The Upper Tribunal has decided that it was reasonable for a landlord to choose to repair windows, rather than replace them, and to recover that cost by service charge.

Background

Most tenants with long leases of residential properties are afforded protection by the Landlord and Tenant Act 1985, which significantly restricts what costs a landlord can recover by way of service charge. By contrast, tenants of commercial premises will usually be liable for their landlords' full costs of repair and maintenance, subject only to any contractual limitations contained in their lease.

In Dehavilland Studios Ltd v Peries, the tenants of a residential flat let on a long lease disputed the landlord's approach to repair of the property and its consequential claim for service charge.

The landlord (DHS) was under an obligation to keep the retained parts of the building 'in good and tenantable repair and decorative condition and to repair.the same as and when the landlord shall deem appropriate'.

The main dispute between the parties concerned DHS's decision to repair the windows. The windows were defective, which was not in dispute, but an action was brought by one of the tenants who considered that the windows should be replaced entirely rather than merely repaired. He argued that the cost of repairing the windows was not reasonable.

The case came before the Upper Tribunal against a backdrop of some uncertainty about the decision made by the First-tier Tribunal, what it had actually decided and whether it had applied the correct test.

The Upper Tribunal held that the First-tier Tribunal had decided that both repair and replacement were reasonable options but that replacement of the windows was the more reasonable. However, in these circumstances it was up to the landlord to decide which option to pursue.

The applicable law was summarised by Lewison LJ in the Court of Appeal in Waaler v Hounslow LBC [2017] EWCA Civ 45.

He said, '.where the landlord is faced with a choice between different methods of dealing with a problem . there may be many outcomes each of which is reasonable . the tribunal should not simply impose its own decision. If the landlord has chosen a course of action which leads to a reasonable outcome the costs of pursuing that course of action will have been reasonably incurred, even if there was another cheaper outcome which was also reasonable.'

Essentially, where there is more than one possible reasonable course of action, it is for the landlord to choose which reasonable course of action to pursue, not a court.

In considering reasonableness, the tribunal took into account expert evidence, the assets which the landlord had to fund the works and the fact that the repair would extend the life of the windows by 15 years. DHS was entitled to a declaration that its decision to repair rather than replace the windows was reasonable and it was entitled to recover the reasonable cost of the repairs via the service charge.

Service charge recovery can be a matter fraught with difficulty, even in the sphere of commercial property where no statutory limitation applies. Property owners may only recover costs to the extent permitted by a lease and issues frequently arise regarding whether an item of expenditure is one of repair or improvement and to what extent recovery might be permissible. Tenants will generally expect to pay the cost of repairs but not improvements.

This decision may cheer property owners and particularly those owners of commercial properties whose buildings are deemed to be 'sub-standard' under the new Minimum Energy Efficiency Standard which comes into effect on 1 April 2018. From that date, it will be unlawful to let premises which fail to meet a minimum EPC rating of E, unless one of the exceptions or exemptions applies. Whilst certainly not giving landlords carte blanche to improve their premises at the cost of tenants, this case demonstrates that where more than one reasonable option is open to a landlord in how it improves the fabric of a building, it may exercise its discretion in deciding what works to do and (where the lease permits) then recover the cost of those works by way of service charge.