Sovereign Network Homes v Dr Shoghik Hakobyan & Ors

An application under section 27A is adversarial. The First-tier Tribunal should ordinarily determine the parties’ pleaded dispute, not formulate a distinct case which a represented party has elected not to advance.

The tribunal may cautiously raise an overlooked point where it falls within the broad scope of the application and is significant to deciding it. It must remain impartial, allow the party who may benefit to decide whether to pursue the point, hear objections to its introduction, and manage any resulting prejudice fairly.

Omission to challenge contractual payability does not, without clear objectively assessed evidence, amount to an agreement or admission under Landlord and Tenant Act 1985 section 27A(4)(a). A tribunal that advances an unpleaded case for one party, while criticising the other for being unable to answer it, may act unfairly and create an appearance of bias.

The tenant respondents applied under section 27A of the Landlord and Tenant Act 1985 to challenge the reasonableness of payments demanded by Sovereign Network Homes in respect of service charges. Their pleaded case concerned unreasonable expenditure, services and lack of information.

At a two-day hearing, the First-tier Tribunal raised a distinct issue: whether the tenants were contractually liable under their occupational underleases to make the payments at all. It adjourned that issue, gave directions requiring Sovereign to plead and document its contractual claim, and withheld its decision on the pleaded reasonableness issue.

Sovereign appealed against the interim decision of 23 April 2024. It contended that the new issue was outside the pleaded case and that the hearing had been unfair and gave rise to apparent bias.

1. Appeal allowed. The First-tier Tribunal’s interim decision and consequential directions were set aside.

2. The tenants had not clearly agreed or admitted, for section 27A(4)(a) purposes, that they were contractually liable for the disputed payments. An agreement or admission may be express, implied or inferred from conduct, including omission. It must, however, be clear and determined objectively. The tenants’ decision to confine their pleaded challenge to reasonableness did not, on these facts, establish such an agreement or admission. Thirty One Crescent Grove Ltd v Atherden [2024] UKUT 80 (LC) was distinguishable.

3. The FTT had statutory jurisdiction to consider contractual liability, but it was not permissible to introduce this particular issue. Section 27A proceedings are adversarial. Although an FTT may exceptionally raise a significant overlooked point within the broad scope of the application, it should not formulate a separate case outside the parties’ pleaded dispute. The contractual-liability issue was distinct from the reasonableness case, required factual investigation, and effectively converted the tenants’ application into a contractual claim which Sovereign had to plead first.

4. The decision to introduce that issue was one no properly directing FTT could have made. The Tribunal re-made the decision so that the tenants could not pursue the contractual-liability issue in this application for the period in dispute.

5. Independently, the hearing was unfair. The FTT pursued and substantially analysed the unpleaded issue itself, required Sovereign’s counsel to answer it on very short notice, and criticised her inability to do so. It thereby descended into the arena. A fair-minded and informed observer would conclude that there was a real possibility of bias. The interim decision could not stand on that basis either.

6. The matter was remitted to the FTT with a direction to issue its decision on the pleaded reasonableness issue and deal with consequential matters.

• Upper Tribunal (Lands Chamber): Allowed Sovereign’s appeal and set aside the First-tier Tribunal’s interim decision dated 23 April 2024.
• First-tier Tribunal (Property Chamber): In a section 27A application under the Landlord and Tenant Act 1985, introduced and adjourned an unpleaded contractual-liability issue while reserving its decision on reasonableness.