Tenants are looking at every angle to cut their occupational costs. But what can landlords do in response?

The judgment of Blackburne J in the case of Fluor Daniel Properties v Shortlands Investments (2001) gives much comfort to tenants in the current economic climate. In that case, the landlord’s claim to recover the costs of upgrading an air-conditioning system through the service charge failed because the landlord was unable to show that the equipment suffered from “some defect such that repair, amendment or renewal was reasonably necessary”.

As the judge commented, the fact that an item of plant has reached the end of its recommended lifespan as suggested by the CIBSE does not mean that it would be reasonable for the landlord to replace it at the tenant’s expense.

So, in the light of this case and other similar cases supporting the tenant, how does a landlord maintain the upper hand? In answer, here’s a checklist of action points that will support the landlord’s cause:

PLAN THE PROGRAMME

The landlord should have a rigorous planned maintenance programme. All defects, complaints from tenants and patched repairs should be logged to justify the claim that the equipment is out of repair.

GET THE RIGHT CONSULTANT

The landlord should employ the right consultant to assess whether any equipment is out of repair. In the Fluor Daniel case the consultant for the landlord came in for criticism from the judge because his experience was mainly in the design and installation of M&E equipment rather than in maintenance and repair.

STICK TO THE PRINCIPLE

The landlord can rely on the principle laid down in Plough Investments v Manchester City Council [1989] that “provided proposed works of repair are such as an owner who had to bear the cost himself might reasonably decide upon… the tenant is not entitled to insist upon more limited works or cheaper works being preferred”.

ADVANCE TECHNOLOGY

Provided the relevant part of the building is beyond economic repair, the landlord can gain support from the case of Postel v Boots [1996]. Here, the landlord replaced a roof rather than continuing with patched repairs and was able to recover the cost from the tenants even though the design of the roof and its composition were altered and improved to take account of technological advances. The court believed that a reasonably minded building owner would employ such technological advances when repairing the roof and that, in employing them, the landlord would be satisfying its duty to the tenant to carry out repairs in an efficient and economic manner.

AVOID ‘FAIR PROPORTION’

The landlord should avoid defining any tenant service charge liability as a ‘fair proportion’ of cost. With these words in his service charge clause and only holding a three-year lease Ex L&T, the tenant in the Scottish Mutual Assurance v Childline Public Relations case [1999] managed to escape a large bill for repairing the roof by claiming that it was not fair for him, with such a limited interest, to pay for a new roof which would have a life expectancy of 25–30 years.

MAKE THE WORDS COUNT

In the negotiation of any new lease the landlord should press for the fullest possible wording in the service charge provisions. Clear, comprehensive wording can weaken a tenant’s case.

The sunny uplands with rising rents and a buoyant market will return one day but, whatever the state of the market, landlords should think smart and prepare ahead for service charge recovery.