Two recent decisions of the Upper Tribunal (Lands Chamber) could have a significant impact on the ability of landlords to recover the costs of works undertaken to residential leasehold properties.
In Waaler v London Borough of Hounslow , the Tribunal ruled that whilst the cost of repair work undertaken by a landlord was fully recoverable from leaseholders under section 19 of the Landlord and Tenant Act 1985 (the Act), a different approach must be taken when assessing whether the landlord can rely on this provision to recover the cost of improvement work. Where works carried out on a building go above and beyond what would reasonably be described as repair, factors such as the leaseholders' financial circumstances and the availability of lower-cost alternatives to the improvement work must be considered.
This decision could limit the ability of landlords to recover the cost of works undertaken, particularly in relation to ageing buildings which require significant improvement. As a result, the threshold for establishing whether the costs of improvement works are reasonably incurred will be much higher than that for works which constitute repairs to the building. This will inevitably create uncertainty for landlords as it may not be obvious whether works carried out constitute repairs or improvements. Landlords will have to consider the extent of the works more carefully, obtain more information about potential lower cost alternatives and engage in more extensive consultation with leaseholders.
The Tribunal considered the issue again in its recent decision in Oliver v Sheffield City Council . Here the landlord undertook significant works to the leaseholder's block of flats in order to both protect against water ingress and to improve the energy efficiency of the building. The Tribunal followed Waaler in confirming that different factors apply depending on whether the works are repairs or improvements. In this case it was decided that whilst some of the works were improvements, they had been reasonably undertaken at a reasonable cost as the improvements were necessary to prolong the life of the building. However, the Tribunal stressed that where works introduce "some new feature or service which could readily been done without" the landlord will have to pay particular attention to the views of the leaseholders being asked to pay for the works when assessing if the cost is reasonable.
The facts of the two cases could provide clues as to where the limits of reasonableness under section 19 of the Act lie. In Waaler, the leaseholder was asked to pay nearly £50,000 towards the works carried out and the Tribunal found that cheaper alternatives to the works were available. The Tribunal also held that the landlord had not sufficiently taken into consideration the financial impact of the works on the leaseholders, as its primary object was to improve the buildings for the benefit of its secure tenants. In this case the costs of some of the improvement works were not recoverable through the service charge. In Oliver, the leaseholder was charged around £10,000 for works which, whilst comprising some elements of improvement, were undertaken after a lengthy consultation and consideration of all of the options. The Tribunal considered that the costs of these improvements were reasonably incurred as they prolonged the life of the building and will lead to lower long-term costs for the leaseholders, thus protecting the value of their properties.
Permission has been given for the Waaler case to be appealed in the Court of Appeal. Landlords will be looking to the court to provide a clear decision which gives certainty as to the recovery of costs of works from leaseholders. In the meantime, landlords seeking to carry out repair or improvement work to properties should ensure that the leaseholders have been fully consulted, all possible alternatives to the works proposed have been explored and some financial calculations have been undertaken as to potential lower cost options.