The background to this case is quite familiar to anyone who has been dealing with local authority leasehold service charge disputes over the last few years. Hounslow embarked upon a scheme of major works on an estate where Miss Waaler was one of the leaseholders. The works were extensive, including the replacement of a flat roof on each block on the estate, removal of wooden windows and their replacement with metal framed ones. This, in turn, required certain exterior cladding to be redone and the removal of asbestos. Of the 1,000 or so flats, 850-odd were occupied by secure tenants (and, as such, Hounslow picked up the costs of those works themselves, albeit via Decent Homes funding*) but recharged the leaseholders for their proportion of the costs via the service charge. Miss Waaler was asked to pay just over £55,000.
The terms of the lease are (as they always are) important. The council had a covenant to “keep in repair… the structure and exterior of the Flat and the Building… [and]… keep in good repair and condition all other property [in respect of which the leaseholder has rights, i.e. common parts]. There was a covenant on the part of the leaseholder to pay for repairs by way of a proportionate part of the total costs (estimated or actual), payable as a monthly service charge. There was a separate covenant to contribute towards improvements as a “fair proportion of the cost of the improvement based on a comparison of the rateable value of the Flat.”
The leaseholder contended that there was no power for the landlord to carry out improvements and the costs were not recoverable to the extent that they exceeded the costs of a repair. In the alternative, it was not reasonable to have demanded the costs all in one year but, given the enormous size of the bills, it should be spread over a period of time. In Garside v RFYC Ltd  UKUT 367, the Upper Tribunal had held that the ability of leaseholders to fund a scheme of works was potentially relevant to considering whether costs had been reasonably incurred; here there was no consideration of that point.
The Upper Tribunal found for the leaseholder, albeit only in part. The lease was badly drafted and it was true that there was no separately articulated power to carry out improvements. But, given that there was a power to charge for the same, that strongly suggested that there was intended to be such a power. The real question was whether the costs of improvements were reasonably incurred for the purposes of s.19, Landlord and Tenant Act 1985.
When considering this question, held the Upper Tribunal, there is a difference in approach between repairs and improvements. The former are usually a mandatory obligation under the lease and failure to comply would lead to a breach of covenant claim. If such works were needed, then the leaseholders would likely have to contribute and simply find the money.
Improvements were different. There was unlikely to be a duty to carry them out and, if a landlord wanted to carry out a scheme of improvements which went beyond what was required for a repair, then he needed to take “particular account” of the extent of the interests of the leaseholders. That included the financial impact on them. Where such works were carried out, the landlord must consider alternative and less expensive remedies and must give greater weight to the views of leaseholders.
The windows and cladding works were improvements; what flaws there were with the windows were minor and could likely have been remedied much more cheaply. Or, at least, this should have been considered. There had been no such consideration nor had any thought been given to the financial impact of these works on leaseholders. The case was remitted for reconsideration.
This is, potentially, very big news and, on the face of it, gives leaseholders who do not want (or want to pay) for improvements, quite a powerful tool to argue that the work should not be done, or not done in this manner, or spread over a period of years. Oh if only this had come out during the heights of the Decent Homes disputes (most of which have been and gone and which the government seems to be trying to head off with the 2014 directions).
I confess that I’m torn as to what I think if it. It is, I believe, right in law and I find the reasoning clear and persuasive. Whether it is a good idea or not I’m less sure on. I’ve always believed that the key thing about s/c is that they are other peoples money and, if someone was to take my money and spend it without my express approval, I’d want to know that they had proeprly considered my circumstances (something which rarely happens in my experience) and, to the extent that it involves leaseholders more, it is a good thing.
On the one hand, the distinction between a repair and an improvement is not always easy to draw and I rather fear this is going to encourage people to return to this debate (good for lawyers and surveyors, but bad for everyone else). And it’s one thing to do this against a council (and I have some sympathy for those who were hit with the massive Decent Homes costs), but what about a lessee-owned freeholder (which, of course, is unlikely to have sufficient funds to survive any significant reduction)? Is this in danger of being a “lowest common demoninator” veto? What about the fact that the value of the leasehold interest should, if the improvements are done well, increase?
- Actually a form of supported borrowing rather than a cash grant, as I understand it.