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Russell May
Russell May,
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Service Charges – Is it a Repair or an Improvement?
30 June 2015

The recent case of Waaler v Hounslow LBC means that Landlords, Management Companies and Right to Manage Companies now have to consider very carefully whether the works they are proposing to carry out really are repairs, as opposed to improvements.

The facts of Waaler were that the tenant (T) owned a flat in a purpose-built block, which formed part of an estate owned by the landlord council (L). In November 2004, L served notice under section 20 of the LTA 1985 that it intended to carry out major works to the block. The notice stated that T's share of the estimated charges would be £61,134.01.

The works included replacing the flat roof of the block with a pitched roof and replacing the windows with new units because the hinges of the original windows were inadequate for the weight of the glass in the tilting windows. Replacing the window units necessitated replacement of the exterior cladding of the building and the removal of underlying asbestos.

T received a demand for £55,195.95 and then applied to the First-tier Tribunal for a determination of its liability to pay the costs. It was held that the costs were substantially payable, so T appealed on various grounds, including whether L's decision to replace the windows (and in turn requiring the replacement of the cladding and the asbestos) was reasonable.

T's appeal was successful on the ground relating to the replacement of the windows. The Upper Tribunal decided:

  1. Replacing the windows with new units amounted to an improvement, rather than a repair. L had discretion under the lease to carry out improvements, and T was required by the lease to contribute to the cost.

  2. Although section 19 of the LTA 1985 made no express distinction between repairs and improvements, the approach when determining what was reasonable must be different. A landlord will usually be under an obligation to repair, whereas improvements may be simply a matter of choice.

  3. Where the cost of the works was high, and the result of those works was a building which was wholly different than the original building, the landlord must consider two factors before proceeding with the improvement:

a)    the availability of an alternative and less expensive remedy, and

b)    the views and the financial means of the tenants who will be required to pay for the works

The cost of the works to the windows and the replacement of the cladding was very high. The only disrepair to the windows was caused by the design of the tilting windows, which were too heavy for the hinges. This design defect had existed and been managed for at least 30 years. Where hinges had previously failed they had been replaced but it was no longer possible to obtain replacement hinges. L had not considered replacing the heavy glass units in the tilting sections of the windows with lighter panes. Therefore L had failed to explore alternative, and less expensive, solutions before deciding to replace the window units.

L had also not considered the financial impact on the tenants of replacing the window units and cladding.

The case was remitted back to the First-tier Tribunal to determine the reduction to be made to T's service charge.

This decision introduces a new approach that requires costs to be categorised as repairs or improvements. In this particular case the distinction was not particularly difficult to make but in some cases it will be much more difficult to do so, and this will create uncertainty for both landlords and tenants.

The burden on landlords, to show that they have considered both alternative approaches and the financial impact on tenants of improvements before proceeding, has now increased. Tenants may now have a new weapon to challenge high service charges.

For more information on this article or to find out more about our Property Disputes Team contact Russell May on [email protected] or 0118 952 7206.

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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