Landlord and tenant – Service charge – Government funding received by respondent landlords for housing renewal – Works carried out to estate — Appellants having long leases of flats in estate under which service charges payable – Sections 19 and 27A of Landlord and Tenant Act 1985 – Whether service charges levied in respect of works unreasonable in light of government funding – Whether respondents should have reduced charge pursuant to Social Landlords Discretionary Reduction of Service Charges (England) Directions 1997 – Appeal dismissed
The appellants held long leases of flats, granted under the right to buy provisions in Part V of the Housing Act 1985, in an estate of three Grade II* listed blocks in east London. Each of the leases provided for the payment of service charges. The estate was managed on behalf of the second respondent council, as landlords, by the first respondent, an arm’s-length management organisation (ALMO) created pursuant to the government’s national “Decent Homes” strategy for the renewal of local authority housing. Capital funding for the first respondent was supplied through supported borrowing from government funds and an ALMO allowance, paid to local authorities by the government, to cover interest payments and any compulsory repayments of capital on the supported borrowing.
The appellants applied to the leasehold valuation tribunal (LVT), under section 27A of the Landlord and Tenant Act 1985, for a determination of their liability for service charges for the period 2006 to 2008. The disputed items related to external repairs and decoration and the renewal of the roof and windows, at a cost exceeding £5.7m, with individual charges to the appellants ranging from £30,000 – £40,000 each. The appellants contended that even if it were reasonable to have undertaken the works, the service charge was not reasonably incurred, within section 19 of the 1985 Act, since: (i) the government funding received by the first respondent should be treated as reducing the appellants’ service charge liabilities; and (ii) the respondents should have exercised their discretion, under the Social Landlords Discretionary Reduction of Service Charges (England) Directions 1997, to reduce or waive the costs of the works to the appellants, but had instead operated a blanket policy against doing so.
The LVT rejected those submissions and found that the relevant costs had been reasonably incurred. With regard to the appellants’ second submission, it held that it lacked jurisdiction to determine the lawfulness of any blanket policy operated by the respondents. The appellants appealed.
Decision: The appeal was dismissed.
(1) The ALMO funding was not a grant of a type to which the provisions relating to grant-aided works in section 20A of the 1985 Act were relevant. It was instead supported borrowing under which the capital borrowed might become repayable under specified, albeit unlikely circumstances. It was not specifically allocated to a particular estate or properties owned by the second respondents. Further, it was calculated by reference to, and applied towards, the second respondents’ tenanted property; it did not apply to leasehold property, such as that occupied by the appellants, that had been sold under the right-to-buy legislation and was liable to a service charge. The ALMO allowance had been used to support the funding of works to the tenanted dwellings on the estate and not the leasehold dwellings. The second respondents’ ALMO funding calculations would depend on the cost neutrality of the contribution of their leaseholders through a service charge; those calculations assumed that they would recoup what they had spent on leasehold units according to the terms of each lease and the 1985 Act. Accordingly, there was no element of double recovery of expenditure. Consequently, the source of the first respondent’s funding did not affect the appellants’ liability for service charges: Continental Property Ventures Inc v White and another [2006] 1 EGLR 85 distinguished.
(2) Although the jurisdiction of the LVT under section 27A was wide, what fell to be determined in every case was whether a service charge was payable. The discretion to reduce or waive a service charge under the 1997 Directions applied only to a service charge that was payable by a lessee. The directions could therefore apply only after the LVT had exercised its jurisdiction to determine whether the service charge in question was so payable. Unless and until the question was decided as to whether the service charge was payable, the directions were not relevant. Accordingly, the application of the directions did not form part of the LVT’s jurisdiction. Moreover, the discretion under the directions was that of the second respondents. It was for them, not the LVT, to determine whether service charges should be waived or reduced. If the second respondents failed to exercise their discretion, there was nothing that the LVT could do about it when determining the amount of service charge that was reasonable and payable. The LVT could not reduce the amount otherwise payable by granting a reduction. It had correctly rejected the appellants’ argument that the failure on the part of the second respondents to do the works at no, or a reduced, cost to lessees meant that those costs were not reasonably incurred. It had also correctly decided that the legality of the second respondents’ approach to the application of the discretionary directions was not within its jurisdiction.
Justin Bates (instructed by Anthony Gold Solicitors) appeared for the appellants; Ranjit Bhose (instructed by the legal department of Islington London Borough Council) appeared for the respondents.
Sally Dobson, barrister
