Landlord and tenant – Service charge – Retirement complex – Landlord and tenant Act 1985 – Appellant landlord upgrading fire alarm system – Appellant seeking to recover cost from respondent tenants through service charge by monthly amount spread over 15 years – Leasehold valuation tribunal holding that charge reasonable within section 19 of 1985 Act and that statutory consultation requirements complied with – Tribunal nonetheless disallowing recovery on grounds of failure to satisfy additional test of fairness and reasonableness under implied term of lease – Whether implication of term justified – Appeal allowed
The respondents were the tenants of flats and bungalows in a retirement complex under assured monthly tenancies that contained a requirement to pay a service charge to the in addition to the rent. In 2010, the appellant landlord contacted the tenants to advise them that the fire alarms in the complex did not comply with the latest standards and that it proposed to upgrade the system at an estimated cost of just over £50,000, which would be spread among the tenants over the following 15 years so as to result in an extra service charge of £7.77 per month for each residential unit. When the work was carried out, the cost rose to £57,311, with a consequent increase in the additional monthly charge to £8.85 per unit.
The respondents applied to the leasehold valuation tribunal (LVT), under section 27A of the Landlord and Tenant Act 1985, for a determination of whether the appellant was entitled to make the additional charge. The LVT held that the cost of the works was recoverable under the express terms of the lease, which specifically covered the “fire detection alarm and smoke dispersal system” and “fire fighting equipment”, and that it had been “reasonably incurred” within section 19 of the Act. It also found that the works had been performed to a reasonable standard and that the appellant had carried out full consultation with the tenants in accordance with the statutory requirements.
However, the LVT went on to imply an additional term into the lease, by reference to Finchbourne v Rodrigues [1976] 3 All ER 581; [1976] 1 EGLR 51, that the expenditure should satisfy an overriding requirement of being fair and reasonable. It found that the implied test was not met since the parties, when entering into the tenancy agreement, could not have intended the tenants to pay such a high sum as £8.85 per month, which might be a minor amount to employed members of the public but could be a substantial sum to retired tenants who were all required to be on a “low income” as defined in the tenancy agreement. It further found that it was not reasonable for the tenants to pay for the new system where, instead of a consumable item, it was effectively a fixture or fitting forming part of the landlord’s structure. The appellant appealed.
Held: The appeal was allowed.
The case of Finchbourne v Rodrigues was concerned with whether a certain term should be implied into the particular tenancy agreement there under consideration. The tenants in that case did not have the protection of the Landlord and Tenant Act 1985, which was available to the respondents in the instant case. The question here was whether it could be said that the parties had not intended the appellant to be unrestricted regarding the reasonableness of service charges beyond the contractual terms of the tenancies and the provisions of the 1985 Act. It was not possible to reach that conclusion in the instant case.
The term implied by the LVT went not merely to the amount of the service charge but also to the subject matter of the charge. Under that implied term, it would not be sufficient that a particular item was contractually recoverable, as an item that could be charged for, and was recoverable in accordance with the 1985 Act; it would also have to be “fair and reasonable” for the parties to have agreed that the item could be charged for. There was no justification for the implication of such a term, which effectively involved re-writing the provisions of the contract. Those provisions expressly contemplated that the service charge could include charges for the renewal of equipment for fire detection alarm and smoke dispersal system and for fire-fighting equipment. Bearing in mind that express provision in the tenancy agreements, there was no justification for implying a term that such items could only be charged for if they were not effectively a fixture and fitting forming part of the buildings.
Moreover, even if the parties had shared a common intention that the tenants should not pay as much as £8.85 per month for a fire alarm system, that would not mean that the parties intended nothing whatsoever to be payable by way of service charge for such an item. The appellant was not seeking to recover the entirety of the fire alarm costs in one single year’s service charge but was seeking to recover over 15 years the cost of installing equipment which was estimated to last that long. Accordingly, even if there were some kind of implied term as found by the LVT, it would not make a recovery on that basis unreasonable.
The proper conclusion was that the cost of the fire alarm works was properly recoverable from the respondents through the service charge provisions at the rate of £8.85 per month.
The appeal was determined on the written representations of the parties.
Sally Dobson, barrister
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