The case of FirstPort Property Services Limited v Tenants [2018] involves a dispute concerning the reasonableness and apportionment of service charges charged to tenants of a residential development by FirstPort Property Services Limited.

FirstPort Property Services Limited v Tenants [2018]

Summary

The case of FirstPort Property Services Limited v Tenants [2018] involves a dispute concerning the reasonableness and apportionment of service charges charged to tenants of a residential development by FirstPort Property Services Limited. The Upper Tribunal had to deal with an appeal against the decision of the First-tier Tribunal so far as it related to the service charges charged and further consider the fairness and legality of the charges in question.

Facts The respondents were tenants holding long leases of a residential development for which FirstPort Property Services Limited was the managing agent. It was part of the lease terms that the tenants were to pay service charges to FirstPort 'in respect of any sums it incurred for insurance and other services taken in connection with the maintenance and the general management of common parts of the relevant property'.

Disputes then arose between FirstPort and the tenants in connection with the service charges. As considered by the tenants, such charges generally proved to be unreasonable and particularly included a proportion of money for costs that were either not necessary or wrongly apportioned. Problems connected with the quality of the services originated from FirstPort as far as the services are concerned.

In reaction to the dispute, the tenants issued an application to the First Tier Tribunal (Property Chamber) for determination of the reasonableness and apportionment of the service charges claimed by FirstPort.

Issues

Issues that were brought out in the case were as follows :

1. Whether the service charges that FirstPort charged to the respondents were reasonable

2. Costs charged in the service charge account - were they necessarily incurred, and the costs incurred properly?

3. If it was a fair apportionment of service charges charged amongst the tenants in accordance with the lease

4. Quality and adequacy of services provided by FirstPort to justify charges imperative on the respondents

First Instance

The tenants challenged several grounds on which the service charges were unreasonable before the First-Tier Tribunal: some, it was argued, were unreasonable in amount; some of the works were unnecessary; others were not reasonably incurred in that they did not reflect descriptions of the services provided, and there were complaints about the quality of the services and maintenance works carried out by FirstPort.

First-tier Tribunal took regard of the parties' evidence that provided details and required detailed descriptions with invoices of works, importantly expert evidence, did decide in favour of appellants with regards to several aspects. So while it held that some service charges could be understood, the costs incurred would well stand open to challenge. It ordered that the service charges should be reduced so as to take account of a fair and reasonable amount.

Decision on Appeal

FirstPort appealed the decision of the First-tier Tribunal to the Upper Tribunal in the Lands Chamber. The appeal, in simple words, was to cut into the First-tier Tribunal's reductions and to restore the charge to the charge originally made.

The Upper Tribunal was concerned with the manner in which the findings of the First-tier Tribunal came about, in particular wherein respect of the evidence it had placed its focus, more importantly, how the occasioning of the reasoning behind the reductions was. In doing this, the Upper Tribunal dismissed the appeal, like the First-tier Tribunal, on the basis that the sum of the service charges originally demanded was excessive and not wholly reasonable. On the reasonableness of the service charge, the Tribunal had held that the matter had already been considered, reiterating the oft-repeated position that the managing agent should clearly show and cogently prove what made him levy some charges on the tenant for him to succeed ultimately in the exercise.

The Upper Tribunal went on to consider apportionment thus: "The service charges are payable servicing charge by the tenant as a condition of his demonstrating his ability to bear a fair share of the costs of the services to be provided in his own interests and from which he will benefit.".

Comments

The decision in FirstPort Property Services Limited v Tenants [2018] has provided some significant guidance to managing agents and tenants alike on how to manage, and determine the service charges in, leases of residential properties. There are several important points arising from this case:

1. Reasonable Service Charge: That the managing agent should ensure reasonableness of the service charge and justification for the same. Justification must be provided for work done so that it can be ascertained whether such work is necessary.

2. Transparency and documentation: Provision may be made to have the managing agent properly document and make transparent how service charges will be calculated and how they are to be apportioned amongst flat owners. Proper and detailed records of expenditure, together with the reasons for making that expenditure, should at all material times be kept by a managing agent.

3. Quality and Necessity of Works: Charges should be based on the quality and works brought up to an acceptable standard; managing agents cannot justify charging for works which are either of low quality or irrelevant.

4. Fair Apportionment: The service charge payable by the leaseholders must be correctly charged out, and the proportion calculated in accordance with the terms of the lease; deviations from this general rule must be well justified.

5. Tribunals The First-tier and Upper Tribunals shall extend at all times to provide a forum for the hearing and determination of disputes related to service charges. Decisions reflect reasonable practice and are in accordance with the lease form-pořádku.

6. The effect of this case would be to set a precedent for any future service charge dispute, guiding what may be considered in support of reasonable charges and, flowingly, the evidential material focus in support of such charges.

FirstPort Property Services Limited v Tenants [2018] strikes a balance between the managing agents' right to recover their costs and the amplitude of protection for tenants against unreasonable and unjustified charges. That exercise must, in my view, be performed requiring, by way of a restatement of the principles of fairness, transparency and accountability in the administration of service charges under residential leases, no tenant to be put to expense regarding services and costs which are not necessary or reasonable, or in respect of costs and services the expenditure on which had not properly been incurred.

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