The Landlord and Tenant Act 1985 limits the amount of service charges payable to a landlord of residential premises. In broad terms, leaseholders can dispute the amount payable to a landlord if the work is not to a reasonable standard, the sum claimed is unreasonable or the amount in question was unreasonably incurred.
Garside v RFYC Ltd [2011] UKUT 367 (LC); [2011] PLSCS 246 addressed the issue of whether it is reasonable for landlords to have to consider the financial impact of service charge costs on leaseholders when deciding whether to carry out repair works in one major contract or to phase them over a period of time to spread the cost. This is likely to be particularly important where maintenance has been allowed to slip and leaseholders are then required to pay for major repair work at short notice in a single service charge year.
The landlord argued that, if a leaseholder’s ability to pay were to be relevant, it would introduce an unworkable duty on the landlord to make enquiries about leaseholders’ financial means. It would also mean that landlords would have to make difficult and potentially controversial decisions about what level of financial hardship might be acceptable, and to whom.
The leasehold valuation tribunal held that, as a matter of law, the financial effect on leaseholders was not a relevant consideration. The Upper Tribunal disagreed. It rejected the landlord’s claim that it would impose an unworkable burden on landlords, or the tribunal, to make detailed enquiries of a tenant’s means. It held that, in many cases, financial effect could be considered in broad terms by reference to the amount of service charge being demanded in respect of the nature and location of a property – and as compared with the amount demanded in previous years.
The Upper Tribunal indicated that other considerations may also be relevant when deciding whether major works should be phased and the cost spread over a longer period of time. For example, the tenants might disagree about how quickly the work should be done. The degree of disrepair and the urgency of the work or the extent to which it can wait will also be relevant (especially if there has been a history of neglect and work is urgently required, the local housing authority has served notices requiring work to be carried out or the insurance cover has been affected because of the lack of repair). Another relevant consideration may be the extent of any increase in the total cost of the work if carried out in phases, as opposed to in one contract.
However, the tribunal also stressed that tenants cannot escape liability for service charges by pleading poverty, even if they will have to sell their property to pay for them. The legislation does not empower the tribunal to alter a tenant’s contractual liability where work is reasonably required at a particular time, at a reasonable cost and to a reasonable standard, and is recoverable under the tenant’s lease.
The decision means that landlords and managing agents will now have an additional point to consider when planning major service charge expenditure on residential properties.
Allyson Colby is a property law consultant