Landlord and Tenant Act 1985 – Service charge – Reasonableness – Appellant landlord carrying out emergency works to building – Replacement of steel beams supporting workway used to access flats on upper floors – Section 27A of 1985 Act – Whether respondent lessees of flats liable to pay for entirety of cost of works through service charge – Whether liability of respondents to be reduced on ground that cost of works increased by historic neglect – Appeal allowed
Since 1973, the appellant had been the freehold owner of a three-storey Victorian building comprising nine shops on the ground floor and 18 flats on the upper floors. The respondents were the lessees of two of the flats, each of which was let on a long lease that contained a landlord’s covenant to repair the structure of the building and a tenant’s covenant to pay for such repairs through a service charge. The earliest of the leases dated from 1983. Access to the upper floors was gained by an external concrete walkway that ran along a parapet wall, supported by steel beams. The beams corroded over many years until, in 2008, one of them failed and emergency repairs had to be carried out to replace the most dangerous section of the parapet and replace the failed beam. After further investigation, the rest of the parapet was removed and plans were put in place to carry out remedial works and replace the rest of the steel beams. The parties agreed that, until the 2008 failure, there had been nothing to alert the appellant to the need to replace the beams.
The appellant sought to recover more than £300,000 in respect of the cost of the works from the lessees of the flats through the service charge. On an application by the respondents and the other lessees under section 27A of the Landlord and Tenant Act 1985, the leasehold valuation tribunal (LVT) determined that the lessees’ liability should be reduced by £44,665. It found that some of the beams should have been replaced as long ago as 1960, that all of them should have been replaced 20 to 30 years ago, when one of them had been replaced, and that, had that been done, the cost of the works would have been less. The LVT concluded that, while the cost of replacing the beams was in principle recoverable through the service charge, the repair costs were not reasonable to the extent that they were increased by being carried out as an emergency response to the imminent collapse of the parapet.
The appellant appealed. Both parties agreed that the LVT had erred in law and on the facts. By the date of the application, the appellant had carried out four phases of works and proposed a fifth. The respondent argued that the cost of the works would have been less had they all been tendered together as a single contract.
Held: The appeal was allowed.
The LVT had erred in focusing on the condition of the steel beams in the 1960s. Any failure to carry out remedial work in the 1960s was not the responsibility of the appellant, which had not acquired its freehold interest until 1973. Moreover, none of the current leases of the flats had existed in the 1960s and none of the lessees had any entitlement to damages referable to breaches of covenant committed by the appellant between the 1973 and the date on which the lessee acquired his or her own lease. An allegation of historic neglect did not touch on the question posed by section 19(1)(a) of the Landlord and Tenant Act 1985, namely whether the costs of remedial work had been reasonably incurred so as to be capable of forming part of the relevant costs to be included in a service charge. The cost of repair did not depend on whether the repairs should have been allowed to accrue: Continental Property Ventures Inc v White [2006] 1 EGLR 85; [2006] 16 EG 148 applied.
The only route by which an allegation of historic neglect could provide a defence to a claim for service charges was by showing that, but for a failure by the landlord to make good a defect at the time required by its covenant, part of the cost eventually incurred in remedying that defect, or the whole of the cost of remedying consequential defects, would have been avoided. In those circumstances, the tenant to whom the repairing obligation was owed had a claim in damages for breach of covenant, which could be set off against the same tenant’s liability to contribute through the service charge to the cost of the remedial work. The damages that the tenant could claim, and the corresponding set-off available in such a case, comprised two elements. The first was the amount by which the cost of remedial work had increased as a result of the landlord’s failure to carry out the work at the earliest time it was obliged to do so, while the second represented any sum that the tenant was entitled to receive in general damages for inconvenience or discomfort if the demised premises themselves were affected by the landlord’s breach of covenant.
It was common grounds that the appellant had been in breach of its repairing covenant since it acquired its interest in the freehold in 1973, because the steel beams supporting the walkway had deteriorated significantly from their original condition by that time, and that the appellant’s obligation to repair did not depend on it having actual notice of the condition of the beams: British Telecommunications plc v Sun Life Assurance Society plc [1996] Ch 69; [1995] EGCS 139 applied. The principal issue was therefore whether the remedial work carried out by the appellant in 2008 and 2010, and the further work that it proposed to carry out in future, could have been carried out at a lower cost had it been done earlier. That assessment had to be made separately for both of the respondents and for each of the other lessees who had joined as applicants in the original application to the LVT, because it depended on the repairing obligation owed to each of them by the appellant from the time they first became registered proprietors of their respective leasehold interests.
The evidence established that by 1983, the earliest date when any current leaseholder acquired their interest, a decision to replace all the beams would have been inevitable had they been inspected. The conditions that would have been revealed by such inspections after 1984 would have resulted in substantially the same course of remedial action being followed as had actually been taken. Substantially the same work would have been required at any time in the 30-year preceding the commencement of the works in 2008 and no real savings would have been made had the beams been inspected and work carried out at any relevant earlier time.
Furthermore, the first four phases of the works had properly been considered emergency works, for which there was insufficient time to consult the lessees and tender a contract. That would have been the case whenever those phases became apparent. All the work actually carried out, and proposed to be carried out in phase 5, would have been required had the work been done as a single project. On the evidence, there it was unlikely that any significant saving would have been made by doing the works as one project; moreover, the argument in favour of a saving fell away when the need for emergency work was appreciated.
Since all the remedial work was within the appellant’s repairing obligation, and all of it was required, the lessees were not entitled to any award of damages to compensate them for the disruption that they had experienced as a result of the works.
Overall, the cost of the works claimed was appropriate and should be allowed as relevant costs to be included in the service charge payable by the respondents.
Edward Peters (instructed by Hammond Bale LLP) appeared for the appellant; Brynmor Adams (instructed by Comptons Solicitors LLP) appeared for the respondents.
Sally Dobson, barrister