Landlord and tenant – Service charge – Section 19 of Landlord and tenant Act 1985 – Respondent local authority landlord carrying out scheme of major works to 1960s estate – Appellant leaseholder obliged to contribute to cost through service charge – First-tier tribunal finding cost of works reasonable and charge payable accordingly – Whether works amounting to repairs or improvements – Whether financial impact on leaseholders relevant to reasonableness of charge – Appeal allowed in part
The appellant held a long lease of a flat on an estate in Hounslow, which dated from the 1960s and was owned by the respondent council. The estate contained four tower blocks, several smaller blocks of flats, a few houses and a block of sheltered accommodation. Around 850 flats were let on secure tenancies, while another 140 flats, like that of the appellant, were held on long leases created under the right-to-buy scheme of the Housing Act 1985. Between 2005 and 2006, the respondents carried out a scheme of major works to the estate, which included replacing the flat roof of each block of flats with a pitched roof and replacing the wood-framed windows with metal-framed units, which in turn necessitated the replacement of the exterior cladding and the removal of underlying asbestos.
The works were partly financed by government loans under the Decent Homes initiative. The respondents sought to recover some of the remaining cost from leaseholders through the service charge provisions in their leases. The appellant received a demand for £55,195.95 and other leaseholders were billed for similar amounts. On an application to the first-tier tribunal (FTT), under section 27A of the Landlord and Tenant Act 1985, the appellant contended that the charge was unreasonable. As well as disputing the respondents’ entitlement to recover that sum under the terms of her lease, she also argued that it was unreasonable to charge the whole cost of the works in one year without taking into account the financial impact on leaseholders.
The FTT held that the cost of the works was recoverable under the terms of the lease and that, subject to certain minor adjustments, the sum demanded was payable. On appeal from that decision, issues arose as to whether: (i) the works were repairs which the respondents were obliged to carry out under the repairing covenant in the lease or improvements which they were not obliged to carry out; and (ii) whether, in determining whether the charges were reasonable within the meaning of section 19 of the 1985 Act, the financial impact on leaseholders should be taken into account.
Held: The appeal was allowed in part.
(1) On the proper construction of the leases, the respondents were obliged to carry out repairs and had a power to carry out improvements. The respondents were entitled to seek contribution to the cost of either type of work from the lessees. However, different considerations applied when assessing the reasonableness of the cost of repairs from those that applied to improvements, notwithstanding that section 19 of the 1985 Act made no express distinction between the two. In carrying out repairs, a landlord was usually fulfilling an obligation under the lease. Failure to carry out the obligation would put the landlord in breach of the lease and make it vulnerable to an order for specific performance, and possibly an award of damages. Improvements were a different matter and might simply be a matter of choice.
Where the works to a building might be a mixture of repairs and improvements, the distinction between the two might become blurred. It was for the landlord to decide how to discharge its obligations, provided that it acted reasonably, and the tenants could not complain simply because the landlord could have adopted another and cheaper method. However, if a landlord decided to carry out a scheme of works which went beyond what was required to effect a repair, and sought to recover contributions to the cost from leaseholders, then it had to take particular account of the extent of the leaseholders’ interest, their views on the proposals and the financial impact of proceeding. While the respondents had responsibility for their secure tenants, they also had a responsibility, as landlords, to the leaseholders. In deciding what works to carry out, it was not sufficient simply to rely on the right to recover the cost of improvements as a justification in itself for embarking on a scheme of very expensive works.
Where works of repair were required, and there was a reciprocal duty on a leaseholder to contribute to the cost, the leaseholder’s means would usually be irrelevant to the issue of whether costs were reasonably incurred, save in those limited cases where an unexpected increase in service charges and the financial impact of such an increase might be relevant considerations in a decision on how and when to effect repairs. In the case of improvements, however, the financial impact on leaseholders would be relevant. Improvement in that context meant works going beyond what was required to effect a repair. Where the cost of a scheme of works was high, and the product of those works was a building, or part of a building, which was wholly different than the subject of the original demise, then a landlord would have to consider a number of matters before deciding to proceed. First, the availability of alternative and less expensive remedy should be explored. Second, greater weight should be given to the views and the financial means of the lessees who would be required to pay for those works: Garside v RFYC Ltd [2011] UKUT 367 (LC); [2011] PLSCS 246 applied.
(2) Consequently, while the costs of both repairs and improvements were recoverable under the terms of the appellant’s lease, the issue of whether particular works constituted repairs, improvements or a mixture of the two remained relevant. On the facts of the case, the FTT had been entitled to find that the roof of the appellant’s block was in disrepair and that the cost of replacing the flat roof with a pitched roof were reasonable. So far as the works addressed a possible design defect, that did not detract from the fact that replacing the roof fell within a range of reasonable methods of repair open to the respondents: Post Office v Aquarius Properties Ltd [1987] 1 All ER 1055; [1987] 1 EGLR 40 and Quick v Taff Ely Borough Council [1985] 3 All ER 321; [1985] 2 EGLR 50 applied.
As to the windows, the respondent’s obligation to keep in repair the structure and exterior of the property included the glazing to the windows notwithstanding that these were included in the demise of the flat. However, the cost of the works carried out was not reasonable. On the evidence, the only disrepair to the windows was caused by their design, with the windows being too heavy for the hinges. That defect must have been a problem since the properties were built and had been managed for at least 30 years. While that did not mean that the respondents should not have taken steps to remedy the problem, they should have explored alternative, and less expensive, solutions. Since the works went beyond those required to remedy disrepair, the financial impact of the works was relevant to the question of whether the cost had been reasonably incurred. On the facts of the case, the cost of the works to the windows was a significant factor. There was no evidence that the respondents had given any consideration to the financial impact on the lessees of replacing both the windows and the cladding. In those circumstances, and having regard to the level of costs ultimately charged to the leaseholders, the FTT should not have been satisfied that the council’s decision to incur the costs was reasonable or that the whole of the cost of the replacement windows and cladding had been reasonably incurred. The case was remitted to the FTT to determine how much the service charge should be reduced to reflect that finding.
Mr G Coyle appeared for the appellant; Wayne Beglan (instructed by the legal department of Houslow London Borough Council and Brethertons LLP) appeared for the respondents.
Sally Dobson, barrister
Click here to read the transcript: Waaler v Hounslow London Borough Council
