Service Charge Dispute Case Law – Insurance, Electricity and Gardening

The case of Tanwa Arewa and Joseph Emmanuel Emiru v Marios Theophanos Magerou concerns a service charge dispute relating to  Flats A — E 42, Brook Street, Luton, Beds LU3 1DS.

In October 2004 Miss Tanwa Arewa and Mr Joseph Emanuel Emiru made application to the  Leasehold Valuation Tribunal under s27A of the Landlord and Tenant Act 1985 in relation to four items of service charges for the year 2004. The items which were subject to the service charge dispute were an electricity bill, a window cleaning bill, the costs of the purchase
and application of weed killer and an administrative charge.

The leaseholders alleged that the receipts appeared bogus and that there was doubt as to whether the works had actually been carried out. On the same day, the leaseholders also submitted papers in connection with their formation of a Right to Manage Company under the name of Brook Street RTM Company Limited. Their request to the Tribunal was for an assessment as to the entitlement to continue running the Company and also an application under s20C of the Act, which had been made in conjunction with their application under s27A.

The Landlord raised concerns about the Right to Manage Company's ability to effect insurance in relation to the premises but were content that the Company should take over the management of the property from the Landlord. The Landlord in correspondence also addressed the issues of the service charge dispute.

The leaseholders asserted that insofar as the items of expenditure were concerned and which were set out on service charge demands dated 1 August 2004 there had been a duplication of the service charge demands for the electricity bill and that the only amount they accepted was £81. 10. The Landlord accepts that is the correct amount.

A service charge dispute also existed with regard to service charge invoice headed TT Cleaning Services which appeared to relate to the washing of the windows. This showed that a figure of £60. 00 was sought for cleaning the windows to the property which comprises five one-bedroom flats.

A 3rd item subject to a service charge dispute was a claim for weed killer which it was alleged, had cost £34. 99 and an invoice to a Mr Michie, apparently for labour, in connection with garden and maintenance which showed a figure of £50. 00 from which a figure of £9. 00 for VAT appeared to have been deducted.

The last  item of service charge dispute was an administration charge of 12. 5% which in this instance totalled £6. 91.

On the question of insurance the leaseholders  on behalf of the Company asserted that they were entitled to insure the property by virtue of the Commonhold and Leasehold Reform Act 2002 s96 and s97. They provided the LVt with copies of the up-to-date insurance which was with Norwich Union and appeared to be very similar to the level of insurance cover that had been arranged by the Landlord,

The Landlord via their solicitors made the following statements with regard to the service charge dispute items. They confirmed there had been a misunderstanding on the electricity account and that £81. 10 was all that was required. Insofar as the window cleaning was concerned we were told this was a one-off charge of £60. 00 and the additional amount of £140. 00 shown on the invoice had nothing to do with the building.

On the question of the weed killer we were told that the total bill was £84. 99 as the Landlord had not charged for a sprayer and this was made up from the costs of the weed killer and the aforementioned labour charges of Mr Michie of £50. 00. No submissions were made as to the administration charge.

As the building insurance was concerned the solicitors for the landlord accepted that s96 of the Commonhold and Leasehold Reform Act enabled the Company to take over the functions of the Landlord, to include insurance, stated that the type of insurance was not indicated. The landlord’s property solicitors  also went on to refer to s164 of the above Act which provided for the conditions applicable to a tenant insuring a house held under a long Lease.

The LVT made the following decisions concerning the service charge dispute.

  1. The electricity bill had been agreed.
  2. On the question of the window cleaning the Tribunal expressed surprise that a service charge of £60. 00 should have been made for a one-off clean of converted property containing five one-bedroom flats. The Lease plan, would appear to indicate that even allowing for the possibility of there being windows in doors which needed to be cleaned, there probably no more than six windows on any level. The Tribunal found that £60. 00 is too high and that a reasonable charge for cleaning the windows on this one occasion would be £30. 00.
  3. The LVT  then turned to the question of the weed killer and the gardening costs. Although a dispute raged as to the state of the garden the Tribunalaccepted that the weed killer expense of £34. 99 has been reasonably incurred. They did however not accept that it would have resulted in a labour charge of £50. 00 for the purposes of administering the weed killer. The Tribunal reduced the labour charge to £25. 00.
  4. There was no provision in the Lease for the Landlord to charge an administration fee of 12. 5% and therefore the Tribunal disallowed

On the question of building insurance the Lease in this case clearly requires the Landlord to effect the insurance of the property. The relevant sections of the Act for this application are s96 and to an extent s97.

Section 96(2) states "Management functions which a person who is Landlord under a lease of the whole or any part of the premises has under the lease are instead functions of the RTM Company"

It is not clear to us what impact this would have if the Landlord was to insure the premises as well as the Company. Clearly that leaves the door open for an argument between insurers as to apportionments of responsibility. However we have no doubt that it is wholly within the remit of the RTM Company to effect insurance of these premises and therefore found that the tenants should be entitled to insure.

The Royal Institution of Chartered Surveyors (RICS) has a dedicated service charge dispute resolution service that deals with all aspects of property and construction related disputes including the area of service charges.