Landlord and tenant — Housing Act 1980 — Acquisition by tenants of flat of long lease of 125 years under ‘right to buy’ provisions in Part I of 1980 Act — Landlords a housing association — Dispute by new long leaseholders (the present appellants) in regard to inclusion in service charge of payments by instalments for replacement of windows of flat — Wet rot in the woodwork of windows of flats in the estate had caused leaks and had required constant repairs — Housing association decided to replace the old single-glazed wooden windows by double-glazed UPVC windows — Appellants objected and refused to pay consequent increases in the service charge — Housing association brought proceedings against them and succeeded in the county court — Lease provided for a service charge payable by the leaseholders, covering contributions to the costs of the lessors in carrying out repairs under their covenants and also such additional works and services as the lessors in their discretion considered necessary — In conformity with Schedule 2 to the Housing Act 1980 the lease excluded payments by the lessees for making good structural defects unless their existence had been notified to the lessees before the grant of the lease — Appellant lessees criticised the decision of the county court judge on the grounds that she had not distinguished between repairs and improvements; that Schedule 19 to the 1980 Act did not provide for a service charge to cover improvements; and that there was no finding that the cost of repairs was reasonable — Held by the Court of Appeal, rejecting criticisms of the judge’s decision, that there was no need for a sharp distinction between repairs and improvements in this case and that some of the works involved both repairs and improvement; that the lease complied with Schedules 2 and 19 to the 1980 Act; that, in so far as the service charge related to the making good of structural defects, the lease had given express warning of the need to replace the old wooden windows; that Schedule 19 did not prohibit a service charge from covering improvements if the parties agreed to it; that the lease gave the lessors discretion to carry out additional works and provide additional services; and that the judge had been satisfied on the question of reasonableness — Appeal dismissed
The following
case is referred to in this report.
Mullaney v Maybourne Grange (Croydon) Management Co Ltd [1986] 1 EGLR
70; (1986) 277 EG 1350
This was an
appeal by Leslie Henry Williams and his wife, Deirdre Olive Williams, the
leaseholders of a flat at 14 Priory Crescent, Beulah Hill, London SE19, from
the decision of Her Honour Judge Graham Hall, at Croydon County Court, in
favour of the plaintiffs (the present respondents), Sutton (Hastoe) Housing
Association.
T Brudenell
(instructed by Cowles & Co) appeared on behalf of the appellants; Miss C
Hutton (instructed by Debenham & Co) represented the respondents.
Giving
judgment, GLIDEWELL LJ said: The respondent housing association was until
1982-83 the owner of the whole of a residential estate at Beulah Hill, Norwood,
comprising blocks of houses, maisonettes and flats. The defendants (the present
appellants), Mr and Mrs Williams, had been tenants of and occupied one of those
flats, 14 Priory Crescent, since 1967.
Mr and Mrs
Williams and a substantial number of other tenants who had been in occupation
for long periods of the flats or maisonettes, exercised their right to buy
their homes under the provisions of the Housing Act 1980. The flat, 14 Priory
Crescent, was conveyed to the Williams on January 31 1983. They were granted a
lease for 125 years from December 25 1981 at an annual rent of £10. The price
was £12,882, which was a substantial discount from the market price under the
terms of the Act. The lease provided for the payment of a service charge, to
which I shall have to refer in more detail later.
The window
frames in the flats had been constructed of wood. Over the years — in general
terms, without for the moment speaking specifically about 14 Priory Crescent —
there had been trouble with wet rot in the woodwork of quite a number of the
windows, which resulted in leaks and the necessity for constant repairs.
As a result of
this, in 1982 the housing association engaged an architect, a Mr Linden, to
advise them about the woodwork and the exterior of the Beulah Hill Estate. In
June 1982 Mr Linden reported, recommending that double-glazed UPVC windows
should be installed as an alternative to continuing with joinery repairs as and
when defects arose. The association therefore decided that, in the first place,
they would install the double-glazed windows in one of the tower blocks in what
are called Menlo Gardens. The intention was that, if that proved to be
successful, they would start a phased programme of replacements of the windows
in the other blocks of the estate. That work to Menlo Gardens was duly done in
the latter part of 1982.
On November 17
1982 the association made an application to the Housing Corporation for a grant
for the replacement of the windows to Menlo Gardens and also to some of the
flats in Priory Crescent, not at that time including the block in which no 14
is contained.
The Housing
Corporation suggested that it might be overall more economic if all the blocks
on the estate had their windows renewed in the same contract. Accordingly, in
March 1983, by which time the Williams had purchased their flat, the
association made a fresh application to the Housing Corporation for a grant for
double-glazed windows for virtually the whole of the estate. The application
included a grant for the block in which 14 Priory Crescent is contained.
In the event
the Housing Corporation decided that a grant was not payable for the
replacement of windows where the flats had been sold to long leaseholders, but
before they reached that decision they made it clear that they had doubts about
the matter.
In March 1983
the association wrote to both long leaseholders and those who were negotiating
for long leases, telling them of the application they had made to the Housing
Corporation for a grant
The Housing Corporation made their decision that the grant would not be payable
for leasehold flats on December 20 1983. In the following months the
leaseholders were told by the association that the grant was available only for
flats held on short leases but nevertheless that the association intended to go
ahead with the work of replacing the windows. And so they did.
As the long
leaseholders were not going to be assisted by a grant, the association
considered how best to ensure that the cost to them which the association
intended to pass on to them could be met. They suggested to the long
leaseholders that there were two possible methods of achieving this. One, since
the effect of the work would be to improve the flats and thus they hoped to
increase the value, would be for leaseholders to take out an additional loan on
mortgage. But the second alternative which the association were willing to
entertain was that they themselves would do the work and pay for it and that
they would recoup the cost from the long leaseholders over the period of three
years by adding each quarter to the service charge levied.
Many of the
new long leaseholders, including Mr and Mrs Williams, took the view that it was
not necessary to replace the windows to their flats and they objected, and
objected strongly, to the work being done. Nevertheless, the association, after
obtaining four estimates for the doing of the work, placed a contract for it,
and the windows in the various blocks, including those to 14 Priory Crescent,
were replaced during the second half of the year 1984.
In accordance
with the offer which they had made, the association started adding to the
service charge demanded of the long leaseholders in December 1983 an amount
calculated as being (I take it) one-twelfth of the total sum due from each
leaseholder; that is to say, a sum to be charged once a quarter over three
years. Mr and Mrs Williams refused to pay the service charges so demanded. By
October 30 1985 their account was in arrear to the extent of £2,882.11. On that
date the association issued proceedings in the Croydon County Court claiming
that sum together with interest, and also claiming possession of the flat and
forfeiture of the lease. In the event, by the time the matter came to trial,
the total sum claimed by the association including interest came to £3,688.80.
Of this it was conceded by the defendants that £1,184.06 was due as being nothing
whatsoever to do with the replacement of the windows but arising out of other
matters, and the defendants submitted to judgment for that sum. There was,
however, a contest as to the balance of £2,504.74, which was the cost including
interest of the work of replacing the windows. On May 12 1987 Her Honour Judge
Graham Hall gave judgment for the plaintiffs for that amount. Mr and Mrs
Williams now appeal against that judgment.
It is
necessary to consider some of the terms of the lease under which the Williams
hold their flat. The first provision relating to the service charge is in
clause 3(1) under which:
The Lessee
HEREBY FURTHER COVENANTS with the Lessor and with other relevant Lessees To pay
to the Lessor (subject to Clause 7 hereof) an annual service charge (in this
Lease called ‘the Service Charge’) of an amount determined in accordance with
the provisions of and at the time and in the manner specified in Clause 4
hereof but excluding (except as mentioned in Clause 7(E) hereof) such amounts
in respect of the repair of structural defects as the Lessor is precluded from
recovering from the Lessee under the provisions of paragraphs 13 to 17 of the
Second Schedule of the Act and of insuring against risks involving such repairs
or the making good of such defects.
I will return
later to say something about clause 7(E) and also about paras 13 to 17 of the
Second Schedule to the Act. By clause 4(1):
THE Service
Charge shall be of an amount determined as hereinafter provided and payable at
the times and in the manner hereinafter mentioned.
By clause
4(3)(a):
The amount of
the Service Charge for each financial year shall be the aggregate of the
following sums:
(a) 8.76% of the costs of the Lessor in
performing the Lessor’s covenants set out in clause 5(1)(a) hereof and the
costs and expenses incurred by the Lessor in respect of the expenditure
described in Part I of the Fifth Schedule during such financial year as and
herein called ‘Block Expenditure’.
The Fifth
Schedule is not relevant to the circumstances of the present case. By clause
5(1)(a):
The Lessor
HEREBY COVENANTS with the Lessee as follows:
That the Lessor
will:
(a) Provide and maintain the following services
(herein called ‘the Block Services’) namely:
(i) maintaining repairing renewing cleaning
redecorating and in all ways keeping in good condition the Block and in
particular the roof foundations and walls thereof . . .
By subclause
(viii) of clause 5(1)(a) the covenant also required the:
carrying out
such additional works and providing such additional services as may be
considered necessary by the Lessor in its absolute discretion from time to
time.
Clause 7(E) is
headed ‘Condition of the Block’ and reads:
The Schedule
of Conditions contained in Part III of the Sixth Schedule hereto is a true and
accurate Schedule of the condition of the Block at the date hereof and the
Lessee hereby acknowledges notification by the Lessor of the structural defects
specified therein for the purpose of paragraphs 13 to 17 of the Second Schedule
of the Act and clause 3(1) hereof.
Finally, in
the Sixth Schedule there is contained in Part III what is described as
‘Schedule of repairs to the structure anticipated during next 10 years’, of
which item 2 is:
Joinery:
External timber elements will need to be renewed during the next ten years.
This includes windows, timber
cladding to fascias and garage doors.
The case for
the association can be summarised as follows. The replacement of the windows
was a work of repair within the lessor’s repairing covenant, clause 5(1)(a)(i).
As such, by clauses 4(1) and 4(3)(a) the cost of that work was properly
recoverable from the lessee as part of the service charge. If, however,
replacement of the former single-glazed wooden windows by double-glazed windows
constituted in part an improvement in addition to repair, then that improvement
was ‘additional works . . . considered necessary by the Lessor in its absolute
discretion’. Thus that fell within the lessee’s repairing covenant under clause
5(1)(a)(viii). In so far, therefore, as part of the cost was attributable to
improvement, it was still recoverable by clause 4(1) and (3) as part of the service
charge.
Before I come
to the counterargument of Mr Brudenell for Mr and Mrs Williams, I should refer
to the relevant terms of the Housing Act 1980. Section 17 of the Act provides:
A conveyance
of the freehold executed in pursuance of this Chapter shall conform with Parts
I and II of Schedule 2 to this Act and a grant of a lease so executed with
Parts I and III of that Schedule . . .
Turning to
Schedule 2, Part III, para 11(1) starts with the words:
The lease
shall be for a term of not less than 125 years at a rent not exceeding £10 per
annum, and the following provisions shall have effect with respect to the other
terms of the lease . . .
Obviously the
first two parts of that provision were reflected in this lease. Para 13(1)(a)
reads:
There shall be
implied, by virtue of this Schedule, covenants by the landlord —
(a) to keep in repair the structure and exterior
of the dwelling-house and of the building in which it is situated (including
drains, gutters and external pipes) and to make good any defect affecting that
structure.
That covenant
was, of course, expressed in the lease. Para 14 deals with covenants by the
tenant and does not raise anything relevant in this case. Paras 15, 16 and 17,
however, do. So far as is relevant, para 15 provides:
Any provision
of the lease or of any agreement collateral to it shall be void in so far as it
purports
(a) . . .
(b) to enable the landlord to recover from the
tenant any part of the costs incurred by the landlord in discharging or
insuring against his obligations under paragraph 13(1)(a) or 12(1)(b) above, or
(c) . . .
but subject
to section 19 of this Act and paragraph 16 below.
Para 16:
A provision
is not void by virtue of paragraph 15 above in so far as it requires the tenant
to bear a reasonable part of the costs of carrying out repairs not amounting to
the making good of structural defects or of the costs of making good any
structural defects falling within paragraph 17 below or of insuring against
risks involving such repairs or the making good of such defects.
By para 17:
A structural
defect falls within this paragraph if —
(a) the landlord has notified the tenant of its
existence before the lease was granted . . .
The effect of
those provisions in paras 15, 16 and 17 can be expressed as follows. A provision
in a lease which requires a lessee to pay to the lessor the cost of carrying
out his (the lessor’s) repairing covenant with regard either to the
dwelling-house (that is to say, the flat) or to the whole building is permitted
by the Schedule and is not void provided that either (a) it requires the lessee
to bear a reasonable part of the costs of repairs which do not amount to making
good
defects, the lessor notified the lessee of their existence before the lease was
granted.
Other
provisions in the Act which are relevant to this appeal are section 136, which
brings into effect Schedule 19 to the Act and that Schedule. By para 1(1) of
Schedule 19:
For the
purposes of this Schedule, a service charge is an amount payable by the tenant
of a flat as part of or in addition to the rent —
(a) which is payable, directly or indirectly,
for services, repairs, maintenance or insurance or the landlord’s costs of
management; and
(b) the whole or part of which varies or may
vary according to the relevant costs;
and the
relevant costs are the costs . . . incurred . . . by or on behalf of the
landlord . . . in connection with the matters for which the service charge is
payable.
By para 2, which
is headed ‘Limitation of service charge’:
The extent to
which relevant costs are taken into account in determining the amount of a
service charge payable for any period shall be limited in accordance with the
following paragraphs, and the amount payable shall be limited accordingly; and
where the service charge is payable before the relevant costs are incurred —
(a) no greater amount shall be so payable than is
reasonable . . .
And by the
first words of para 3:
Costs are to
be taken into account only to the extent that they are reasonably incurred . .
.
Mr Brudenell’s
forceful argument goes as follows. Work of the nature of that carried out to
the windows in this case may be either repairs or improvement, but it cannot be
both. To put that another way, if work constitutes an improvement, it is not
work of repair. Mr Brudenell refers us to the decision of Mr Julian Jeffs QC,
sitting as a deputy High Court judge, in Mullaney v Maybourne Grange
(Croydon) Management Co Ltd [1986] 1 EGLR 70. That was a case on somewhat
similar — indeed, in many ways, very similar — facts to the present. It was a
case in which the windows to a flat let on a long leasehold were replaced by
the lessors. There was a lessor’s covenant to repair in the lease, and the
lessee covenanted to pay 2 1/2% of the costs of the lessor carrying out his
repairing covenant. There was, however, no clause in the terms of clause
5(1)(a)(viii) of this lease. There was a clause in different terms which
related to the word ‘amenity’, and the part of the decision which relates to
the argument about the word ‘amenity’ is of no relevance to this case. In
relation to the other matter which arose, however, in the course of his
judgment Mr Jeffs said:
The new
windows . . . may well have been a very desirable improvement, but I am quite
satisfied that they fell into the category of improvements and not simply of
maintenance.
He then quoted
a passage from vol 1 of Woodfall’s Landlord and Tenant, para 1-1436,
part of which read:
If a defect
in design has given rise to dry rot, the elimination of that existing rot and
the replacement of affected timber is, within the principle of renewal of
subordinate parts which is dealt with below, an obligation imposed by a
covenant to repair, but there is no obligation to undertake the structural
alteration which is needed to prevent a recurrence of the rot, for that is
improvement and not repair.
Mr Jeffs
commented:
Thus it
appears to me in the context of the replacement of the windows that what was
being done here went beyond what was necessary for the purpose of effecting a
repair and was by way of a long-term improvement. It was looking to the future
not to the present.
Accordingly,
I am satisfied that the plaintiff has made out his case on the relief he sought
in paras 1 and 2 of the summons which I have just read out.
In the context
of facts such as those in Mullaney’s case I would respectfully not
disagree with what fell from the learned judge. But it is noticeable that,
because of the terms of that lease, the question whether the work could be both
repair and improvement did not arise in that case. Therefore, to that extent,
with respect to Mr Brudenell, I do not find that decision of any assistance on
the question.
Mr Brudenell’s
argument continues as follows. Schedule 19, para 1, to the 1980 Act allows a
service charge to be made only if it is to recover the cost of items described
in that paragraph; that is to say, services, repairs and maintenance or
insurance of the landlord’s costs of management. Thus the Act does not permit a
service charge to be made to recover the cost of an improvement. The third
proposition is that the judge did not distinguish, as she should have done,
between repairs and improvements. She made no finding as to which category
these works fell into, and thus her decision was defective in that respect.
Fourth, and as an alternative, even if the service charge can cover
improvements as well as repairs, the effect of Schedule 19, paras 2 and 3, is
that the cost of repairs must be reasonable, and there is no finding in the
judgment to that effect.
So far I have
not referred to the judgment and, without intending any disrespect, I do not
need to read very much of it. However, the concluding passage, having recited
Mr Brudenell’s argument that an improvement is not a matter for which the
lessor could charge the lessee, reads as follows:
I find that
the replacement of the windows whether or not this amounts to a repair or has
an element of improvement as commonly understood in landlord and tenant law is
in fact covered by clause 5(1)(a) of the lease, whether under subsection (i) or
(viii). The defendants are bound to pay 8.76% of the costs of the block
expenditure. The plaintiffs set out to repair the windows and the reference in
the lease to structural repairs conforms with the provisions of Schedule 2 to
the Housing Act 1980 in that the plaintiffs followed the procedure of that
Schedule in paragraphs 15, 16 and 17. That Schedule and Schedule 19 do not make
the lease void either expressly or by implication.
I find that
the plaintiffs set out to repair the windows and they conformed with their
obligations under the lease and conformed also with all the relevant provisions
of the Housing Act 1980 in so doing by following the correct procedure set down
herein.
Judgment for
the plaintiffs for the additional sum of £3,506.74.
Miss Hutton
for the association, in a clear and very concise argument, submits as follows.
First, Schedule 2 to the Act contains provisions which require terms to be
implied in leases granted under the right to buy provisions and regulate the
terms of such leases. This lease complies with para 1(1) of the Schedule and it
expresses the covenants which would otherwise have to be implied by clause
13(1). Moreover, the lease is not void under paras 15 to 17 of the Schedule
because where in this lease the lessee is required to pay the costs of repairs,
they are repairs within the lessee’s repairing covenant and, in so far as they
relate to works to make good structural defects, the lease itself in Schedule 6
expressly informed the lessee of the need to renew the wooden windows.
Second, she
submits that works of repair can — indeed, I imagine she would say, not
infrequently do — involve also improvements. The two are not mutually
exclusive, and in Mullaney it was not suggested that they were.
Third,
Schedule 19 does not say that a service charge can only be levied to pay for
the items described in para 1(1) of that Schedule. The effect of Schedule 19 is
to limit and impose restrictions on service charges imposed in order to pay for
the items described in para 1(1), but the Schedule does not prohibit and has no
impact upon a service charge imposed in order to pay for some other item,
including improvements. So, in so far as the cost here involves an improvement,
and I think that she accepts that it very probably does, then that cost can be
recouped by way of service charge. She reminds us of course, although strictly
this is not necessary to her argument, that in so far as the work is an
improvement, that benefits Mr and Mrs Williams as long leaseholders.
Finally, Miss
Hutton argues that in so far as the cost sought to be recovered by way of
service charge is the cost of repairs, she accepts that it must be reasonably incurred
and that the amount must be reasonable — that is the combined effect of
Schedule 19, paras 2(a) and 3. She says that, although the judge did not
expressly find that the cost was reasonable, there was during the course of the
hearing much argument about whether it was or was not reasonable. There was
evidence about it and there was argument about it from both learned counsel.
Thus, Miss Hutton argues, when the learned judge said in the penultimate
sentence of her judgment ‘I find that the plaintiffs . . . conformed also with
all the relevant provisions of the Housing Act 1980’, that must include a
finding that both the works themselves and the cost were reasonable.
Having
summarised Miss Hutton’s submissions, I do not need to repeat them because I
agree with all of them.
For those
reasons I do not accept Mr Brudenell’s arguments and I would therefore dismiss
this appeal.
Agreeing,
TAYLOR LJ said: Prima facie the parties to a lease are entitled to agree
such terms as they choose. Mr Brudenell concedes that but for the operation of
statutory control, the terms of clauses 3, 4, 5(1)(a)(i) and 5(1)(a)(viii) of
this lease would be valid and would entitle the landlords to recover the costs
they sought. One therefore has to look to see whether the statute prohibits
such recovery.
The landlords
rely on two Schedules to the Housing Act 1980. Schedule 2 applies only to
conveyances pursuant to the right to buy.
the landlord to keep in repair the structure and exterior of the dwelling-house
and of the building in which it is situated and to make good any defects
affecting that structure. The effect of paras 15(b), 16 and 17(a) is that a
provision enabling a landlord to recover his para 13 costs is void save in so
far as it requires the tenant to bear a reasonable part of the costs of
carrying out repairs other than making good structural defects or of the costs
of making good any structural defects of which notice has been given before the
lease was granted.
Complaint is
made that the learned judge should have decided, but did not, whether the
replacement of these timber-framed windows with double-glazed windows was a
repair or an improvement. In my judgment she did not need to do so. If and in
so far as the work was a repair, then, subject to the question of
reasonableness to which I shall return, the landlord was entitled to recover
under para 16. If and in so far as the works were an improvement falling short
of making good a structural defect, they were not caught by the Schedule. If
and in so far as the landlord was making good a structural defect, then he was
entitled under paras 16 and 17(a) to recover a reasonable part of the costs,
having given the required notice in Part III of the Sixth Schedule to the
lease.
Schedule 19
applies to all leases. Para 1(1) defines the phrase ‘service charge’, but only
for the purpose of the Schedule. Mr Brudenell argues that any costs sought to
be recovered by way of service charge must fall within that definition or be
irrecoverable. Thus, if the replacement of these windows was, as he argues, an
improvement rather than a repair, the landlord cannot recover any part of the
costs from the tenant.
Miss Hutton
submits that Schedule 19 applies only to a service charge as defined for its
purposes. If the relevant works do not fall within para 1(1)(a), as
improvements would not, then they are not caught by the provisions of the
Schedule. But they are not prohibited. The Schedule is not an avoiding
provision. In my judgment, Miss Hutton is right. Thus, in so far as the works
were repairs, Schedule 19 applies and, subject to reasonableness as specified
in paras 2 and 3, the landlords have complied with the requirements of the
Schedule as the learned judge found. In so far as the works may be regarded as
improvements, they are not caught by the Schedule and the provisions of the
lease are effective.
The issue
which has concerned me under both Schedule 2 and Schedule 19 is as to
reasonableness. The appellants contend that the works were unnecessary. The
windows of 14 Priory Crescent had, they said, been recently repaired. On this
ground and on grounds of expense they were opposed to the double-glazing being
installed. They were required to pay 8.76% of the costs, but, since each tenant
paid 8.76%, the tenants as a body were paying the total costs and the landlord
was paying nothing. Mr Brudenell argues that para 16 of Schedule 2 permits only
that the tenants should bear ‘a reasonable part of the costs’. The word ‘part’,
he says, even if qualified by the word ‘reasonable’, implies less than the
whole. In effect, however, the appellants were paying the whole cost of the
double-glazing of their own flat.
In my
judgment, the phrase ‘a reasonable part of the costs’ must be read in the
context of para 13, which required the landlord to keep in repair and make good
the structure not only of the dwelling-house but of the building in which it is
situate. It is a reasonable part of the costs of doing that which he is
entitled to recover. For a tenant to have to pay for his own share of the total
costs could be regarded, in my judgment, as paying a reasonable part of the
whole.
However, Mr
Brudenell further argues that the learned judge did not adequately deal with
the question of reasonableness either under Schedule 2 or under paras 2 and 3
of Schedule 19. It is true that she did not specifically state in her judgment
that she found the costs charged to be a reasonable part, that the amount was
reasonable, or that such costs were reasonably incurred. However, it is common
ground that these issues were fully argued before the learned judge. She had
heard evidence on them; she summarised that evidence. Her judgment ended with
the passage which Glidewell LJ has quoted, and in my judgment that passage must
import that the provisions as to reasonableness in the Act have been complied
with and that she was satisfied about them.
Accordingly I
agree with Glidewell LJ that the appeal must be dismissed.
The appeal
was dismissed with costs, not to be enforced without the leave of the court.
Legal aid taxation of the appellants’ costs was ordered. Leave to appeal to the
House of Lords was refused.
