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Kennet House, 2008, City of Westminster

Summary

The case of Kennet House, 2008, relates a disputable case that has come to service charges and legionnaire’s' rights. This case brought into consideration the principles of reasonableness and transparency in the administration of service charge. With this, the case therefore gives the tensions that have been going on and on concerning costs associated with duties involved in the maintenance and management of property developments between the freeholders and leaseholders.

Facts

Kennet House is a residential block situated in the City of Westminster and is held by a freeholder; the freeholder is under liability to provide the upkeep and maintenance of the common parts. Under terms of the leases, the leaseholders of Kennet House are liable to pay service charges; they thereby have an obligation to pay for services provided. It allowed the leaseholders to challenge the sum of the service charge charged by the freeholder for the various works of maintenance and repairs carried out in 2008 in a long-lease interest in Kennet House.

The dispute had originated from a group of leaseholders who had received demands to pay service charges, which in their opinion were too costly as far as the cost incurred or the benefit received was concerned. Such charges were diverse and ranged from general maintenance and major repairs to administrative charges. It was argued for the group that some of the works were not necessary and in other cases, such works were not properly carried out or their cost was not reasonable.

Issues

The following are the main issues that fell for the decision in this case.

1. Reasonableness of Service Charges: Whether the service charges demanded by the freeholder were reasonable and warrantable.

2. Necessity and Standard of Works: Whether indeed the above-mentioned maintenance and repair works, which had made up the service charge, had been necessary and carried to a satisfactory standard.

3. Transparency and Proof: Whether the freeholder has provided proper documentation and receipts with reasons for sums claimed.

First Instance

The leaseholders brought their case before the First-tier Tribunal (Property Chamber), a forum hearing cases between landlords and tenants in relation to service charges. The leaseholders called expert evidence adducing costs comparisons and works records to support their case of unreasonableness.

The freeholder explained that it was his service charges which he defended in so far as the now fastidious presentation of the invoices, contracts and detailed accounts of that work and more were in accord with the argument and the same reflected expenditures actually incurred on the upkeep of the building in conformity with the lease agreements.

The First-tier Tribunal heard evidence before it and, in a number of ways, held in favour of the leaseholders. It held that some of the service charges were excessive, and the freeholder failed to adduce sufficient evidence to support the quantum of certain costs incurred. Thereupon, the Tribunal reduced the disputed service charges, which must be characterized by reasonableness and transparency in their calculation and imposition.

Decision on Appeal

Aggrieved by the decision of the First-tier Tribunal, the freeholder moved in appeal before the Upper Tribunal (Lands Chamber) on grounds that, inter alia challenged the deductions made by the First-tier Tribunal and contended.

The Upper Tribunal went through laboriously the findings of facts by the First-tier Tribunal and evidence adduced before it. The Upper Tribunal dismissed the freeholder's appeal and held that the First-tier Tribunal had been correct in its judgment, finding that the freeholder wholly failed to justify the service charges in dispute. Consequently, in service charge demands, it clarified that there must be clear and cogent evidence, while the charges must at all times be reasonable and necessary.

Comments

From the Kennet House case, there are several basic principles in dealing and resolving service charge cases in residential leases:

1. Reasonableness and Justification: In all instances, the service charges have to be reasonable and justified on the part of the freeholders through proper documentation detailing and proving that the costs were incurred and that the work was necessary.

2. Transparency and Accountability: Full details of the methodology used for working out the service charges shall be available for inspection in formulating and apportioning the charges that. Freeholders shall maintain proper accounts and clearly describe their charges to leaseholders and, where necessary to tribunals.

3. Quality and Necessity of Works: The Charges shall deal only with works necessary to a satisfactory quality. A freeholder cannot charge for any unnecessary or unsatisfactory works.

4. Role of the Tribunals: Both the First-tier and Upper Tribunals play a very vital role pertaining to oversight mechanisms and taking certain decisive action over the disputes on service charges. It is in the light of the given judgments that one can say there remains immense focus upon the independency toward fair dealing along with adherence toward the lease term.

5. Precedent for future dispute: The case is to set a benchmark for the future service charge dispute. I am establishing what it will be considered as reasonable charges and what evidence support such charges.

The overall agreement in the Kennet House case was to balance freeholders' rights to recover their costs with the protection of leaseholders from unreasonable and unjustified charges. It is, against that background, a reaffirmation of principles of good governance, particularly fairness and transparency, and also the way in which service charges are administered in residential leases that underpin guidance in similar disputes in future.

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