Whether the claimed service charge from its tenant is reasonable?
Holding & Management (Solitaire) Limited v Sherwin [2010] UKUT 412 (LC)
Summary
The case of Holding & Management (Solitaire) Limited v Sherwin [2010] UKUT 412 (LC) is a case in which the landlord, Holding & Management (Solitaire) Limited (H&M), claimed service charges from its tenant, Mr. Sherwin, to be reasonable. The said service charges were overly demanded by the landlord in respect of insurance and maintenance charges of the property, subject to the tenor of the lease.
Facts
Holdings & Management (Solitaire) Limited was the freeholder of a block of flats of which Mr Sherwin was a long leaseholder. His lease required him to pay service charges in respect of insurance and maintenance of the building. The charges became due, and Mr Sherwin over the years persistently challenged the amounts, and the reasonableness, of charges which included amounts on account of premiums for insuring the building and costs for maintenance.
Mr Sherwin contended that the insurance premiums that H&M were insisting on were far too excessive, over-the-top and unreasonable. That, in practical effect, they appeared not to have been built on wherever a consideration of proper commercial reality. He went further and argued that the service charge by H&M was again excessive and covered costs that were either substantially irrelevant in the circumstances or not properly declared. The case was initially tried before the Leasehold Valuation Tribunal, currently called the First-tier Tribunal(Property Chamber).
Issues
Critical issues in this case included the following:
To show whether the defense of the action by H&M was reasonable.
If indeed the insurance premiums charges were reasonable.
The reasonableness of the maintenance costs, that were part and parcel of the service charges.
If H&M had given sufficient evidence to show the validity of the charges that were put against Mr. Sherwin.
First instance
At the Leasehold Valuation Tribunal, Mr Sherwin argued his case that the charges for insurance premiums and maintenance were far above that which could be deemed fair, market-tested, or needed to adequately maintain the building. He produced evidence by way of quotes from other insurance providers and full details of the maintenance work carried out.
The LVT took views from both the parties. In response to the charges, H&M stated that the amount in insurance premium was a reflection of the policies it has been taken out and the maintenance work was being done to maintain the property in good condition.
The LVT held in his favor on a number of points. It found that the insurance premiums were unreasonable and that the cost of the insurance could not be justified by the cover bought. The court also upheld that certain maintenance charges were unreasonable where H&M was unable to satisfactorily justify the costs or the necessity for the work performed. Therefore, the LVT reduced the service charges due from Mr. Sherwin.
Decision on Appeal
H&M appealed the decision of the LVT to the Upper Tribunal (Lands Chamber). The appeal took objection to the reductions of the service charges and maintained that the original service charges should be put back. The ground of appeal was whether on the evidence put before LVT the test of reasonableness was properly applied by the members of the LVT.
The Upper Tribunal examined the findings of LVT and how the arguments of both parties were. The Tribunal maintained the decision of LVT that the insurance premiums were too high and were not reasonably well supported as to reasonableness. On top of that, it also agreed that some of the maintenance costs were not quite well supported and therefore should not be charged to Mr. Sherwin.
It was held that it still remains upon landlords to justify the clear case with cogent evidence. It also re-affirmed that, by law, costs have to be reasonably incurred in actual connection with a service and that such costs have to be proportionate to the benefit of the tenants';service .
Comments
The case law on Holding & Management (Solitaire) Limited v Sherwin is very quintessential since it underscores the very crucial aspects of serving, calculating, and disputing service charges, especially those pertaining to insurance and maintaining the property. From the case, the following crucial matters emerge:
1. Time: Landlords must ensure that the charges, especially the insurance premiums, are reasonable and should be a reflection of the prevailing market rates. Tenants can take action against this by proving that the charges are not reasonable and thus require the landlord to justify the charges.
2. Material facts and evidence: A landlord must be transparent and provide ample evidence in backing the service charges. This means he should provide competitive tenders for the insurance covers and entail documentation on the maintenance of the building in a manner that shows what was done, how it was done, and more importantly that was vital and necessary.
3. Role of the Tribunal: The first-tier Tribunal and the Upper Tribunal are very relevant concerning the service charge. The decisions prove the fact that the landlord has to bear dealings with fair and even principles of reasonableness while considering the disputes of service charge.
4. Future Precedents: This case establishes a precedent of the fact that tenants in the future disputes can contest against service charges which are unreasonable or unjustified.
5. Market Comparison: The rates being charged should relate very closely to the market. The insurance and maintenance contracts should be compared with the current market rates regularly to ensure that landlords have value for their money.
In short, Solitaire was a v Sherwin has proved to be a pointer that equity has to be maintained between the landlords' rights to recover costs and the tenants' rights to be protected from unreasonable charges. It undergirds that the handling of service charges in relation to residential leaseholds should be transparent, fair, and accountable.
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