general building repairs, drainage, junk removal, pest control, bank charges, management services, buildings insurance in the sum of £6,500 for each of the first three years in issue and £8,000 for 2021/22, and a “Contingency” of £5,000 in 2020/21 and of £6,684 in the next two years. The budgets showed the amount sought to be collected across all three blocks, and a further calculation indicated the proportion payable by each flat (a little over 5% each, there being 18 flats), including the quarterly payments demanded of Flats 14 and 19 as shown in the Statement of Account for each of them.

21. A witness statement dated 12 July 2024 from Ms Conman of Urang Property Management Limited, the landlord’s agents, explained the need for major works to the roofs, the steps taken in the meeting the statutory consultation requirements under section 20 of the Landlord and Tenant Act 1985, and the current likely cost. She added that there was no insurance cover in place for the building because of the condition of the roof but said nothing about the other service charges included in the Statements of Account for the two flats. At the hearing the appellant confirmed that the building was uninsurable because of the state of the roof and that no insurance was then in place.

22. Neither the Statement of Case nor the evidence for the appellant said anything that might indicate why the quarterly charges were reasonable in amount, although at this stage the appellant knew, from the respondents’ defences in the county court, that they disputed those charges.

23. The respondents’ statement of case in the FTT included a detailed schedule of the service charges, following the breakdown given in the landlord’s budgets, explaining why all the charges were disputed. The respondents said that no maintenance had been done, no gardening carried out, there was no lighting for the block, and the common parts were in disrepair. They pointed out that they had been charged repeatedly for insurance when no insurance had been obtained. They expressed great disquiet about the state of the roof which they said was on the verge of collapse. They appended photographs showing the condition of the building and of the roof, all of which certainly appears to have been in a very sorry state. Witness statements were filed by the respondents, and others on their behalf, later in July 2024, again asserting that the landlord was not providing services or carrying out any maintenance.

24. The FTT conducted a hearing in August 2024 and produced a decision dated 5 November 2024. It decided that the £9,393.97 demanded of Mr and Mrs Kotecha was not payable, because it had not been demanded on a quarter day as Clause 3(g) of the lease required. Had it been properly demanded, however, it would have been reasonable. The £9,892.23 demanded of Mrs Gonzalez for the roof works was reasonable and payable, because of the different terms of clause 3(g) in the Flat 19 lease.

25. Turning to other items in the Statements of Account, the FTT decided that the £300 administration charge in respect of each of the Flats was reasonable and payable. It said that it could make no decision about the opening balance of £757.92 in the Statement of Account for Flat

14.

26. That left the quarterly interim service charge for each Flat, calculated by reference to the items listed in the budgets for each service charge year (see paragraph 20 above). The FTT decided that interim service charges for “Contingencies” were unnecessary and therefore unreasonable, since the whole purpose of an interim service charge was to provide for contingencies and therefore to charge a separate contingency payment amounted to double-counting. And in the case of Flat 19, additional charges were payable on demand so there was no need to charge for contingencies at the start of the year.

27. Interim service charges in respect of bank charges and management fees were not payable in respect of Flat 14 because the lease did not provide for such payments, but were in principle payable in respect of Flat 19, subject to the following point.

28. The FTT noted that the landlord offered no evidence about work done or services provided for Block C during the years in dispute. It accepted the evidence of the respondents that “no works were carried out to Block C or services provided during the years to March 2022.” Therefore, when budgets were prepared in March 2020 and 2021 for the coming year, in light of the failure to provide any services in the previous year there must have been doubt as to whether the proposed expenditure would be incurred during the following year or at all. The FTT decided that the interim service charges demanded for the year ending March 2019 (of which only the final quarter was in issue) and March 2020 were reasonable, but that the interim service charges year ending March 2021 and the period up to September 2021 were not reasonable, and were therefore not payable. The appeal

29. The landlord appeals, with permission from this Tribunal, on five grounds: i. That the FTT was wrong to decide that for Flat 14 the service charge was payable only if demanded on a quarter day; ii. That the FTT was wrong to decide that the landlord was not entitled to include “contingencies” in the on account demand; iii. That the FTT took into account an irrelevant matter, the landlord’s actual expenditure, in determining whether the interim service charge was reasonable. In the event that the landlord failed on that ground two further grounds were argued: iv. That the FTT’s decision was unfair because of a procedural irregularity; it should have given the landlord the opportunity to produce evidence of the costs it had incurred; and v. That the FTT was not entitled, on the evidence before it, to find as a fact that the landlord had provided no services for the years in question. Its findings about the reasonableness of the general interim service charges (excluding the roof works) for the years 2020/21 and 2021/22 were therefore irrational and unsupported by evidence. Ground 1

30. Ground 1 relates only to the FTT’s decision about the £9,393.27 charged to Flat 14 in respect of the proposed major roof works (see paragraph 24 above). At paragraphs 76 and 77 of its decision the FTT said: “76. The lease of Flat 14 contemplates that service charge on account may only be demanded quarterly, whereas the lease of Flat 19 (clause 3(g)) provides that the Lessee is to make such payments ‘on demand’.

77. Accordingly the charge on account in respect of major works demanded on 3 December 2020 is not payable by the First Respondents as it was not demanded on a quarter day. It is payable by the Second Respondents, if reasonable, as they are obliged to make the payment ‘on demand’.”

31. As Mr Castle said, the FTT misinterpreted the lease of Flat

14. Certainly, interim service charges are payable quarterly. But the lease says nothing about when they must be demanded – indeed, it does not say they have to be demanded at all (that requirement comes from statute: section 166 of the Commonhold and Leasehold Reform Act 2002, and section 21B of the Landlord and Tenant Act 1985). And it would obviously be absurd for the lease to provide that a charge must be both demanded and paid on the quarter day.

32. The respondents in their skeleton argument pointed out that they need proper notice of service charges, and of course that is right. But there is no requirement in the lease that the demand be made on a particular date, let alone that it be demanded on the date when it is payable (which would not assist the tenants). Nor is there any requirement that sums payable by way of interim service charge should be demanded regularly, or divided into quarterly payments. The lessee is required by clause 3(g) of the lease to pay, on the quarter days along with the rent “such other sum” as the landlord determines to be fair and reasonable (see paragraph 8 above).

33. Ground 1 succeeds. The FTT decided that the charge for roof works for Flat 14 of £9,393.27 was reasonable, and therefore it was both reasonable and payable at the time when it was demanded. Matters have of course moved on since, because the roof works were not carried out in 2020; this decision relates only to what was payable at the date when the charge for roof works was demanded. Ground 2

34. Ground 2 challenges the decision about the charge for “Contingencies” explained at paragraph 26 above. What the FTT said was this:

75. ‘Contingency’ is not a head of expenditure contemplated by the Fourth Schedule of the lease of Flat

14. The Tribunal finds that on the revised wording of the Flat 19 lease it may be payable, if reasonable, as to which see below. …

88. The whole purpose of allowing the landlord to recover on account service charge is to allow it to cover the contingent expenses that it anticipates incurring during the next service charge year. The Tribunal finds that to further include a charge in the on account service charge for unspecified contingencies, and to seek to do it in every year, in effect amounts to double-counting. Further it is only the lease of Flat 19 which may permit the recovery of these sums, and that lease allows the landlord to make demands on account of service charge at any time during the year, so that, in relation to that Flat 19, it is an unnecessary provision and in the circumstances unreasonable.”

35. Mr Castle pointed out that while individual items within the interim service charge budget make provision for contingencies in relation to specific work or services, it may also be fair and reasonable for the landlord to make provision for unspecified contingencies. So the landlord might, as it did in the year 2020/21, decide to budget £5,000 for general building repair works across the three blocks, and likewise for other items, but it was also reasonable for it to provide £5,000 for general “contingency”.

36. In principle I agree. There is nothing in the provisions of clause 3(g) to prevent the landlord under either lease from demanding an interim service charge for unspecified contingencies. Once the end of the year is reached, of course, the actual service charge will have to be ascertained by reference to the items payable under the provisions in each lease, and it will not be able to make an unspecified general charge. But there is nothing in principle to prevent such a charge, although section 19(2) of the Landlord and Tenant Act 1985 provides that such a charge will not be payable unless it is reasonable.

37. As the respondents put it in their skeleton argument, “Even if contingency budgeting was permitted in principle, it still required transparency and evidential support, which was entirely absent.” Accordingly ground 2 succeeds in principle, but I will come back to the question whether the “Contingencies” charge for any of the years in question was payable until after consideration of ground

3. Ground 3

38. Ground 3 relates to the interim service charge, payable quarterly and calculated by reference to the appellant’s annual budget, but not including the additional sums demanded for the major works to the roof.

39. What the respondents said in their statement of case in the FTT and in their evidence was that it was not reasonable to keep on demanding interim charges on account of future expenditure year after year, when the landlord was not spending anything. Insurance is a convenient example because the appellant admitted that the block was uninsured throughout the period in question. The respondents argued that having charged £6,500 (for the three blocks) for the year ending March 2019, and not spent that money on insurance, it was not reasonable to charge the same sum again the following year – and indeed in each of the years in question. By the end of September 2021 the appellant has charged them for four years’ insurance and yet has not insured the building.

40. At paragraph 47 of its decision the FTT accepted that argument: “The Tribunal determines that, after March 2019, to the extent the service charge on account is demanded in a subsequent service charge year in respect of items for which service charge on account payments were demanded in the previous service charge year, and have not been expended, the sums demanded are not reasonable.”

41. The FTT then went on to say that the amounts charged for the years ending March 2019 (of which only the final quarter was in issue) and March 2020 were reasonable, having regard to the circumstances that existed at the time. At its paragraph 80 it said: “What is a reasonable budget for the year to March 2020 depends on the circumstances that existed when the budget was prepared. There is no evidence before the Tribunal that at that time the Applicant did not intend to expend the monies that it was seeking to be paid to it. In the absence of any challenge to the specific figures proposed by the Applicant the Tribunal finds the demands made for that year, to the extent payable under the leases, to be reasonable.”

42. It appears to have applied the same reasoning to the year ending March 2019, where the period in issue was just the last quarter (as I said above, I have not been told why this quarter is in effect treated as a fresh start; there is no suggestion that the appellant only acquired the building in 2018. But there is no cross-appeal in relation to the FTT’s approach to that period). But it went on: “81. The Tribunal is surprised that the Applicant has failed to provide actual service charge accounts for any of the years the subject of this determination and understands the Respondents’ frustration at its failure to do so.

82. The Tribunal accepts the Respondents’ evidence that no works were carried out to Block C or services provided during the years to March 2022. The Applicant offered no evidence in this regard.

83. Turning to the years to March 2021 and March 2022 the Tribunal finds that at the time each budget was prepared there must have been doubt whether the proposed expenditure would be incurred during the relevant accounting period at all, given the failure by the Applicant to undertake work, effect insurance or provide services in the preceding year(s). Having regard to the decision in Knapper, and in particular paragraph 40, the Tribunal therefore finds that it was not reasonable to demand similar, or larger sums on account for the same works and services in the years to March 2021 and March 2022 as it had in the year to March 2020 where the sums had not been spent in the service charge year to March 2020. These sums demanded in each year, where not expended, could be carried forward each year to the succeeding year. There is no need to charge a further sum.”

43. The appellant argues that the FTT made two mistakes here. First, it fell into error by regarding evidence of actual expenditure as relevant. This was a claim relating only to interim service charges, and the respondents’ evidence related to what the appellant had done, or failed to do, which was relevant to actual service charges but not to interim ones. Second, it was also wrong to suppose that an unexpended service charge could be carried forward to the following year, thus “riding roughshod” over the machinery in the lease.

44. Expanding on the first error, Mr Castle referred to Burr v OM Property Management Ltd [2013] EWCA Civ 479 at [13]-[14] where Lord Dyson MR said: “The significance of section 19(2) in relation to relevant costs that have been incurred is that it provides in relation to such costs that any necessary adjustment to the service charge shall be made by “repayment, reduction or subsequent charges or otherwise”. Such an adjustment of the service charge to reflect the costs that have been incurred can only be made after the amount of the costs has been ascertained (usually by the submission of an invoice or other demand for payment)… … as section 19(2) makes clear, there is a different regime in relation to estimated costs before they are incurred. The landlord or management company is entitled to reflect reasonable estimated costs in the service charge and the statute makes no provision for adjustment of estimated costs.”

45. Accordingly, said Mr Castle, reconciliation based on actual expenditure occurs at the end of the year. There is no requirement to carry out any reconciliation in relation to interim service charges only. They are charged in advance on the basis of what is likely to be incurred, using the landlord’s or its agent’s judgment as to what in its experience is likely to happen in this building. Actual expenditure in previous years is irrelevant. Hindsight is irrelevant. And there is no basis on which the FTT could have imputed to the appellant’s agent, when it set the budget, any doubt about whether the appellant intended to provide services in the forthcoming year.

46. On the subject of the buildings insurance, the one item where the appellant agrees that it spent nothing, the argument is that at the start of each year it intended to do the roof works and then take out insurance, and that that made the interim service charge reasonable.

47. I disagree with the appellant, both in general and on insurance specifically. The thrust of the respondents’ case was simply that they did not see why they have to keep on paying in advance for maintenance that never happens. The FTT accepted that argument. It took the view that for the first 15 months (spanning the period from December 2018 to March 2020) it was reasonable for the appellant to charge in advance for works and services, and there was nothing to indicate that it did not intend to provide those services. But from the standpoint of March 2020, that neglect was evidence that the appellant did not intend to provide those services in the future. The FTT was not “imputing doubt” in the mind of an agent. It was agreeing with the respondents’ argument that the appellant’s past neglect cast doubt on its intentions for the future. It had neglected the building to date; why would it change its approach? And in March 2021 that argument was even stronger.

48. I find no fault with the FTT’s reasoning; actual expenditure, or rather its absence, was centrally relevant to the reasonableness of the charges once the appellant started to repeat them, for the reasons the FTT gave.

49. To explain the appellant’s second point I can again take buildings insurance as an example. The FTT took the view that having spent nothing on insurance (or any other specific item) in one year there was no reason for the landlord to levy that charge again for the next year. That observation is contained in the last two sentences of the FTT’s paragraph

83. The reasoning is perhaps not fully spelled out; in the earlier part of the paragraph the FTT decided that after the first full year, the appellant’s failure to do any work or provide any services cast doubt on its intention to do anything in the future. That in itself does not mean that the charge was wholly unreasonable; it might justify a lesser charge. But the final two sentences make the practical point that having demanded the money for particular services once but not spent it, there is actually no need for the landlord to ask again. Where a respondent has paid, the landlord already has the money; where a respondent has not done so, nevertheless the landlord is already owed the money.

50. The appellant’s answer to that is twofold. First, once the end of year accounts are produced, it might turn out that what was not spent on one item (eg insurance) was spent on some other head of expenditure, so that in fact the money had been needed. So carrying a specific sum forward is not necessarily possible. Second, in any event, where moneys were unspent the respondents were due a credit or a refund. The appellant therefore had to demand the charge afresh in 2020 because what the tenants had paid in 2019 was going to have to be refunded (or, where they had not paid, nevertheless a credit needed to be applied to their account).

51. The problem with both those arguments is that the end of year accounts have not been provided and the reconciliation has not been done. Taking insurance as an example, since the landlord admits that it had not taken out insurance and has chosen not to re-credit insurance to each respondent’s Statement of Account (as it re-credited the unspent sum in relation to the major works), it is obviously unnecessary for it to demand the money again. A respondent who has paid will have to pay twice, because the landlord has not done the requisite reconciliation. A respondent who has not paid will be doubly in arrears, again because of the landlord’s failure to carry out its obligations under the lease. The absence of accounts and the failure to carry out a reconciliation does not make the repeated charging reasonable. It does not change the fact that the appellant’s failure to carry out work or provide services (as the FTT found) not only casts considerable doubt on its intentions to do any work in the following years; it also means that the appellant did not need to make a second charge; instead, it could give the tenant a credit for what had already been paid or demanded before repeating the charge.

52. The fact that the sums demanded in 2019 for the roof works were re-credited to the respondents Statements of Account shows that there is no reason why that could not be done. Mr Castle explained at the hearing, on instructions, that that credit was done “outside the lease”, but I fail to see what that means or what difference it makes..

53. Ground 3 fails.

54. I then have to come back to the amounts charged for “Contingencies” in the years ending March 2019 and 2020, which the FTT disallowed because it took the view that that was not a legitimate head of expenditure. I have found that the appellant was in principle entitled to charge for general contingencies. But that is not the whole story; the general charge for “contingencies” was payable only if reasonable. The respondents have challenged the reasonableness of the whole of the interim service charge, and the appellant has provided no evidence or explanation for the amount charged. There is no basis on which it can be found to have been reasonable.

55. Accordingly no charge for “Contingency” was payable in any of the four years concerned; in the years ending March 2019 and 2020, for the reasons I have just explained, and for the years ending March 2021 and 2022 in accordance with the FTT’s finding at its paragraph

83. Ground 4

56. Grounds 4 and 5 are argued only in case ground 3 fails, as it has done.

57. In order to understand ground 4 we have to look at what happened at the hearing before the FTT. In the course of the hearing, counsel for the appellant (not Mr Castle) referred to paragraph 32 of the Tribunal’s decision in Knapper (set out at paragraph 3 above). No reference had been made to it before the hearing and therefore the FTT invited the respondents to make written representations on it after the hearing and gave the appellant the opportunity to reply. Those representations and the reply are in the appeal bundle.

58. In its decision at paragraph 83 (see paragraph 42 above) the FTT made reference to Knapper and to the idea that interim service charges may not be reasonable, or may not be reasonable in full. where there is doubt as to whether the landlord is actually going to do the work that it seeks to charge for in advance.

59. The appellant says that having decided to rely on Knapper in that way, the FTT should have allowed the appellant the opportunity to adduce evidence of its previous expenditure, so as to meet the respondents’ evidence that it had done no work and provided no services during the period in dispute. Mr Castle suggested that it was only after the hearing that the FTT decided that actual expenditure might be relevant to its decision, having regarded it as irrelevant until then.

60. The short answer to that is that the appellant was indeed given the opportunity to make written representations. If in light of the decision in Knapper – which it had itself raised – it thought that its actual expenditure was relevant it had the opportunity at that point to be allowed to adduce fresh evidence. It did not do so in its written representations after the hearing. It simply stated that evidence of its actual expenditure was irrelevant.

61. The longer answer is that the respondents’ case was perfectly clear to the appellant from the outset of the county court proceedings. They had not read Knapper, but they made the perfectly sensible argument that it was not reasonable for the landlord to keep on charging for work and services that in fact it never provided. That is a layman’s version of what the Deputy President said in Knapper; he was not making new law. The relevance of the respondents’ evidence should have been as obvious to the appellant as it must have been, throughout, to the FTT. The idea that the FTT only decided after the hearing that actual expenditure might be relevant is implausible speculation.

62. This ground of appeal fails; there was no unfairness. The landlord had ample opportunity to offer evidence to counter the respondents’ case and chose not to. Ground 5

63. Lastly, the appellant says that the FTT’s finding that it provided no services or works during the years in question was not one that was available to it on the evidence before it, because it was inherently improbable.

64. The only example of what was improbable was the assertion that the landlord must, for example, have spent something on electricity for the common parts of the building. I agree that it is surprising that nothing was spent on electricity. But it is by no means impossible. It would be entirely consistent with the obvious severe neglect of the building, as demonstrated to the FTT by the respondents’ photographs.

65. The difficulty for the appellant is that the evidence given by and for the respondents was that nothing had been provided – not even lighting. The appellant was well aware of the respondents’ case. As far back as February 2023 Mrs Gonzalez’ defence in the county court action stated specifically, among other complaints, that there was no internal lighting in the common parts. The appellant did not adduce any evidence to the contrary, as to lighting or any other service or work, and – according to Mr Castle – did not challenge the respondents’ evidence. It simply chose to regard it as irrelevant, surprising as that may be.

66. There is therefore no basis on which the FTT’s finding can be interfered with. Conclusion

67. Grounds 1 and 2 have succeeded; grounds 3, 4 and 5 fail, and therefore the FTT’s conclusions about the interim maintenance charges, other than the sum payable in respect of Flat 14 for the major roof works, stand. It will be obvious that that is not the end of the story and represents only one short episode of a much longer saga. Importantly, the roof work on Block C still has not been done, and a charge imposed for that work in the service charge year 2020/21 will have to be re-credited to the respondents’ accounts. Equally importantly, the respondents remain liable to pay their share for the roof works. I hope very much that the respondents will seek legal advice, and that the parties can embark on constructive discussions with a view to resolving the overall position. Judge Elizabeth Cooke 13 February 2026 Right of appeal  Any party has a right of appeal to the Court of Appeal on any point of law arising from this decision.  The right of appeal may be exercised only with permission. An application for permission to appeal to the Court of Appeal must be sent or delivered to the Tribunal so that it is received within 1 month after the date on which this decision is sent to the parties (unless an application for costs is made within 14 days of the decision being sent to the parties, in which case an application for permission to appeal must be made within 1 month of the date on which the Tribunal’s decision on costs is sent to the parties).  An application for permission to appeal must identify the decision of the Tribunal to which it relates, identify the alleged error or errors of law in the decision, and state the result the party making the application is seeking.  If the Tribunal refuses permission to appeal a further application may then be made to the Court of Appeal for permission.