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Improvements - can you recover them?

The Court of Appeal has given important new guidance on the steps landlords should take if they wish to charge long leaseholders for the cost of improvements, as opposed to repairs.

The guidance was given in the case of London Borough of Hounslow v Waaler which was decided on 2 February 2017.

In essence the Court of Appeal held that there is a real difference between repair works which a landlord is obliged to carry out and works which are an optional improvement, and set out a number of questions for the landlord to consider involving works of improvement.

Background of the case:

  • On the IvyBridge Estate in Isleworth which was built in the 1960's, Hounslow had 850 secure tenancies and 140 long leaseholders.
  • The long leases included an improvement clause as well as the standard service charge clause to contribute towards the cost of repairs.
  • For some time, it had become clear that significant work needed to be carried out on the estate.
  • This included replacing the original wood-framed windows with new metal framed units, which also necessitated the replacement of the exterior cladding and the removal of underlying asbestos.
  • The total estimated rechargeable cost of the works came to £8,326,139.48, of which Ms Waaler's contribution was £55,195.95.
  • Ms Waaler applied to the FTT  for a determination of the payability of the charges under S27A of the Landlord and Tenant Act 1985.

The window issue

 At first instance, the FTT held that Hounslow was entitled to recover the costs of replacing the original windows and associated cladding and asbestos, on the grounds that the council was reasonable in seeking to replace the windows as a fresh unit and that the cost of replacing the cladding was an inevitable consequence.

Ms Waaler then appealed this decision to the Upper Tribunal which held that the replacement of the windows and cladding was an improvement, not a repair.

The Upper Tribunal therefore decided that if a landlord decides to carry out a scheme of works which goes beyond what is required to effect a repair and seeks contributions from a leaseholder for works that are Improvements, then it must take account of:

  • the extent of the interests of the lessees- measured by the unexpired terms of their leases;
  • the leaseholders views on the proposals; and
  • the financial impact on the leaseholders of proceeding.

The Upper Tribunal then decided that only part of the amount claimed under this head was recoverable and remitted the question to the FTT to determine how much.

Hounslow then appealed this decision to the Court of Appeal.

The leading judgment in the Court of Appeal was given by Lord Justice Lewison, who was one of the leading property silks of his generation.

Whilst Lord Justice Lewison did not necessarily agree with the suggestion that the Upper Tribunal (UT) had drawn a bright line between repairs and improvement, he held that it had made no error of law which would entitle the Court of Appeal to intervene.

In reaching this conclusion to dismiss Hounslow's appeal, the Court of Appeal therefore essentially endorsed the above approach taken by the UT and held that:

  • Whether costs have been reasonably incurred is not simply a question of the process taken by the landlord in reaching the decision to carry out works, but is also a question of the outcome of that decision.
  • There is a real difference between works of repair which a landlord is obliged to carry out and works which are optional improvements.

Lessons for Social Landlords

It seems likely that this decision will encourage leaseholders and their advisers to look more closely at service charge requests that could involve improvements as well as repairs, and argue that their circumstances have not been properly taken into account.

Landlords therefore need to take particular care to check whether this is the case before sending estimates out and bear in mind that:

  • Improvements are not simply a matter of discretion for the landlord can pass onto its long lessees, notwithstanding what the leases says.
  • Lessees views are likely to be more important where the works are improvement rather than repair.
  • Landlords should take into account the three factors set out by the UT.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at February 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions

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