Service Charges & Estate Management Update – July 2011
1st July 2011
Southall Court (Residents) Ltd v Tiwari  UKUT 218 (LC)
This was a dispute over the landlord’s decision to replace the roof of a block of 48 flats. In recounting the history of the dispute the LVT said “Southall Court has probably been the subject of more applications to the Tribunal than any other property in the country.” The replacement of the roof had been a long-running issue. The LVT had determined as far back as in 2002 that the roof did not need replacing. In 2006 the Tribunal held that “the case for renewing the roof had simply not been made out” and replacement was not required. It considered that replacement of the roof within a timescale of 5-10 years was reasonable. By an order of the tribunal in November 2009, the leases were varied to make provision for a sinking fund. In the most recent round of litigation there was no dispute that the landlord had complied with the consultation requirements. The tenants failed to respond to the consultation exercise. The landlord retained the same expert throughout the numerous applications who again gave evidence at the hearing before the LVT in 2010. His conclusion, in para 8.1 of his report, was that “The south and central wing roof coverings are at the end of their useful service life, and should be replaced.” He did not depart from that conclusion in oral evidence, although he agreed that it would be possible to defer replacement for a few more years. The tenants did not adduce any expert evidence. Having inspected the property, the LVT took the view that immediate replacement was not essential. Although they did not accept the expert’s opinion that the roof coverings had already reached the end of their useful life, they considered that they might well do so 12-18 months. The LVT said their decision was reinforced by the history of the lease variation: “A landlord acting reasonably would take into account the fact that a sinking fund is being built up precisely in order to fund works such as that to the roof. It may of course be that the roof will need replacing before the sinking fund is large enough to cover the whole cost, but the landlord, acting reasonably, should have regard to spreading the burden of major works over time”. The LVT also considered that less weight should be given to the tenants’ failure to respond to the consultation exercise than would normally be the case, because it was “absolutely obvious” that the matter would be referred to the LVT.
The appellant landlord argued: (1) the LVT had applied too restrictive an approach to the landlord’s discretion; and (2) the existence of a sinking fund was irrelevant.
(1) The LC (Mr N J Rose) applied the test in City of Westminster v Fleury and others  UKUT 136 (LC): the question (under section 19(1)) “is whether the decision to re-cover the roofs was a reasonable one in all the circumstances, even if other reasonable decisions could also be made.” Given the discretion allowed to a landlord as to the programme of works to be adopted, and in the absence of any expert evidence apart from that of the landlord’s expert, it was not open to the LVT to find that the landlord’s decision not to defer the roof work was unreasonable. (2) The existence of a sinking fund was not irrelevant. When deciding whether proposed works are reasonable, there is no warrant for excluding from consideration any part of the factual matrix, the weight to be given to each element of that matrix being a matter for the tribunal in the light of the evidence. Nevertheless, the existence of a very small sinking fund cannot have made the difference between the reasonableness of a decision to re-cover the roof now or in 12-18 months time. (3) It is incumbent upon tenants who are unhappy about proposed works on which they have been consulted to make their concerns known to the landlord within the period of time specified in the landlord’s notice. In the absence of any objection during the consultation process, a landlord is entitled to conclude that there is no serious objection to the proposed works. The tenants’ duty to participate in the consultation process applies even if, as the LVT suggested, it is plain from past experience that any observations submitted by the tenants will be ignored.
This case underlines that a landlord has a wide discretion in respect of what and when works should be carried out. The decision will not be unreasonable simply because other reasonable options are available. Tenants are well advised to raise any objections at the appropriate stage in the consultation process notwithstanding any concerns that the landlord will ignore them.
Commercial Service Charges Code of Practice
“This new Code of practice has been produced as part of a cross industry initiative in light of ongoing concerns about disputes over service charges and their alleged lack of transparency.”
The RICS Code of Practice for service charges in commercial property (2011) can be downloaded here.