Daejan Properties Ltd v Griffin & Anor [2014] UKUT 206 (LC) is not, perhaps, the most riveting of Upper Tribunal appeals on service charges, but it does have some useful statements and reminders along the way.
This concerned a 3 storey Victorian property in Barnet, with shops on the ground floor and 18 flats above it. “Access to the upper floor flats is by a walkway along which runs a parapet wall supported by concealed steel beams. For very many years the steel beams corroded, unobserved and unrepaired, until in 2008 one of them failed and threatened to tip the parapet into Cricklewood Lane. Emergency repairs were carried out to remove the most dangerous section of the parapet and to replace the failed beam. After further investigation the rest of the parapet was removed and the remaining beams will soon have to be replaced.”
The issue was who should pay for the repairs, given that the residential leases had a landlord’s covenant to keep the structure in repair and a tenant’s covenant to pay for such repairs.
By a decision given on 20 March 2012 a leasehold valuation tribunal of the London Rent Assessment Panel (“the LVT”) found, in summary: that some of the steel beams ought to have been replaced as long ago as about 1960; that one beam had been replaced 20 to 30 years earlier and that all of the beams ought to have been replaced at that time; and that, if the beams had been replaced when they ought to have been, the cost of the work (in particular the emergency work) would have been less than it will now be. As a result of those findings the LVT determined that, while in principle the cost of replacing the beams was recoverable through the service charge, the cost was irrecoverable to the extent that it had been increased by being carried out as an emergency response to the imminent collapse of the parapet. The net effect of the LVT’s decision was to reduce the amount recoverable through the service charge by £44,665, which is about 13% of the anticipated total cost of £333,632.
The landlord appealed. On appeal, rather oddly, both sides were agreed that the LVT was wrong in law (though for different reasons), both agreed that there was no evidence to support the LVT’s decision that the beams required repair in the 1960s, and both agreed:
That, until the failure of the beam above shops 10 and 12, there was nothing to alert the appellant to the need to replace the beams; there had therefore been no reason for the appellant to carry out any opening up or other destructive inspection work.
That by the time each tenant acquired their lease, the appellant was already in breach of covenant and under an obligation to replace the beams, despite having no actual knowledge of their condition.
(The reason for this last agreement being that the wording of the landlord’s repairing obligation was ‘to keep in repair’ and therefore, as per British Telecommunications plc v Sun Life Assurance Society plc [1996] Ch 69 (CA), the repairing liability for retained parts arose immediately a defect occurred, not once the landlord was on notice of the defect.)
What was left in dispute was, firstly, the lessees’ contention that the works already done could have been done more cheaply if tendered as a single block of works, rather than separately for each stage. This was purely an issue of expert evidence which I won’t go into, save to say that the landlord was successful.
Secondly, the lessees argued that “earlier intervention would have meant the beams could have been repaired, rather than being replaced in their entirety, [and] that the some of the remedial work could have been avoided or its cost reduced if it had been done earlier.”
However, the lessees’ expert agreed in evidence that the works would have cost the same, whether done in 2000 or 2008. And then also agreed that it was likely that the beams would have needed urgent replacement in much the same manner if properly inspected at any stage from 1983, which was the earliest date of any of the leases involved.
So, the lessees’ argument failed. The works would not have been cheaper if done earlier, nor would lesser works have been adequate at any time in the course of the present leases.
However, the freeholder argued the following on historic neglect:
Having concluded that the beams ought to have been replaced in about 1960, the LVT had been wrong to accept the respondent’s “historic breach” argument because none of the leaseholders had any valid claim to damages which could be set off against their liability to pay the service charge. Although the appellant had been in breach of covenant by not carrying out repairs sooner, that breach had caused no loss. A leaseholder could not set off a claim to damages for a breach of covenant which had occurred before the leaseholder acquired his or her interest. It was common ground that the same work would have been required to replace the beams at all times since the earliest of the leaseholders had acquired their interest in their flat. It therefore followed that, whenever the appellant had carried out the work, the respondents and the current leaseholders would have been required to pay for it through the service charge.
This, and the rather uncertain way the lessees had put their argument on neglect, perhaps prompted the Upper Tribunal to give a clear statement on historic neglect as a defence to a claim for service charges. I know from experience how often leaseholders want to allege historic neglect, often in circumstances where no maintenance or repair work has been carried out for years, if not decades, and usually without a clear understanding of what it would take to make out such a defence. So, this thumbnail is useful.
89. The only route by which an allegation of historic neglect may provide a defence to a claim for service charges is if it can be shown that, but for a failure by the landlord to make good a defect at the time required by its covenant, part of the cost eventually incurred in remedying that defect, or the whole of the cost of remedying consequential defects, would have been avoided. In those circumstances the tenant to whom the repairing obligation was owed has a claim in damages for breach of covenant, and that claim may be set off against the same tenant’s liability to contribute through the service charge to the cost of the remedial work. The damages which the tenant could claim, and the corresponding set off available in such a case, is comprised of two elements: first, the amount by which the cost of remedial work has increased as a result of the landlord’s failure to carry out the work at the earliest time it was obliged to do so; and, secondly, any sum which the tenant is entitled to receive in general damages for inconvenience or discomfort if the demised premises themselves were affected by the landlord’s breach of covenant.
The only question left here is on what basis such general damages should be assessed. My view is that it should be as a percentage of the assessed open market rental value, as per Earle v Charalambous [2006] EWCA Civ 1090 . I have run this argument in the LVT, with success (for example in this case, see 48-55, though this was effectively by way of equitable set off), and there seems to be no reason why the assessment of general damages for a failure to repair should be different in the Courts than in the Tribunals.
Another way in which historic neglect may be relevant (which I think is simply ignored not contradicted by the UT) is where more costs on routine maintenance are incurred than would have been incurred by proper overall repair. Eg a leaking roof requiring more frequent repainting where fixing the roof would actually have been cheaper in the long run.