We have previously produced various Legal Updates on “How NOT to …..” with a view to assisting our readers on better conduct of property management matters.  Here is another one of those, this time on how NOT to conduct proceedings in the First Tier Tribunal (“FTT”), specifically in respect of a claim of reasonableness of service charges - it makes a good read!

The Case

The case was Rana -v- Assethold Limited [2025] UKUT 19 (LC) and was decided on appeal to the Upper Tribunal (“UT”) in January 2025.  The full case report can be viewed by clicking on the case name above.

It was a fairly standard dispute before the FTT with the leaseholder applicant (“A”) disputing specific costs from the past year end 2023 and the budgeted costs for the in advance service charge for the year end 2024.  Prior to making the application to the FTT, A had sought (but not managed to obtain) from the landlord and its agent, Eastergates Limited (“LL”), copy receipts, estimates, etc. So the FTT amended its procedural directions to require disclosure by LL such as would enable A to complete a Scott Schedule of matters of dispute, to which LL might then respond. This is all very standard for this type of dispute and should have been something with which LL was more than capable of dealing with to a competent level.

Points At Hand

Where a leaseholder wishes to raise an application disputing charges, it does so under sections 27A and 19 of the Landlord and Tenant Act 1985 (“LTA 1985”). 

s.27A LTA 1985 - Enables a relevant person (in this case a leaseholder liable to pay service charges) to make application to the FTT for a determination of the amount actually payable and whether it is in any event payable.

s.19 LTA1985 - Relates to the reasonableness of the sums incurred or to be incurred and requires that service charges are only payable to the extent that they are reasonable.

In order to run a s.19 application, the burden is initially upon the applicant to make a prima facie (on the face of it) case that a cost was not reasonable.  It is not sufficient for an applicant to simply assert that the charge is, in their view, not reasonable. They must support their position with evidence.  If the applicant does that, then the burden shifts to the respondent (landlord or management company) to show that the charge was in fact reasonable in the circumstances of the case.

The Management of the Case in the FTT 

Here is where the problem started as LL did not behave well. 

In a continuation of its pre-litigation approach of obstruction and lack of provision of information, LL failed to comply with the FTT’s directions.  A had explained to the FTT that it had requested and not received receipts and other documents/information such as would enable it to set out the specific charges disputed and reasons for that.  Correctly, the FTT amended its directions to facilitate a requirement for the LL to provide those documents/information.  LL only partially complied but enough as would enable A to produce the Scott Schedule on which the case would be based.  As would later be found by both the FTT and UT, LL’s responses in the Scott Schedule to the disputes were “brief and formulaic” [for which read, obstructive and dismissive]. 

LL compounded its poor behaviour by then failing to provide a Statement of Case or Witness Statement evidence, contrary to the directions of the FTT, such that further hearings were necessitated and eventually an order made by the FTT that LL was barred from providing further evidence at the hearing - quite a dramatic telling off!

At the hearing, the FTT found for A on all but three points, disallowing either wholly or partially the charges for both years. 

The FTT also made orders against LL under s.20C LTA 1985 and under paragraph 5A of Schedule 11 to the Commonhold and Leasehold Reform Act 2002, preventing LL from recovering its legal costs of the proceedings from A, by way of both service and administration charges. The FTT also ordered that LL must reimburse A for the £300 in fees paid to the FTT for the application.

However, the FTT declined to make an order against LL for A’s costs under Rule 13, as costs arising from unreasonable conduct of the proceedings, because they considered that LL “largely complied with the tribunal’s directions, although often late and in a piecemeal fashion. However, despite this, the tribunal finds the applicants have not been prejudiced in seeking a determination of the various issues they raised.”

A appealed to the UT in respect of the three charges dismissed in their claim, and the failure of the FTT to award any costs under Rule 13.

The Upper Tribunal Decision

On the three items of disputed expenditure, the UT overturned the FTT's ruling and disallowed all three items.  The UT found that A had made a prima facie case to which LL had failed to produced any evidence to dispute, and so had failed to discharged its burden with the only result being that the charges must be disallowed as unreasonable or not payable.

On the application by A for costs under Rule 13, the UT both overturned the FTT dismissal and also ordered the LL to pay the full balance claimed (£4,767).

The UT found that: -

1. LL had failed to comply with directions such that the FTT barred it from producing further evidence at the FTT hearing;

2. A’s claim for £4,767 in costs were limited to those that had solely resulted from LL’s failure to comply with the directions;

3. Rule 13 enables the FTT to make an award of costs “if a person has acted unreasonably in bringing, defending or conducting proceedings”.  The test for this was set down in the case of Willow Court Investments which sets three stages in considering a Rule 13 application:-

   Stage 1  - Whether the conduct complained of is unreasonable in the sense required by Rule 13;

   Stage 2 - If the answer to the above is “yes” then the FTT has discretion to make an award;

   Stage 3 - If the FTT is to make an award it has to decide the amount of that award.

4. The list of LL’s non compliance (see para’s 38 - 43 of the judgment, which is a lesson on how not to behave!) was such that the FTT should have explained why it did not consider LL’s conduct as unreasonable.

The UT considered from Willow Court that “unreasonable” would be found “if there is no reasonable explanation for the conduct complained of”.  They considered that the failure of LL to comply with the directions of the FTT (save for minimal and essentially unhelpful responses in the Scott Schedule), an overall failure to disclose documents despite an order for such, or then to explain its poor conduct despite opportunity at trial to do so, was poor behaviour. Whilst that behaviour was perhaps not strictly “vexatious” or “meant to harass” (Ridehalgh -v- Horsfield (1994)) it was a hinderance and a cause of an impediment to the conclusion of the dispute

The UT considered that LL had elected not to “bother to comply” with the directions or the process and such behaviour was “unexplained and inexplicable”, so the test in Willow Court had been surpassed. Therefore the FTT should have exercised its discretion to order costs under Rule 13.  

Conclusion

There are two important points to take from this case: -

1. For leaseholders seeking to dispute charges, it is imperative that you do more than merely declare that a charge is unreasonable.  You must provide evidence to support that claim.  Where a leaseholder does support a claim with evidence and thus sets out a prima facie claim, the burden falls to the landlord/RMC/RTM to provide countering evidence.  If the landlord fails to do that then the FTT is better placed to make a ruling in the leaseholder’s favour.  

2. For landlords/RMCs/RTMs opposing a claim of unreasonable service charges, it is imperative that you engage fully with the process, that directions issued by the Court/Tribunal are fully and helpfully complied with and that you submit all necessary countering evidence to assist the Court/Tribunal understand why the charges were levied as they were. Failure to do so could see you not only barred from providing that evidence, but also being penalised in costs.

Doing anything other than the above is only likely to place the defaulting party at a potentially costly disadvantage.

You have been warned!

Disclaimer

This Legal Update describes the position in law as at the date of this article and care should be taken to note any subsequent amendments to the position as set out above.  The Legal Update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole.

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