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The London Borough of Hounslow v Waaler [2017] EWCA Civ 45

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27th February 2017

Summary

The Upper Tribunal had made no error of law in formulating criteria that a landlord should consider when deciding to carry out works, and had not applied a different test to improvements on the one hand and repairs on the other contrary to statutory intent.

Facts

Ms Waaler was a long leaseholder of a flat within an estate owned and managed by the London Borough of Hounslow, which she had purchased under the Right to Buy scheme. The estate was in need of repair and in 2004 the Borough served notice of intention to carry out works and served an estimate of Ms Waaler’s total estimated rechargeable costs under the lease. In 2012 when the works were completed and a demand issued, Ms Waaler and two other lessees applied to the FTT under s.27A LTA85. The two main items of work in issue were a flat roof which had been replaced with a pitched roof, and the replacement of original wooden-framed windows with new metal framed units, which itself necessitated the replacement of external cladding and asbestos around the windows.

Issues

The issue in this case was whether the cost of the works carried out by the Council were ‘reasonably incurred’. The Upper Tribunal’s judgment seemed to suggest that where the landlord decides to carry out a scheme of works going beyond repair to improvement, a different test must be applied to determine whether these will be reasonably incurred. This would be that of “taking particular account of the extent of the interests of the lessees, their views on the proposals and the financial impact of the proceedings.” The Council appealed the Upper Tribunal on the basis that it had incorrectly applied a different test to determine the reasonableness of costs of repairs on the one hand and improvements on the other.

First Instance

The FTT had found that both the replacement of the flat roof and the windows and cladding gave rise to a recoverable service charge. It further refused to disallow the costs of the FTT proceedings from being recovered through the service charge.

The UT approved the first decision but reversed the finding regarding the windows and cladding, ruling that these were improvement rather than repair works. Improvement works were permitted under the lease but the Council was required to take into account the views of lessees in those circumstances which they had failed to do. Therefore only part of that amount was recoverable and the question of how much was remitted back to the FTT.

Decision on appeal

The Court found that the Upper Tribunal had made no error of law in formulating certain criteria to determine whether the service charges had been reasonably incurred. The appellant was said to be correct in submitting that the legal tests for determining the reasonableness of costs for works of improvement or for disrepair were the same. However, the appeal was effectively misconceived because the UT had not applied a different legal test. It had in fact, on the Court’s judgment, merely been addressing “whether different considerations came into the assessment of reasonableness in different factual situations”.

The Court of Appeal considered 3 factors which had been identified by the UT which the landlord should consider and whether these would lead to uncertainty to landlords seeking to apply these ‘tests’:

1. The extent of the interests of the lessees: the Court said this caused no uncertainty as it could clearly be determined by measuring the remaining unexpired terms of their leases.
2. The views of the tenants: the Court highlighted that a landlord was not bound by such view, but it was clear that more weight should be placed on them where the they proposed to carry out discretionary as opposed to obligatory alterations.
3. The financial impact of the works on the lessees: this, the Court found, required merely a recognition that lessees of a ‘luxury block in Knightsbridge’ would likely be more able to meet a large bill than ‘lessees of former council flats in Isleworth’.

As such, the Court could not conclude that the UT had erred in law. The Court did highlight however what it identified as a difference of emphasis between it and the UT, namely that on its judgment there is no “bright line” difference between repairs and improvements.

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