The decision of the Court of Appeal in London Borough of Hounslow v Waaler [2017] EWCA Civ 45 will have a significant impact on a landlord's ability to recover the cost of improvement works.
An issue often encountered by a Landlord is whether to repair or replace. The usual principle behind a long lease of a flat is that a landlord is responsible for repairing the main structure and it will recover the costs through a service charge payable by a tenant.
Mrs Waaler was a long leaseholder of a flat owned by the London Borough of Hounslow. The building in which Mrs Waaler's flat was situated was in need of repair. The authority served the relevant notices to carry out works of repair which included replacement of a flat roof with a pitched roof, replacing wooden framed windows with metal framed units and external cladding. Some of the windows had been identified as requiring repair where rot had been discovered and all of the wooden window frames required redecoration. It was accepted that the wooden frames could be repaired but the authority considered that it would be more economical for the leaseholder in the long-term to replace the wooden frames with metal units.
The authority expected to recover the cost by adding it to the service charge. The costs the authority was seeking to recover from the leaseholder were just over £55,000.
The leaseholder applied to the First-tier Tribunal to determine whether this was reasonable. The issue was whether the costs incurred by the authority were reasonably incurred.
The First-tier Tribunal found that the replacement of the roof, the windows and cladding could be recovered via the service charge. The leaseholder appealed to the Upper Tribunal which approved the decision in respect of the roof but overturned it on the windows and cladding, ruling that these were improvements rather than repair. The authority appealed to the Court of Appeal and the appeal was dismissed. The Court of Appeal agreed with the Upper Tribunal that the same legal tests should be applied to all work falling within the definition of service charge but there was a difference between obligatory repairs and discretionary improvements. The cost of improvements can be recovered from tenants only if the service charge provisions in the lease permit it. In this case, Mrs Waaler's lease allowed the landlord to recover costs if it carried out improvements but the authority had to take into account the views of leasees which it had not done. The decision to replace the windows and cladding was motivated by the authority's desire to install energy efficient units and coverings rather than the need to repair. Consequently, the authority could not recover the costs relating to the windows and cladding.
Landlords must carefully consider whether the costs involved in any repair or replacement are recoverable under the lease and should also give consideration to whether there is a better alternative for the tenant.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.