The Court of Appeal in London has ruled against the freeholder of a new-build in Dalston, E8, who sought to add the cost of repair to residents service charges, despite having an insurance policy to cover the costs.
The freeholder had sought to charge the leaseholders and then repay them when the policy paid out, but in a ruling this week a three-judge panel at the Court of Appeal ruled that the freeholder had to “give credit for anticipated payment,” when assessing the service charges.
The building at the centre of the dispute, the Interchange, is a large mixed-use development that was completed in 2008.
In 2015, water began to penetrate into the commercial units in the basement and it transpired that the building’s waterproof membrane was faulty and needed around £291,000 of repair works.
Much, if not all, of this could be covered by various NHBC warrantees – a form of new-build property insurance policy.
In January 2016, the freeholder agents gave notice to the leaseholders that their 2016 service charge would contain instalments for the membrane work.
This resulted in a dispute that went to the First Tier (Property) Chamber, and the Upper Tribunal (Lands Chamber) before ending up in the Court of Appeal, which gave its ruling yesterday.
In its ruling, the court backed the lease holders.
“Where, as here, there exists an anticipated schedule of works, the total costs of which are reasonable and there is a possibility of a third party making a contribution to those costs, in assessing the residential service charge payable in respect of those works, the landlord does have to give credit for anticipated payment when assessing the reasonable amount to be credited on account,” Lady Justice Nicola Davies said in the ruling.
