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Where lessees are obliged to pay service charges under the terms of their lease, they are afforded protection by section 19 of the Landlord and Tenant Act 1985 (‘the Act’), which provides that costs shall only be take into account in determining the service charge payable for a period where they are “reasonably incurred” and if the works and services are carried out to a “reasonable standard”.
When considering whether or not service charges have been reasonably incurred, the First-tier Tribunal will have regard to a wide variety of factors. One of these may be the financial position of the leaseholders.
It has previously been held in the Upper Tribunal (Garside v RFYC ), that whilst financial hardship is not in itself a reason to avoid paying service charge, it can be a relevant factor in determining whether the decisions made concerning the timing of the works were reasonable.
In London Borough of Hounslow v Waaler (2017), the Court of Appeal was required to determine the question of whether there was a requirement on a landlord, when carrying out improvements rather than repairs, to have a particular consideration of a leaseholder’s interests, their views on proposals for major works and the potential financial impact on them.
The estate in question consisted of several blocks of flats. There were about 850 residents on the estate, of which 140 had long leases which had been created under the right to buy scheme. The Council sought to carry significant major works to the building, which included repairs and improvements. The main improvement was the replacement of the original windows and cladding to correct a design defect.
Following receipt of a bill of over £55,000, the Respondent applied to the First-tier Tribunal for a determination as to the service charges payable. The Tribunal found in the Council’s favour and the issue of recoverability of the cost of the replacement windows was appealed. The Upper Tribunal held that the Council ought to have taken particular account of the leaseholder’s interests, their views on the proposals and the cost to them when deciding whether to go ahead. As such only part of the claim was allowed.
The Court of Appeal held that the purpose of section 19 of the Act was to protect the leaseholder against charges that would otherwise be contractually recoverable and so it was not just a question of whether or not the landlord acted reasonably in his decision-making process – the interests of the tenant also had to be taking into account.
It was held that the same legal test applied to all categories of work, whether they were improvements or repairs, provided that they fell into the definition of service charge as set out in section 18 of the Act. However, as there was clearly a difference between improvements, which were optional, and repairs, which were mandatory, different considerations necessarily came into the assessment of reasonableness.
There was nothing wrong with factors used by the Upper Tribunal given the facts of the case. The landlord had a statutory duty to consult in any event (section 20 of the Act) and the landlord did not need to go beyond this as the purpose was to inform the landlord of the lessee’s views. The landlord is not necessarily bound by the lessees’ opinions but these should certainly be a consideration. The Court of Appeal also expressed accordance with the view of the Upper Tribunal in Garside as to broadly calculating the financial impact on a lessee based on past service charges and the nature and location of the property.
However, the Court of Appeal did not issue guidance on how a landlord should exercise its discretion in future cases of improvement, noting that factual situations are almost infinitely variable and that meant that there would be different considerations in each case.
This article is for information purposes only and is not legal advice. It should not be acted or relied upon and legal advice should be sought before applying any of the information in this article to any facts or circumstances.