Landlord and tenant – Service charge – Liability – Appellant landlord replacing combined block heating and hot water system with modern system – Appellant seeking contribution from respondent tenant as service charge – First-tier Tribunal deciding respondent not obliged to make contribution – Appellant appealing – Whether cost recoverable as cost of providing a service – Whether cost irrecoverable as cost of improvement rather than repair – Appeal allowed
The respondent was the long lessee of 37 Gilesmead, 79 Camberwell Church Street, London SE5, which was one of 40 units in a low-rise block of flats and maisonettes owned by the appellant landlord. The appellant planned to replace a worn-out central heating and hot water system serving the block since the original heating and hot water system did not comply with modern standards. The total anticipated cost of the work was almost £800,000. The main respects in which the two systems differed were that under the new system each room could be heated independently, and the heating system was a closed individual circuit; the hot water was now drawn from the mains before being heated by the heat exchanger in each flat, rather than being heated centrally and then pumped hot around the building.
The appellant sought to recover from the respondent a contribution towards the cost of the works in the sum of £24,486.88 as an advance service charge. The First-tier Tribunal (FTT) decided that the respondent was not obliged to make any contribution towards the estimated cost of installing the new system. It considered that the work carried out by the appellant was an “improvement” rather than a “repair” of the original system, and that the terms of the respondent’s lease did not require her to contribute towards the cost of improvements.
The appellant appealed contending that the FTT had reached the wrong conclusion in law because: (i) the relevant covenant was a covenant to provide services, to which the distinction between repair and improvement was irrelevant and the implicit limit on the ambit of “repair” was inapplicable; and (ii) in any event, the FTT’s approach to its evaluation of the differences between the original and replacement systems was flawed and its conclusion that nothing was payable because the work went beyond repair was not a conclusion which the FTT could properly have reached.
Held: The appeal was allowed.
(1) The appellant’s covenant at clause 4(5) of the lease obliged it to provide services, amongst which were space heating and hot water, and to ensure so far as practicable that they were maintained at a reasonable level. The respondent was liable to pay all the costs and expenses of or incidental to providing the services. A covenant to provide services was not the same as a covenant to repair; it imposed a wider and potentially more onerous obligation. Such a covenant might require the covenantor to carry out whatever work was necessary to provide the service, even though that work went beyond what would ordinarily be called repair. As a matter of contract, it was for the appellant to decide how to supply the central heating/hot water service. Because a covenant to provide a service of heating and hot water imposed an obligation to take whatever steps were required to achieve an outcome, it was not relevant to consider in any detail what those steps were. The distinction between repairs and improvements, and the question of whether a particular programme or item of work went beyond repair, was therefore irrelevant: Yorkbrook v Batten [1985] 2 EGLR 100, Waaler v Hounslow London Borough Council [2017] EWCA Civ 45; [2017] EGLR 19 and Plough Investments Ltd v Manchester City Council [1989] 1 EGLR 244 applied.
(2) Although clause 4(5) also obliged the appellant “to keep in repair any installation connected with the provision of those services”, if the repair of those installations was insufficient to maintain the service at a reasonable level the covenant as a whole clearly obliged the landlord to take additional steps to satisfy its primary obligation of providing the service. It was the service which was to be maintained, not the installations by which it was provided. In any event, it was unrealistic to suggest that the parties entering into the lease intended the building to remain unchanged throughout the term. When the lease was granted in 2008 the heating and hot water installations were almost 40 years old and unable to provide a reasonable level of heating. The lease was for a term of 125 years and the only sensible expectation would have been that the existing installations would be replaced in their entirety. In that context the parties could not have intended that the appellant’s only obligation should be to repair what was present or replace it with something satisfying modern requirements at its own expense. Nothing in the lease suggested that there was intended to be any potential for a gap to exist between the landlord’s obligation to provide services and the tenant’s obligation to pay for them. Had it been intended that the lease would entitle the appellant to recover the cost of providing only part of the cost of a service, that would have been spelled out in the clearest possible language.
(3) The FTT had directed itself and the parties by reference to the wrong question. It ought not to have asked whether the costs of the replacement system were costs of repair or costs of improvement, but rather whether they were costs and expenses of or incidental to proving the services of heating and hot water, or of ensuring so far as practicable that those services were maintained at a reasonable level.
(4) There was no need to remit the appeal to the FTT since the Upper Tribunal could safely substitute a determination that the respondent was liable to pay the whole of the sum claimed by the appellant as her contribution towards the estimated costs of the renewal of the heating and hot water services. When the final account for the work was presented, it would be open to the respondent to dispute her liability to pay, or to require reimbursement of any overpayment.
Philip Rainey QC (instructed by London Borough of Southwark Legal Services) appeared for the appellant; Justin Bates and Rayan Imam (instructed by Commonhold and Leasehold Experts Ltd, of Hove (acting pro bono)) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Southwark London Borough Council v Baharier
