Landlord and tenant – Service charge – Major works – Respondent carrying out major works to three blocks of flats with assistance of grant from London Development Agency – Application for grant including specific amount for flats held by long leaseholders including appellant – Amount of service charge payable by appellant in respect of works – Whether respondent obliged to credit leaseholders with full amount of grant attributable to leasehold flats – Whether respondent’s apportionment of grant money reasonable – Appeal dismissed
The appellant was the lessee of two flats in a block managed by the respondent on behalf of Barnet London borough council. The respondent managed three blocks in all, containing a total of 180 flats, most of which were let to secure tenants but 48 of which, like the appellant’s flat, were held by lessees on long leases at low rents. Following consultation with tenants, the respondent carried out a programme of major works to the three blocks, assisted by a grant from the London Development Agency (LDA). It subsequently sought to recover part of the cost from the lessees, including the appellant, through the service charge provisions in their leases. The appellant declined to pay the full amount demanded. The respondent brought county court proceedings to recover that sum and the matter was transferred to the first-tier tribunal (FTT) to determine the amount properly payable.
One of the appellant’s challenges to the service charge related to the manner in which the LDA grant had been apportioned. The appellant contended that, where the original grant application had specified separate sums in respect of the tenanted flats and the leasehold flats, the respondent should have applied the entire sum of £1.88m applicable to the leasehold flats to offset the costs to those lessees. The respondent contended that the apportionment of the grant, between the lessees of the leasehold flats and itself as freeholder of the tenanted flats, was a matter within its discretion and that it had acted reasonably in not requiring the appellant to pay for certain substantial items and in making reductions in costs which would otherwise, under the terms of the leases, have been properly chargeable to the lessees.
The FTT noted that the works had cost roughly £9.46m, of which about £7m was funded by the grant, more than £1.4m was funded by the borough and a little over £1m was charged to leaseholders. It found that those figures represented a reasonable apportionment of the costs and noted that it was arguable, under the terms of the leases, that the full costs were chargeable to the lessees. The appellant appealed.
Held: The appeal was dismissed.
The service charge provisions in the appellant’s lease contemplated that the respondent might carry out improvements or alterations to the buildings and recover the appropriate proportion of the costs “incurred or expended” in doing so. The respondent had “incurred” or “expended” the cost of the works, within the meaning of those provisions, notwithstanding that they had been funded by a grant. The grant had been awarded on a broad and unspecific basis which gave a wide discretion to the respondent as to how it should be spent. The respondent was not under any obligation enforceable by LDA either to lay out any particular amount of the grant money on works specifically for the benefit of the appellant, or any other owner of a leasehold flat, or to give credit for any particular proportion of the grant money to the appellant or any other owner of a leasehold flat. It was the respondent who had entered into the relevant contractual arrangements for carrying out the works, who had paid the contractors and who would have been sued had the contract not been honoured or the sums paid. In those circumstances, the respondent had incurred the costs of the major works to the buildings notwithstanding that the LDA had made the grant money available to pay for a substantial amount of the works: Haringey London Borough Council v Ball (2004, unreported county court decision of Judge Cooke) and Craighead v Homes for Islington Ltd [2010] UKUT 47 (LC); [2010] PLSCS 117 applied; Oliver v Sheffield City Council [2015] UKUT 229 (LC); [2015] PLSCS 171 distinguished.
Furthermore, it was not suggested that the LDA fell within the provisions of section 20A of the Landlord and Tenant Act 1985 regarding the limitation of service charges in respect of grant-aided works or those of the Social Landlords Discretionary Reduction of Service Charges (England) Directions 1997. It was significant that the respondent had applied for, and been awarded, the grant in circumstances where that legislation and those directions existed but that the grant did not fall within the ambit of either of them. Aside from such specific provisions, the general position was that the receipt by a local authority lessor of a grant in respect of works to a building did not affect what the owner of a leasehold flat could properly be charged through the service charge. In those circumstances, neither the LDA nor the appellant could legitimately have expected that the owners of the leasehold flats would be entitled as a matter of right to the credit of some part of the grant money.
Moreover, the appellant could not claim any rights over the grant money under the principle of unjust enrichment since the respondent, although enriched by the receipt of the grant, had not been so enriched at the appellant’s expense. There was nothing to indicate that the appellant could herself have obtained any grant herself from the LDA, or an equivalent funder, had the respondent had not applied for and received the LDA grant. No expense had been occasioned to the appellant by reason of the respondent’s receipt of the grant. Nor was there anything unjust in the respondent retaining the grant money. For those reasons, the appellant could have no restitutionary claim against the respondent for some proportion of the grant money.
It followed that, in the calculation of the service charge payable by the appellant in accordance with the terms of the leases, she was not entitled to require to be disregarded the cost of works paid for by the respondent from money received by way of grant from the LDA. Nor did she have any claim against the respondent entitling her to some specific proportion of the grant. The respondent had in fact allowed the appellant a substantial credit against what would otherwise have been her service charge in order to take into account the receipt of the grant. In all the circumstances, the appellant had no legitimate complaint that she had been given insufficient credit for the LDA grant when calculating the amount of her service charge payment.
The appellant appeared in person; Jon Holbrook (instructed by Judge & Priestley LLP, of Bromley) appeared for the respondent.
Sally Dobson, barrister
