Landlord and tenant – Service charges – Reasonableness – Second respondent appointed by leasehold valuation tribunal to manage estate – Necessary repair and maintenance works to estate arranged and charged to lessees including appellants over two consecutive years – Section 19 of Landlord and Tenant Act 1985 – Whether service charges reasonably incurred – Whether possibility of phasing works over longer period to ease financial burden on lessees a relevant factor when considering reasonableness – Appeal allowed
The two appellants were the long lessees of three flats in an estate that comprised five blocks of flats, some with commercial premises on the ground floor. The second respondent was the manager of the estate appointed by the leasehold valuation tribunal (LVT) on the application of the lessees, following years of neglect by the first respondent landlord. On his appointment, the second respondent arranged for outstanding maintenance works to be carried out. A figure of £100,000 was initially added to the service charge for these in 2009 and, once a detailed specification had been prepared and costed, a further £538,012 was added to the proposed service charge for 2010. The sums demanded from the appellants individually for 2010 were approximately £7,600 and £9,000 respectively.
A number of lessees were concerned about the significant increase in service charges and their ability to pay the sums demanded. Accordingly, the second respondent applied to the LVT for a determination as to whether the service charges for 2009 and 2010 were reasonably incurred, within section 19 of the Landlord and Tenant Act 1985. On that application, the appellants did not dispute that the works were needed and that the amount charged for them was reasonable. However, they argued that the works should not be carried out all at once but should be phased so as to spread the increased service charge costs. They claimed that many lessees could not afford to pay the sums demanded and that some would have to sell their flats in order to be able to do so.
The LVT determined that the ability of individual lessees to pay for required works was not a relevant factor and that reasonableness under section 19 related to the reasonableness of the works themselves and their costs, not to the ability of lessees to pay for them. It concluded that the service charges were reasonably incurred. The appellants appealed.
Held: The appeal was allowed.
The 1985 Act did not limit the ambit of reasonableness, in the context of section 19, so as to exclude considerations of financial impact. Giving the expression “reasonable” a broad, commonsense meaning, the financial effect of major works on lessees through service charges, and the question of whether works should be phased, could be a material consideration when considering whether the costs were reasonably incurred for the purpose of section 19(1)(a): Ashworth Frazer Ltd v Gloucester City Council (No 2) [2001] UKHL 59; [2002] 1 EGLR 15; [2002] 05 EG 133, Forcelux v Sweetman [2001] 2 EGLR 173 and Veena SA v Cheong [2003] 1 EGLR 175 considered. Even well managed properties were likely to require major expenditure from time to time and it was common practice, where the terms of the leases permitted, for service charges to be demanded on account over time to establish a reserve fund to pay for such extraordinary expenditure, so as to spread the cost and the financial burden over time. The terms of the relevant management order permitted the second respondent to demand service charges on account for a reserve fund.
Construing reasonableness in that way would not impose an unworkable burden on landlords or the LVT to make detailed enquiries of lessees’ means. Financial effect could be considered in broad terms, by reference to the amount of service charge being demanded, having regard to the nature and location of the property and compared with the amount demanded in previous years. If particular lessees wanted to put forward a case of particular hardship by reference to their personal circumstances, they could do so, although the weight to be attached to such an argument would depend on the cogency of the evidence to support it. Moreover, liability to pay service charges could not be avoided simply on the grounds of hardship, even if extreme. If repair work was reasonably required at a particular time, carried out at a reasonable cost and to a reasonable standard and its cost was recoverable pursuant to the relevant lease, the lessee could not escape liability to pay by pleading poverty. The lessee’s arguments would have to be weighed against all other relevant considerations, which might include the views of the other lessees, the degree of disrepair and the urgency of the work, or the extent to which it could wait, and the extent of any increase in the total cost of the works if carried out in phases as opposed to in one contract. The LVT was required to weigh all relevant matters in order to decide, on the evidence before it, whether the service charge costs were reasonably incurred. The LVT had not properly carried out that exercise and the matter should be remitted to it for rehearing accordingly.
Edward Denehan (instructed by Woolsey, Morris & Kennedy) appeared for the appellants; Gerard van Tonder (instructed by Gisby Harrison) appeared for the second respondent; the first respondent did not appear and was not represented.
Sally Dobson, barrister
