Landlord and tenant — Service charges — Landlord and Tenant Act 1985 sections 19 and 20 — Repairs — Additional works arising in course of repairs — Whether discretion under section 20(9) should have been exercised — Whether section 20 £1,000 limit applies to course of work or separately available for additional works
The claimant tenants held long leases of flats in
the same building. The leases contained provisions for the payment of service
charges in respect of repairs carried out by the defendant landlord. In 1995,
after the landlord had consulted the tenants in terms of section 20 of the
Landlord and Tenant Act 1985, works of repair commenced. In the course of the
works, additional work was found to be necessary, including the replacement of
windows; this was carried out at an extra cost of £7,318. Relying on sections
19 and 20 of the Landlord and Tenant Act 1985, the tenants brought proceedings
against the landlord seeking declarations that the landlord was not entitled to
recover service charges in respect of the works of repair. The landlord
counterclaimed for a money judgment. The assistant recorder held that the
landlord was entitled to service charges in respect of the replacement windows,
but not in respect of some of the other additional work. He declined to
dispense with the requirements of section 20 of the 1985 Act, and ruled that
the £1,000 limit, for the purposes of the consultation procedure under section
20, was a limit covering the entire works and was not
issues.
dismissed. Section 20(9) of the 1985 Act did not create any general dispensing
power in the court. There was a two-stage process under which the court’s
discretion to dispense with all or any of the statutory requirements arose only
if the court were satisfied that the landlord had acted reasonably. The
assistant recorder was entitled to find that the landlord, in not consulting
the tenants when the additional works were first known to be necessary, had not
acted reasonably. In relation to the £1,000 limit in section 20, parliament had
not attempted to spell out any precise test as to whether the limit applied to
a complete course of works or to batches of work. A common-sense approach was
necessary. The legislative purpose of the limit was to provide a triviality
threshold rather than to build a margin of error into every contract. The
assistant recorder was entitled to have regard to the fact that all the works
were covered by the same contract, although that would not always be a deciding
factor.
No cases are referred to
in this report.
This was an appeal by the defendant, Maryland
Estates Ltd, against a decision of assistant recorder Christopher Thomas QC,
who, in Clerkenwell County Court, gave judgment on part of the defendant’s
counterclaim for rent and service charge arrears in proceedings by the
claimants, Charlotte Martin and Jonathan Seale, for declarations under sections
19-20 of the Landlord and Tenant Act 1985.
Kim Lewison QC and Martin Dray (instructed by
Malthouse Chevalier) appeared for the appellants; Stanley Gallagher (instructed
by Alistair Keeble & Passmore, of Colchester) represented the respondent.
Giving the first judgment, ROBERT WALKER LJ said: This is an
appeal from an order of an assistant recorder, Mr
made in Clerkenwell County Court on 23 January 1998.
The case is a landlord and tenant matter. The
appellant, Maryland Estates Ltd (Maryland), is the landlord. The respondents,
Miss Charlotte Martin and Mr Jonathan Seale, are tenants of two of the three
flats into which 24 Ribblesdale Road, London N8 (the house), has been
converted. The house was described by the judge as a ‘two-storey Victorian,
end-of-terrace, traditionally constructed property, with a three-storey back
addition… built in about 1880 and converted into flats in about 1980’.
The three flats are known as the studio flat, the
ground-floor flat and the first-floor flat. The studio flat plays almost no
part in this matter, except to explain the 16% of the service charge not borne
by the tenants of the other two flats. Miss Martin has a lease of the
ground-floor flat for a term of 125 years from 24 June 1978, although her lease
is not actually before the court. Mr
flat for a term of 99
form; that before the court is the lease of the first-floor flat granted on
8
which are relevant for present purposes:
1. The main structural parts of the building (but
not the windows) are reserved out of the demised premises to the landlord
(clause 1).
2. There is a ground rent, initially £25 pa rising
by stages to £100 pa, payable quarterly (clause 1).
3. The tenant is responsible for internal repairs
and maintenance, including windows and window frames (clause 2(3)).
4. The landlord has a right of entry for the
purpose of carrying out repairs (clause 2(7)).
5. The tenant covenants to pay the yearly sum of
£100 as a basic service and maintenance charge by half-yearly instalments
(clause 3(b)).
6. The amount of this charge is reviewable (clause
3(b)(iv)). Clause 3(b)(iii) is in the following terms:
If the expenditure incurred by the Lessors in any
accounting period (as hereinafter mentioned) of twelve months in respect of the
matters set out in the Second Schedule hereto (hereinafter called ‘the annual
cost’) and after making a suitable transfer to a Reserve Fund in respect of
future anticipated expenditure exceeds the aggregate amount payable by the
lessees of all the Flats in the building in the accounting period in question
(hereinafter called ‘the annual contribution’) together with any unexpended
surplus as hereinafter mentioned and if a certificate of the amount by which
the annual cost exceeds the annual contribution and any such unexpended surplus
is served upon the Lessee by the Lessors or its Agents then the Lessee shall
pay to the Lessors within twenty-one days of the service of such certificate
forty two per centum (hereinafter called ‘the excess contribution’) of the
amount of such excess shown thereon which shall be recoverable from the Lessee
in case of default as if the same were rent in arrear PROVIDED THAT if in any
accounting period as aforesaid the annual cost is less than the annual
contribution the difference (being the unexpended surplus) shall be accumulated
by the Lessors and shall be applied in or towards the annual cost in the next
succeeding or future accounting period or periods as aforesaid.
7. The landlord covenants to carry out repairs to
the main structure of the house, including the roof, and to carry out external
decoration (clause 4).
The matters set out in the Second Schedule
mentioned in clause 3(b)(iii) include the cost to the landlord of complying
with its obligations under clause 4 as well as insurance and other matters.
The case in the court below was largely concerned,
and has in this court been wholly concerned, with the statutory provisions
about service charges contained in sections 18 and following of the Landlord
and Tenant Act 1985, to which I now turn. Section 18 contains definitions of
service charge and relevant costs. I need not set those out in full. Section
19(1) lays down an overriding general rule as to reasonableness. I quote:
(1) Relevant costs shall be taken into account in
determining the amount of a service charge payable for a period —
(a) only to the extent that they are
reasonably incurred, and
(b) where they are incurred on the
provision of services or the carrying out of works, only if the services or
works are of a reasonable standard;
and the amount payable shall be limited
accordingly.
The following subsections of section 19 contain
ancillary provisions, including a provision giving the county court
jurisdiction to make declarations for the purposes of the section. This was the
jurisdiction that was invoked by Miss Martin and Mr Seale in their applications
to Clerkenwell County Court. Maryland was respondent, but counterclaimed for
money judgments and money relief, including possession.
This court has been told that there have been
other proceedings between some of these parties that have reached this court on
a previous occasion. Those proceedings were involved with the interaction of a
landlord’s claim for forfeiture with a tenant’s claim to enfranchisement. We
are not concerned with them except as background. Section 20, as substituted by
the Landlord and Tenant Act 1987 and as since amended by statutory instrument,
provides for estimates and consultation. I quote subsections (1) and (2):
(1) Where relevant costs incurred on the carrying
out of any qualifying works exceed the limit specified in subsection (3), the
excess shall not be taken into account in determining the amount of a service
charge unless the relevant requirements have been either —
(a) complied with, or
(b) dispensed with by the court in accordance
with subsection (9);
and the amount payable shall be limited
accordingly.
(2) In subsection (1) ‘qualifying works’, in
relation to a service charge, means works (whether on a building or on any
other premises) to the costs of which the tenant by whom the service charge is
payable may be required under the terms of his lease to contribute by the
payment of such a charge.
The limit under subsection (3), as amended and as
now relevant, is £1,000. Subsection (4) reads:
The relevant requirements in relation to such of
the tenants concerned as are not represented by a recognised tenants’
association are —
(a) At least two estimates for the works shall be
obtained, one of them from a person wholly unconnected with the landlord.
(b) A notice accompanied by a copy of the
estimates shall be given to each of those tenants concerned or shall be
displayed in one or more places where it is likely to come to the notice of all
those tenants.
(c) The notice shall describe the works to be
carried out and invite observations on them and on the estimates and shall
state the name and the address in the United Kingdom of the person to whom the
observations may be sent and the date by which they are to be received.
(d) The date stated in the notice shall not be
earlier than one month after the date on which the notice is given or displayed
as required by paragraph (b).
(e) The landlord shall have regard to any
observations received in pursuance of the notice; and unless the works are
urgently required they shall not be begun earlier than the date specified in
the notice.
Subsections (5), (6) and (7) apply where there is
a recognised tenants’ association, which there is not in this case. Subsection
(9) provides:
In proceedings relating to a service charge the
court may, if satisfied that the landlord acted reasonably, dispense with all
or any of the relevant requirements.
Maryland employs a company called Ladygate
Management Ltd (Ladygate) to manage its properties, which appear to be
extensive. The two companies have a common director, Mr John Bebbington. On
25
by Ladygate, wrote to Mr and Mrs Yates, the tenants of the studio flat,
enclosing a schedule of works described as ‘works of an external repairing and
redecoration nature which are required under the terms of your lease’. The
letter invited the tenants to make observations and to put forward the name of
any contractor whom they wished to be asked to tender. The letter said that a
formal section 20 notice would be served later.
On 23 August 1994 solicitors in Colchester acting
for Miss Martin wrote to the surveyors informing them of their interest, and
stating:
Your letter dated 25 July has just been forwarded
to us having been delayed by holidays.
Presumably you have also written to the other
lessees in similar style.
The solicitors said that they were also acting for
Mrs
the studio flat). The solicitors asked in their letter to be given more time to
make comments, but they made the immediate comment that the work seemed
expensive and they questioned whether it was really necessary.
Ladygate replied promptly to that letter, stating:
It is not our intention to carry out any works
which are not necessary for the good maintenance of the property.
The correspondence then seems to have gone into
abeyance until 26
it would, under section 20, of its intention to carry out works identified in
an enclosed schedule, for which estimates had been obtained from two builders,
GP Construction Ltd, which had quoted £9,474 excluding VAT, and Lawrence
Builders (London) Ltd, which had quoted £8,165 excluding VAT. The letter said
that Ladygate proposed to accept the lower estimate, but that work would not
begin before 1
The estimates and the schedule of works on which
they were based, were not, as the judge put it, ‘based on a worst-case
scenario’. The judge made the finding that that was not an unreasonable basis
on which to obtain the estimates. Indeed he went further, and indicated that it
would or might have been unreasonable to have put forward estimates on a worst-case
scenario.
As often happens, the two estimates were not
directly comparable because of the inclusion of contingency sums and other
matters. The works themselves were considered in great detail in the court
below with the assistance of expert evidence from two surveyors, which the
judge found very helpful. I need not go into that detail. The court is
primarily concerned on this appeal with two points of principle.
On 24 February 1995 Ladygate instructed the
selected builders to start work on 1 March. It seems that nothing much further
had been heard from the tenants or their solicitors, although there is some
reference to a letter (not before the court) written on 7 February 1995 by Miss
Martin to Ladygate. On 2 March, after the builders had started to erect
scaffolding at the house, there was a considerable burst of activity. Miss
Martin telephoned the builders; Mr Bebbington, of Ladygate, faxed a letter to
Miss Martin’s solicitors; and half a dozen further letters were exchanged by
fax during the course of that day. The solicitors disputed whether Miss Martin
had ever received the formal section 20 notice. Mr
she had acknowledged the notice on 7 February.
On 15 March, after some further correspondence,
Miss
appearing with Mr Martin Dray for the appellant, attaches importance, stating
that, in their client’s view, it would be unreasonable for the landlord to
proceed with any works. The upshot was that the commencement of the work was
delayed, but it proceeded on or about 21 March, despite protests that the
majority of the tenants did not want the work to be done, especially in view of
their right to acquire Maryland’s freehold under the Leasehold Reform Housing
and Urban Development Act 1993. It seems that the work finished during the
second half of May 1995, although the judge made no precise finding about that.
There has been, as I have mentioned, other litigation concerned with the
tenants’ rights under the 1993 Act.
What is of central importance to this appeal is
that, at a fairly early stage, it became apparent to the builders and to the
surveyor that the state of the house, and, in particular, the state of its
roof, was significantly worse than had been supposed when estimates were
obtained otherwise than on a worst-case scenario basis. On 30
which is little more than a week after the work had started, the surveyor at
Robertson & Co wrote to Mr Bebbington:
I enclose a series of photographs for your perusal
which are indicative of the poor condition of windows and roof surfaces.
According to Ms
You will determine from Lawrence Builders’ tender
that extra over charges have been provided for complete roof recovering works
and the additional expenditure has been authorised.
The additional work was eventually described
formally and in detail in what was described as ‘Variation Order No 1’, dated
12 June 1995. There were 31
were simply omissions of works with nothing substituted. The balance of
additional costs was £7,318 excluding VAT. Some of this work was on the
replacement of windows and works associated with the replacement of windows,
for which the tenants were liable under clause 2(3). On 27
surveyor wrote to Mr Bebbington:
24 Ribblesdale Road, London N8
I am concerned, and I am sure it has not passed
your notice, that the final cost of works on projects generally are invariably
in excess of the estimated cost of works that are reported to you from time to
time.
To a degree, this arises as a result of the
inability to make a sufficient inspection prior to the preparation of
specifications, if one were to await the convenience of lessees who are
suspicious to say the least, no works would be undertaken.
I am aware that if there is expenditure in excess
of £1,000 on a property it is necessary to reconsult with the lessees, unless
it can be established that the resultant delays would make the works more
costly. When works are in progress with caution I provide supplementary
instructions to contractors, but I am aware that a series of minor instructions
can result in fairly substantial costs over and above those originally
reported.
It is the contract in the above property which
brings to my attention the problem. This is a matter I feel where we should
discuss a system so that you are readily briefed and are not placed in what may
be an embarrassing situation with the lessees.
That letter shows that the surveyor was, as one
would expect, well aware of the position under the Housing Act 1985. In due
course, Ladygate prepared service charge computations and accounts, including
the cost of the additional works. It was, it seems, on 7 July 1995 that the
tenants first became aware, at least formally, of the additional works and of
their costs. Miss Martin and Mr
County Court in January 1996, seeking declarations that: the cost of all the
works was not reasonably incurred; and/or the works were not of a reasonable
standard; and/or the service charge was not reasonable. That is the effect of
the complicated
counterclaimed.
The case was heard on 20-22 January 1998. The
judge did not make any declaration. He awarded Maryland £6,129 plus interest
against Miss Martin, as against a claim for £8,042, and he awarded £3,417 plus
interest against Mr Seale, as against a claim for £5,146. He ordered Miss
Martin and Mr Seale to pay the costs and adjourned Maryland’s claim for
possession. That outcome reflects the judge’s findings that: the costs of the
surveyor had been reasonable and reasonably incurred; the tenants were liable
under clause 2(3) of their leases for the cost of replacing the windows; and,
generally, the works had been reasonable and necessary and had been carried out
in a reasonable manner and with reasonable expenditure.
Essentially, therefore, the issues, and the only
issues, that the judge decided in favour of the tenants rather than landlord
are those on which the landlord now appeals to this court: that is, the judge’s
decision not to dispense with all or any of the statutory requirements under
section 20(9) in relation to the additional works carried out (otherwise than
on the windows) and his ruling on the £1,000 limit.
As regards the additional works, the judge divided
them into three categories, the first of which were items on which, as the
judge found, the requirements of section 20 had been complied with, albeit in a
somewhat roundabout way. The second category was the windows for which the
tenants were directly liable under their own repairing covenants. There is no
respondent’s notice in respect of either of those matters.
That left the third category of additional works
not covered, as the judge held, by the original section 20 notice. Section
20(9), it will be recalled, gives the courts a discretion ‘if satisfied that
the landlord acted reasonably’ to dispense with ‘all or any of the relevant
requirements’.
Mr Stanley Gallagher submits, and it seems to me
plainly right, that section 20(9) does not create any general dispensing power
in the court. It is a two-stage process under which the court’s discretion to
dispense with all or any of the statutory requirements arises only if the court
is satisfied that the landlord has acted reasonably. The judge summarised the
rival submissions of the advocates before him, and expressed his conclusions as
follows:
I detect from Mr Bebbington’s evidence and from
Robertson & Co’s letter to Mr Bebbington of 2 June 1995 and the letters
sending the final account that the lessees were regarded as not co-operative
and with a potential for obstruction, and that lack of action to communicate
was deliberate, and deliberately in place by way of the operating of Robertson
& Co and Ladygate. The lack of awareness in fact by Ladygate for lack of
consultation does not, in my judgment, in this case, form a legitimate ground
for effectively arguing that no action by way of consultation or communication
constitutes a landlord acting reasonably for the purpose of section 20(9).
Acting reasonably, in my judgment, requires to be advanced by the respondent
for the very reason that section 20 was not complied with; so to say that to
comply with the relevant requirements would have delayed the works and
potentially increased the costs does not assist. ‘Acting reasonably’ is acting
reasonably in all the circumstances where section 20 is not complied with.
Actions may not be limited to the aspects in
section 20 but certainly would include them. Here no action was taken by the
landlord to consult or communicate with regard to the additional works, and I
have therefore reached the conclusion that the landlord cannot be regarded as having
acted reasonably within section 20(9).
Accordingly, the judge held that his discretion
under section 20(9) did not arise at all. He did not, therefore, have to
consider how he should exercise it.
Mr Lewison accepts that the ante-penultimate
sentence which I have quoted (”acting reasonably’ is acting reasonably in all
the circumstances where section 20 is not complied with’), is the right test.
Mr Lewison does not challenge the finding of fact that Ladygate deliberately
decided not to liaise with the tenants as regards the additional works because
of their lack of co‑operation and potential for obstruction.
Nevertheless, Mr Lewison challenges the assistant
recorder’s conclusions on grounds set out in five paragraphs of the original
skeleton argument, but capable of being summarised by reference to the tenant’s
failure to take the opportunity to make observations on the original works at
either stage when they were consulted, either informally or formally. Their
negative attitude and obstructive behaviour generally would, it is said, have
made any consultation exercise fruitless. To that, Mr Lewison has, in his oral
submissions, added further criticisms of the judge’s reasoning based on his
discounting of the importance of delay; on his apparent forgetfulness (at this
point in the judgment) of what he had previously said about the worst-case
scenario; and on his not taking into account the fact that the landlord was
under a positive obligation to carry out these works.
It seems to me that all those points would have
been highly relevant had the section 20(9) threshold been crossed and the
judge’s discretion to dispense become exercisable. However, the attitude taken
on behalf of Maryland by Ladygate and the surveyor, although it may have been
entirely understandable in human terms because of their perception of the
tenants’ attitude, is not one that can be regarded as reasonable for the
purposes of section 20(9).
The basic statutory purpose of section 20 is, as
the sidenote indicates, consultation with tenants on estimates provided to
them. Parliament has recognised that it is of great concern to tenants, and a
potential cause of great friction between landlord and tenants, that tenants
may not know what is going on or what is being done, ultimately at their
expense. Here, the cost of the works was almost doubled by the work in the
variation order, although Mr Lewison correctly points out that some were in
respect of windows and some (the category 1 works) were held to have been
covered, at least indirectly, by the original section 20 notice.
Nevertheless, a sum of £3,200, or thereabouts,
was, on any view, for works that were simply not covered by the original
section 20 notice, either directly or indirectly. It was known from 30 March
1995 at the latest that further works were necessary. Nevertheless, a
deliberate decision seems to have been taken somewhere in the line of
authority, for which Maryland must ultimately accept responsibility, not to
inform the tenants, still less to seek any sort of consultation with them. Even
though it was no doubt impracticable to comply with all the requirements of
section 20(4), that cannot be justification for a total disregard of all of
them and a deliberate decision not to tell the tenants what was going on.
It seems to me that the points made by Mr Lewison,
although there would be some substance in them, would really go to the second
stage of exercise of discretion if it ever became exercisable.
Finally, there is a short but not an easy point of
construction as to the £1,000 limit under section 20(3) as amended. The judge
held at the end of his judgment:
The service charge bill was presented as a whole,
as a complete bill in relation to all the works. Thus the excess relates to the
cost above £1,000 and does not arise for separate consideration in relation to
the additional works.
In other words, the £1,000 was a limit covering
the entire works carried out between 21 March and late May 1995, and was not
separately available for the additional works. Mr Lewison has submitted that
that is the wrong approach. The legislative purpose of the £1,000 limit, he
submits, is not to provide a level of trivial or de minimis expenditure
but to provide a margin of error. Mr Lewison did not argue for an extreme
fragmentation of works in a major scheme of refurbishment, which plainly would
be absurd. He did, however, urge that a common-sense approach would lead to the
conclusion that there were here two distinct batches of qualifying works.
I readily agree that a common-sense approach is
appropriate and necessary upon this point. I would also agree, if such were
Mr
how one batch of qualifying works is to be divided from another. The definition
of ‘qualifying works’ indicates what their quality is but not how one batch is
to be divided from another.
It seems to me, on what is I hope is a
common-sense approach, that it is significant that the surveyor and the builder
evidently regarded the additional work as a variation of the original contract.
The judge
covered by the original section 20 notice.
Mr Lewison submitted that the judge’s approach on
this point was inconsistent. He suggested that if the further works were seen
as part of the original batch of works, then the case was truly one of
non-compliance with section 20 as regards the entirety of the works, which was
not how the judge had seen it. If, on the other hand, the further works were
regarded as a new batch, then there was complete non-compliance with section 20
as regards that new batch, but a further £1,000 limit should be available. That
is a subtle argument, but I am not persuaded by it.
It seems to me that since parliament has not
attempted to spell out any precise test, a common-sense approach is necessary.
The judge was influenced by the fact that all the works were covered by one
contract. That would not, to my mind, always be a decisive factor, but, on the
particular facts of this case, that was the right approach. The legislative
purpose of the limit is to provide a triviality threshold rather than to build
into every contract a margin of error, which may in some cases, including this
case, simply duplicate a contingency sum that has already been provided for.
Although I do not completely accept the judge’s
reasoning on the second point, I do think that he came to the right conclusion
on the second point also. I would therefore dismiss this appeal.
Agreeing, BLOFELD
J said: A landlord acting reasonably is simply a landlord doing what
a reasonable landlord would do in all the relevant circumstances. Here, the
landlord appreciated that these tenants were unhappy with the proposed repairs
that were the subject matter of this section 20 notice. The works started about
the third week of March 1995. Shortly thereafter, the landlord was aware that
substantial extra work would need to be done. He took a deliberate decision not
to inform the tenants, as the learned assistant recorder found. He did not
inform the tenants until early July 1995. The scheme envisaged by sections 18,
19 and 20 of the Landlord and Tenant Act 1985 is to require the landlord to
give the tenant detailed information about the proposed extra works to be carried
out by him, the landlord. Here, the extra works, reasonable and necessary as
they were, and as the assistant recorder found, were themselves substantial
both in themselves and in relation to the cost of the original specification.
Despite the tenants’ earlier failure to respond to the landlord’s
communications and their later objection to the works proposed in the section
20 notice, I am satisfied that a reasonable landlord would, in these
circumstances, have informed the tenant of the extra work it was proposed to
carry out.
I, too, agree with my lord on this aspect of the
case, and would dismiss the appeal. I also agree with him on the second aspect
of the case, and have nothing to add on that.
Appeal dismissed.