8.           When considering whether service charges, or elements of them, are reasonable it must also be born in mind that any decision of the LVT must be evidence-based.  In Arrowdale Limited v Coniston Court (North) Hove Limited LRA/72/2005 it was said, at paragraph  23:

“It is entirely appropriate that, as an expert tribunal, an LVT should use its knowledge and experience to test, and if necessary to reject, evidence that is before it.  But there are three inescapable requirements.  Firstly, as a tribunal deciding issues between the parties, it must reach its decision on the basis of evidence that is before it.  Secondly, it must not reach a conclusion on the basis of evidenced that has not been exposed to the parties for comment.  Thirdly, it must give reasons for its decision.  In the present case the tribunal rejected that evidence of both the experts on relativity, and it was entitled to do this provided its reasons for doing so were explained.  But in basing its decision on “its own knowledge and experience, particularly in relation to relativities which have been agreed between parties or their valuers in other similar cases” it was in error because those agreements on relativity had not been identified nor had the parties had the opportunity to comment on them.  As expressed, the decision contravened the second requirement.  In said that it did not rely on any specific case or cases, but on this basis the first requirement was contravened.  As for the third requirements, reasons that state that the decision was based on no evidence or on evidence that was not disclosed to the parties are adequate in one sense: they enabled the invalidity of the decision to be established. But it support a valid decision the reasons must enable the parties to understand why it was that the tribunal reached the conclusion that it did rather than some other conclusion, so as to show that the conclusion was one to which the tribunal was entitled to come on the basis of the evidence before it.”

9.           That case of course concerned the question of expert evidence and the basis of that evidence, which is somewhat different to the usual issues raised in service charge disputes which frequently concern straightforward (but detailed) issues of fact about the appropriate level of the costs of goods or services provides.  In Schilling v Canary Riverside Development PTE Limited LRX/26/2005 it was said at paragraph 15:

“If the landlord is seeking a declaration that a service charge is payable he must show not only that the cost was incurred but also that it was reasonably incurred to provide services or works of a reasonable standard, and if the tenant seeks a declaration to the opposite effect, he must show that either the cost or the standard was unreasonable.  In discharging that burden the observations of Wood J in the Yorkbrook case make clear the necessity for the LVT to ensure that the parties know the case which each has to meet and for the evidential burden to require the tenant to provide a prima facie case of unreasonable cost or standard.”

10.        The relevant citation from Yorkbrook Investments Limited v Batten [1985] 2 EGLR 100 at 102K (CA) is:

“During argument on the issue of garden maintenance, it was indicated that registrars of county courts and those practising in this field were finding difficulty in dealing with the burden of proof when considering applications for declarations under the Housing Acts [that is the predecessor provisions to s19 of the landlord and Tenant Act 1985]. Having examined those statutory provisions, we can find no reason for suggesting that there is any presumption for or against a finding of reasonableness of standard or of costs.  The court will reach its conclusion on the whole of the evidence.  If the normal rules of pleadings are met, there should be no difficulty.  The landlord making his claim for maintenance contributions will no doubt succeed, unless a defence is served saying that the standard of the costs are unreasonable.  The tenant in such a pleading will need to specify the item complained of and the general nature – but not the evidence – of his case.  No doubt discovery will need to be ordered at an early stage, but there should be no problem in each side knowing the case that it has to meet, provided that the court maintains a firm hold over its procedures.  If the tenant gives evidence establishing a prima facie case, then it will be for the landlord to meet those allegations and ultimately the court will reach its decisions.  The question of a reasonable charge arises in claims for a quantum meruit, and the courts over the years have not been hampered by problems about the burden of proof.”

18.        Moving on, the principal objections to those aspects of the Decision (mainly paragraph 28) which related to “secretarial/agents charges” were as follows:

(a)         The LVT appears to have misunderstood that the £60 hourly rate was not confined to the fees of Mr Wright and Mr Curry, both of whom provided services to Robbert, but covered overhead costs such as the renting of office space, use of office equipment, site visits and so on. This appears to have coloured the LVT’s finding that high-grade staff were employed for menial tasks.

(b)        The LVT failed to take into account that the relevant provisions of the lease (see further below) permitted the charging of administration charges relating not only to the estate but also to the management company (the Appellant). The LVT therefore appears to have erred in considering that the actual administration costs incurred by the Appellant could not be recovered (or “loaded”, as the LVT described it) onto the service charge “with a 15% profit margin on top” (as to which, see further below).

(c)         Having made that error, the LVT concluded that most of the invoices exhibited in section 6 of the Trial Bundle “concern the running of a business, not the business of managing property”. The additional objection here is that the LVT made that finding without putting any of the invoices to the Appellant’s witness Mr Wright. What must be borne in mind here is that before any such finding can be made, the person against whom they are to be made (Mr Wright) must first be asked about them. It is not necessary to go through each and every document, but the examiner, whether the tenant or the LVT itself, must ask the witness for his or her evidence on at the very least a sample of documents which trouble the tribunal.

(d)        The conclusion that “in the instant case, with a brand new estate, the maintenance and services required are minimal”. This, unfortunately, was not put to Mr Wright. As a matter of common sense, that may well be so in the majority of new builds. However, it does not necessarily follow that that is the case in all new builds, let alone the instant property. There is some indication that there were problems relating to electricity and other features, such as door knobs, which indicated poor quality finish which would have justified higher level involvement of managing agents.

(e)         The conclusion that a Sage accounting package was far more than was required by 126 units was not put to Mr Wright for his reasons as to why same was required.

(f)          The conclusion that if work needs to be contracted out then it “should” be to a firm of professional managing agents for whom an additional 126 units will make little difference to its operational overheads again was not put to Mr Wright.

19.         Moving on to paragraph 30:

(a)        The finding that the LVT “does not accept that this incestuous relationship is legitimate where it acts against the interests of the service charge payer” was unwarranted, given that there was no suggestion that it was a sham, and unspecific as to just what acts were done against the interests of the tenant. If it is a reference to the fact that the Appellant was now charging for services it had not previously charged for, it was plainly inappropriate as a landlord is always entitled to charge for services provided in subsequent years for elements which in previous years it was prepared to make no charge for. If it is a reference to something else, it should explicitly state what that something else is.

(b)        The LVT’s determination that “a more cost effective and reasonable approach to managing this development would be for [the Appellant] to sub-contract the management to a professional agent, charging on a normal unit cost basis” was based principally upon the RICS Service Charge Residential Management Code which, again, was not put to Mr Wright for his observations on.

(c)        In referring to the 15% management charge which the Appellant was entitled to charge on top of the usual service charge as “a profit element”, the LVT failed to properly consider the nature and effect of the provisions of the lease but merely accepted Mr Wright’s interpretation of that percentage as “the profit element” – again, more on this below. The point here is that the meaning and effect of a lease is a matter of law for the tribunal of law to determine, not layman’s opinion. Moving on to paragraph 30:

Re-hearing by the LVT

(a)   The lessees do file and serve a Statement of Case by 4pm on 3^rd October 2011

(b)  Country Trade Limited do file and serve a Statement of Case by 4pm on 17^th October 2011

(c)   The lessees do reply to Country Trade Limited’s Statement of Case in order to refine (if so advised) the precise issues or issues which are to be raised in relation to “secretarial/agents charges” by 4pm on 7^th November 2011.

(d)  The parties do exchange any evidence (documents, witness statements or otherwise) additional to that already served by 4pm on 31^st December 2011.

Dated:  7 October 2011

His Honour Judge Gerald