214 Bermondsey Street Ltd v Corfe (LANDLORD AND TENANT - SERVICE CHARGES - evidence)

BERMONDSEY STREET LIMITED

This is an appeal from a decision of the First-tier Tribunal about leasehold service charges. The appeal was decided under the Tribunal's written representations procedure. The appellant landlord, 214 Bermondsey Street Limited, was represented by its solicitors Colman Coyle Limited and the respondent tenant, Mr Corfe, Mr Crispin-Platt, Mr Nazeri and Ms Nicol presented their own case.

The appellant is the freeholder of 214 Bermondsey Street, London SE1, and the respondents are the long leaseholders of the three residential flats in the building. Their leases contain service charge provisions in standard form, requiring the leaseholders to reimburse the landlord's costs of complying with its obligations to repair and maintain the building; the terms of the lease are not in issue in the appeal.

The FTT in its decision explained that the ground floor of the building comprises commercial premises with the flats on each of the three floors above. The property was described in the landlord's fire safety report as being built in the late 1930's and may originally have been warehouse premises; it was converted to its present configuration in about 2011. A feature of the conversion is that the back of the premises and the balconies to each flat were clad with wooden cladding. The building itself is only 9.5 metres high, so it is not affected directly by the Building Safety Act 2024, but the works which are the subject of the invoices which are in dispute were carried out against the backdrop of the Grenfell Tower disaster and an awareness of the potential dangers of combustible cladding.

In August 2024 the appellant applied to the FTT for a determination of the respondents' liability to pay the service charges for the year 2023-24. 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 sum; section 19 of that Act provides that service charges in respect of costs incurred by a landlord are payable only insofar as they were reasonably incurred. Once the parties had had the opportunity to set out their positions it became clear that only four items were in dispute:

All four items related to fire safety in the block; the sums in question were shared between the three flats in the service charge demands. There was a hearing before the FTT at which the appellant was represented by counsel, but no representative of the appellant attended which meant that counsel was not able to answer some of the panel's questions.

In its written decision the FTT explained that the first invoice was for a survey, commissioned in order to examine the condition of the cladding and determine whether the appellant was required to do anything to it. The report concluded that the cladding was in good condition and did not require repair, and at that stage therefore there was nothing the appellant needed to do about it. The FTT decided that the cost of the survey was reasonably incurred and therefore that the corresponding service charge was payable.

The FTT decided that the fourth invoice was not reasonable and payable; it related to a possible application for funding for the replacement of cladding, for which the building could not have been eligible; the FTT took the view that the appellant ought to have been aware of that. There is no appeal in relation to the fourth invoice.

The appeal relates to the second and third invoices, which were for a further fire risk assessment; the FTT explained that on 16 May 2022 the Regulatory Reform (Fire Safety) Order 2005 was amended, by the addition of Article 6(1A) with the effect that landlords of certain residential premises, including 214 Bermondsey Street, became subject to increased fire safety duties. The FTT accepted that it was reasonable for the appellant to commission a further assessment in light of the change in the law, but disallowed the two invoices for a number of reasons.

First, it said that the appellant had not explained why the invoices were addressed to AHGR Ltd. Second, it had not explained the different VAT treatment of the two invoices. For those two reasons the FTT said that it was not satisfied that the appellant was under an obligation to pay the invoices or that it did pay them. It added that there were other reasons why it would in any event have reduced the amount payable in respect of the invoices: first, the appellant had not explained why it instructed Assessed Risk rather than asking Celador to update its earlier report, which the FTT said would have been cheaper, and second that the report was of such poor quality that it "would not have allowed anything close to £6,480" if the invoices had been payable.

The appellant has permission to appeal that decision on three grounds: first, that it did explain why the invoice was addressed to AGHR; second, that it did explain why the VAT treatment of the two invoices was different; third, that the respondents had not challenged the invoices on the basis that the wrong contractor had been instructed. There is no permission to challenge the FTT's assessment of the quality of the report produced by Assessed Risk; the Tribunal has invited the parties to make representations as to the amount payable in case the appeal succeeds.

The FTT in its decision said this about the two invoices from Assessed Risk:

In these unsatisfactory circumstances, we do not accept that the landlord has shown it was under an obligation to pay Assessed Risk or that the landlord (as opposed to AHGR Ltd) did pay Assessed Risk. On this ground we disallow invoices two and three completely."

The appellant says that it did explain both the fact that the invoices were addressed to a different company and the fact that it was not claiming VAT on one of them. Its Statement of Case in the FTT explained the two invoices as follows:

In a reply to the respondents' Statement of Case the appellant added:

Accordingly, the appellant says it did explain the two points that troubled the FTT. First, the contractor made a mistake in addressing the invoices to AHGR Limited (a company at the same address as the appellant), but nevertheless this was work done for the appellant and it was liable to pay the invoices. Second, the appellant itself made a mistake in not including the VAT on the first invoice in the service charge.

Both the documents in which those explanations were provided were pleadings in the FTT, and were in the bundle before the FTT. The FTT was wrong to say that no explanation had been given for the two points that troubled it.

The FTT in its refusal of permission to appeal said that there was no evidence before it about either point, seemingly taking the view that the explanation given in the applicants' statement of case settled by its solicitors was not evidence. The FTT's procedural rules are not prescriptive about the form in which evidence can be given; in my judgment the explanation for these two points was before the FTT in a form that it should have taken into account.

Neither explanation has been seriously challenged by the respondents, save to say that they still do not accept that the invoices were payable by the appellant. Yet they accept that the work was done, they have Assessed Risk's report. They take issue with the further explanation now provided by the appellant in its written representations in the appeal, as follows:

"In further written submissions in the appeal the appellant said this:

The respondents call into question the credibility of that explanation, they say that the number of errors involved is troubling, and they say that it is unsatisfactory that the appellant cannot now contact Mr Taylor. They still do not accept that the appellant paid the invoice.

The further explanation provided in the appeal, including the fact that Mr Taylor cannot now be contacted, is not relevant to a review of the FTT's decision. In my judgment the FTT should have taken account of the explanation given by the applicants' solicitors and included in the material before them. Had it been aware of those explanations it could not have disallowed the two invoices on the basis of the contractor's error in addressing the invoices to the wrong company, given that there is no serious challenge to the appellant's position that the report, which the parties all have, was produced for it and it incurred the cost. Nor could it have disallowed them because of the appellant's error in not charging VAT on the first one - which comes nowhere near to suggesting that "someone (presumably AHGR Ltd) was able to reclaim the VAT" as the FTT said.

Accordingly I set aside the FTT's decision at its paragraph 22 on the basis that it was taken without having regard to relevant evidence.

The FTT explained that had it been persuaded that the appellant did incur the costs under the invoices to Assessed Risk, it would have reduced the amount payable for two reasons. The first is the subject of the third ground of appeal:

The landlord has adduced no evidence to show why it decided to instruct Assessed Risk instead of Celador. ... The cost of an update from Celador would have been small. Instead, the landlord (or more accurately AHGR Ltd) instructed Assessed Risk at a total cost of £6,480. That is unexplained.

Accordingly, even we had been wrong in not finding that the landlord was obligated to Assessed Risk in the sum of £6,480, the amount we would have allowed would have been a small figure."

The appellant points out that the respondents had not made any complaint about the fact that Assessed Risk was instructed rather than Celador. The FTT introduced this point by itself. It should therefore have given the appellant the opportunity to explain its choice of contractor. Had it done so, the appellant would have explained that following the changes in the legislation, Celador did not have the requisite experience and relevant qualifications to carry out a report of that kind and the Landlord therefore decided to instruct Assessed Risk to prepare a second and different report. That, says the appellant, would have been a complete answer to the FTT's difficulty.

The issues identified by the FTT in its directions of 25 February 2025 were whether the works covered by the disputed invoices were within the landlord's obligations under the lease, and whether the costs of the works were reasonable, in particular in relation to the nature and quality of the works. The FTT did not identify the decision to instruct a different contractor as an issue. Nor did the leaseholders' statement of case of 12 May 2025. IN the appeal the respondents say that the FTT's reasoning was consistent with their own challenge to the invoices; but they do not suggest that they raised this point themselves.

I agree with the appellant that before the FTT could have decided that the full cost of the report could not be recovered because it had not been shown that instructing a new contractor was reasonable it FTT ought to have given the applicants an opportunity to respond to that point. And the appellant has shown that if it had been asked to respond to the point it would have had a perfectly good explanation (which the respondents have not sought to challenge in the appeal).

Accordingly I set aside the FTT's decision at its paragraph 25. That leaves intact the FTT's acceptance at paragraph 23 that it was reasonable for the appellant to incur this cost.

Despite that, the cost of the Assessed Risk report is payable by the respondents only to the extent that it was reasonably incurred. There is no appeal from the FTT's decision that the report was of very poor quality and that the amount payable by the respondents should be reduced accordingly:

We would not have allowed anything close to £6,480 if the other matters outlined had not meant that the tenants bore no liability for these invoices."

The Tribunal has invited the parties to make submissions about the amount that it would be reasonable for the respondents to pay (strictly: the extent to which the cost was reasonably incurred, bearing in mind its quality). The appellants in their grounds of appeal say that the value of the report is in its crystal clear conclusion that "the wooden panelling to the external wall at the rear of the property and the wooden decorative panelling on the balconies create a high risk to occupants and adjacent properties and must be removed and replaced with non-combustible materials within 12 months." The respondents have not suggested that that is incorrect.

The respondents have detailed a number of problems with the report, as well as asserting that its conclusion was in any event obvious. They argue that no VAT should be payable since the company that charged it has been dissolved and therefore cannot have a VAT number; they also point out that the company had been dissolved before the date of the invoice. I think those points go nowhere in light of the explanation the appellant has given that it in fact dealt with Mr Taylor (paragraph 18 above).

The respondents suggest that the cost of the Celador report at £1,500 might be a benchmark for the cost of a competently prepared report. They ask that if the Tribunal finds that anything is payable for the report it should require numerous amendments, including confirmation that it was prepared in accordance with the relevant British Standard, and that lower cost mitigations have been considered.

The Tribunal does not have the power to require the report to be amended. The appellant acted reasonably in obtaining the report, and even if its conclusions were obvious it was important for the appellant to have the report to justify remedial action. The FTT found that it was of very poor quality. Doing the best that I can with that assessment, and without finding any further facts, I substitute the Tribunal's decision that the cost was reasonably incurred to the extent of £1,250 including VAT.

The appeal succeeds on grounds 1, 2 and 3. A cost of £1,250, including VAT, was reasonably incurred by the appellant on the Assessed Risk report and can be recovered in the service charge for 2023-24.

March 2025