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London Borough of Southwark v Royce & Nicoue [2019] UKUT 331 (LC)

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21st January 2020

Summary

The First Tier Tribunal had been entitled to reach the conclusions it had as to the degree of separation between two heating systems on adjoining estates. On that basis, the interpretation they had reached of the service charge provisions in the relevant leases was correct, as costs incurred replacing pipes on one estate were not costs “incidental” to the provision of services on the other.

Facts

The Carlton Grove Estate was constructed in the 1970s. Heating was provided to the flats on that Estate by means of a district heating system (“DHS”) since then. The DHS also provided heating and hot water to dwellings on the adjoining Acorn Estate.

In 2014 the London Borough of Southwark replaced and re-routed the underground pipe work which provided heating to the Carlton Grove Estate. Grant monies were available to cover the cost of these works and it was not necessary either to consult or to seek contributions from lessees on either the Carlton Grove Estate or the Acorn Estate.

In September 2016 the London Borough of Southwark entered into a contract for the installation of boilers, pumps and control equipment into the energy centre to replace the existing Acorn Boiler House following a consultation process under s.20 of the LTA 1985. The contract sum was £546,645, of which £454,836 was rechargeable to long lessees. There were 280 properties benefiting from the works so the proportion attributable to each was 1/280, amounting to £1,986 per flat (after the addition of professional and management fees).

Following another consultation process the London Borough of Southwark commenced a major works programme to replace the underground pipe work that provided the heating and hot water to the Acorn Estate. They entered into a contract for a contract price of £2,982,077. Works commenced in January 2018. Lessees on both the Carlton Grove Estate and the Acorn Estate were being asked to contribute (by way of service charge) towards the costs of replacing this pipe work. There were 284 properties benefiting from the works so the proportion attributable to each was 1/284. That amounted to £12,296.44 for each of them. The London Borough of Southwark sought to recover the costs of the contracts to replace both the boilers and the pipework in the county court which transferred the proceedings to the FTT.

Issues

Pursuant to the terms of their leases, to what items were the individual lessees on the Carlton Grove Estate liable to contribute. Further, to what degree were the costs reasonable.

First instance

By its decision the FTT determined that: (1) the lessees were liable to contribute to the new boiler contract; (2) the amount payable by each of the respondents should be reduced to £1,786.09 on the basis that there was insufficient evidence to support an equal apportionment of the costs; (3) nothing should be payable by them towards the costs of replacing the underground pipe work on the Acorn Estate; (4) the appropriate statutory consultation procedure had been carried out; and (5) it was just and equitable to make an order under s.20C of the Landlord & Tenant Act 1985.

The London Borough of Southwark only appealed against determination (3).

With regards to that element, the FTT concluded that: (1) the Acorn Estate and the Carlton Grove Estate had two separate systems of pipe work and (2) it was not a reasonable interpretation of the respondents’ leases that they should have to contribute to the maintenance or replacement of the pipe work serving the Acorn Estate. In summary, the reasoning was that: (a) There never was a complete integrated system of pipe work because the Carlton Grove Estate was built later than the Acorn Estate. (b) It was possible to isolate sections of the pipe work including the whole of the Carlton Grove Estate. (c) That estate received only heating whereas the Acorn Estate received both heating and hot water. (d) The Carlton Grove Estate pipe work had been replaced as a totally separate project. (e) If there was one system, there would be a flow of heating around both estates. Instead, each estate was serviced independently.

Decision on appeal

The Upper Tribunal dismissed the appeal.

Although the London Borough of Southwark considered that the FTT had given inappropriate weight to certain factual considerations, the Upper Tribunal disagreed. They were conclusions that could be reached on the evidence that was before them, and the factors that were said to be given too much weight were not determinative of the FTT’s decision but simply matters to which it had regard. The FTT was therefore entitled to find that that there were two separate systems of pipe work.

Having so concluded, the Upper Tribunal concluded that the FTT’s paraphrasing of a key clause in the lease did not lead the FTT to fall into error in its approach to the construction of that paragraph, which it clearly recognised as the relevant charging provision of the relevant leases. Once the separate nature of the two systems was established, the costs and expenses of replacing the separate heating and hot water system serving only the Acorn Estate could not sensibly or properly be characterised as a cost or expense “incidental to”, still less a cost or expense “of”, providing heating to the properties on the Carlton Grove Estate (the wording used in that paragraph).

The costs and expenses of replacing a heating system that did not serve the properties the subject of the relevant leases could not properly be regarded as being in any way ancillary to, or associated with, or even connected with the provision of heating to those properties. To hold that they were would, in the Tribunal’s judgment, be “a case of the tail wagging the dog”.

Accordingly, the lessees on the Carlton Grove Estate were not liable to contribute towards costs incurred in replacing the heating system on the Acorn Estate.

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