De Havilland Studios Ltd v Peries & Voysey [2017] UKUT 322 (LC) Upper Tribunal (Lands Chamber)

The Upper Tribunal (Lands Chamber) has upheld the principle that a landlord may choose between different methods to repair premises when recovering the costs through service charges, provided that those methods are found to be reasonable. This case concerned a dispute about whether a landlord was liable to repair or replace defective windows in a residential block. While both parties’ experts agreed that repair would be preferable, neither expert viewed repair as unreasonable. Replacement would be substantially more expensive and it was not obvious that repairing the windows would result in a false economy.

The facts

De Havilland Studios Ltd (the “Landlord“) was owner of a former factory that had been converted into 41 flats. Pursuant to a 1998 lease, one of the flats was let to the respondents (“the “Tenants“) for a term of 125 years.

Under the terms of the lease, it was the Landlord’s responsibility to repair and decorate the retained parts of the building. The lease also contained provisions for the Landlord to recover the costs of this work from the Tenants by way of their contribution to a service charge for the building.

On 10 November 2015, the Tenants issued an application to the First Trier Tribunal to determine whether they were liable to pay service charge demands made for 2011 to 2016. Although many issues were raised, the Tenants’ chief complaint related to defective windows at the property, and the appropriate remedy for this problem. In summary, the Landlord argued that the windows should be repaired, while the Tenants argued that this would be a waste of money as the windows needed to be replaced.

The Tenants were successful at first instance, as the Tribunal decided that incurring costs to repair the windows would be unreasonable. However, the Landlord was granted leave to appeal the decision to the Upper Tribunal. The costs of replacement were expected to be very high and the Landlord could have become insolvent if the order was upheld.

Issues on appeal

The Landlord contended that the First Tier Tribunal had applied the wrong legal test. Having considered expert evidence from both sides, the conclusion of the First Tier Tribunal had actually been that repair and replacement were both reasonable options. However, the judgment had gone on to pick replacement as the better option. This was not the correct approach, as a landlord may decide which option to take when both are considered to be reasonable. As a result leave to appeal was granted and, once again, the key issue to be decided was whether repairing the windows was reasonable.

Proceedings before the Upper Tribunal

The Upper Tribunal reversed the original decision and held that the Landlord could elect to repair the windows, as this was a reasonable course of action. The following factors effected this decision:

  1. Neither of the parties’ experts had suggested that repairing the windows would be unreasonable, even though they agreed replacement would be preferable.
  2. Replacement would be significantly more expensive, which the Landlord was entitled to take into account, particularly given that the shareholders of the Landlord were the tenants of the building and the company’s funds were limited.
  3. Although the windows were coming to the end of their lifespan, there was evidence to suggest that they would last for another 15 years if repaired.
  4. Repairing the windows would undoubtedly improve the existing position and the end result would not necessarily leave the Landlord in breach of its repairing covenants.

As a result, the Landlord was entitled to recover the reasonable costs of repair via the service charge.

Our comment

Difficult issues often arise when landlords seek to recover costs for repairs through service charge when there are different ways those repairs can be conducted. Windows often pose problems, because their nature is usually such that replacement is more cost effective then repair.