Assethold Ltd v Adam and others [2022] UKUT 282 (LC); [2022] PLSCS 181 is an interesting case for landlords, lessees and practitioners alike because the Upper Tribunal (Lands Chamber) has reaffirmed that whether costs in a demand for service charges have been reasonably incurred pursuant to section 19(1) of the Landlord and Tenant Act 1985 is determinable by reference to an objective standard of reasonableness and not the lower standard of rationality.
The appellant landlord was the freehold owner of Corben Mews, London SW8. The building was managed on the landlord’s behalf by managing agents. The respondents were the long leaseholders of the flats.
In February 2020 a survey was carried out in respect of the external walls of the building by a third-party firm. The report concluded that the building was satisfactory subject to the timber decking on the balconies being changed to a different material.
In August 2020 the firm was again commissioned to examine the external walls of the building. In its report dated September 2020 it found that the construction of the external walls was suitable for a building of its height and did not present a significant fire risk.
The firm was again commissioned to survey the external walls in January 2021. In its subsequent report, dated 15 March 2021, it identified that combustible materials were present. The report concluded that the presence of such materials posed an “intolerable risk” to the occupants. Remedial works to the building was recommended but in the interim it was advised that either an extended alarm system be installed or a waking watch be implemented. The landlord opted for the latter. The cost of the waking watch was £28,000 per month.
In June 2021 the landlord issued service charge demands to cover the costs of the waking watch. The leaseholders applied to the First-tier Tribunal arguing that contrary to section 19(1)(a), the cost of the waking watch was not reasonably incurred. The FTT agreed. In so doing it relied on the test in Waaler v Hounslow London Borough Council [2017] EWCA Civ 45; [2017] EGLR 19 which approved the two stage test enunciated in Forcelux Ltd v Sweetman [2001] 2 EGLR 173; namely, whether the landlord’s process was reasonable and secondly whether the amount actually charged, ie the outcome was reasonable.
On the evidence, the FTT found that the March 2021 report was incorrect and its recommendations not objectively justifiable. It determined that the landlord had acted unreasonably in failing to commission a further report in light of the starkly different conclusion the March 2021 report had reached compared to earlier reports. Further, as the recommendations in the March 2021 report were not objectively justifiable the cost incurred for the waking watch was not reasonably incurred.
On appeal the landlord argued that its decision-making process and its practical choice of what to do required the application of a rational test only. The test of reasonableness under section 19(1)(a) applied only to price. The UT rejected this contention. The landlord’s choice of “what to do” required an objective assessment of whether the landlord had followed a reasonable process and adopted a reasonable course of action.
Additionally the landlord argued that the FTT had erred in its application of the test if reasonableness was the measure. It was wrong to find that it was not objectively reasonable for the landlord to implement a waking watch as an interim measure. The UT agreed. The FTT failed to consider whether the expenditure was reasonable in the circumstances and on the basis of the information available when the cost of the same was incurred.
Elizabeth Dwomoh is a barrister at Lamb Chambers
