Repairs and improvement works: An update on recoverability of landlord's costs

13th February 2017

The Court of Appeal recently considered a landlord’s appeal against the Upper Tribunal (Lands Chamber) decision in London Borough of Hounslow v Waaler [1]. The 2015 decision of the Upper Tribunal was the subject of a previous briefing.

The Upper Tribunal’s decision has been upheld by the Court of Appeal.

The Court of Appeal considered and agreed with the three criteria set out by the Upper Tribunal in considering whether the costs of repair or improvement are reasonable and therefore recoverable under section 19 of the Landlord and Tenant Act 1985 (the Act). The three criteria are:

1. The extent of the interests of the tenants

This is measured by the remaining unexpired terms of their leases. The greater the interest a tenant has, the more weight is given to their views.

2. The views of the tenants

As set out in our previous briefing, the landlord has a statutory duty of consultation. In situations where the works are optional improvements and go beyond what is required to effect repair pursuant to the lease terms, the Upper Tribunal found that the landlord should take “particular” account of the tenant’s views. The Court of Appeal endorsed this.

3. The financial impact of the works

This does not mean that the landlord must look into the individual financial circumstances of each tenant, but must consider the locality and nature of the building.

Consultation

The court emphasised the importance of consultation with tenants in relation to repair and improvement works. When complying with the statutory consultation requirements [2], the court found that the landlord must “conscientiously consider the lessees’ observations and give them due weight”. Whilst the views of the tenants must be considered in every case, the court emphasised that this did not give the tenant any kind of veto.

It is important to note that the landlord must avoid a consultation process that takes the form of simply telling tenants what works are going to be undertaken.

Repairs vs. Improvements

The Court of Appeal recognised that the line between repairs and improvements will often be blurred. A distinction was drawn by both the Upper Tribunal and the Court of Appeal between works that discharged the landlord’s repair obligations under the lease and discretionary improvements.

The court found that there is a spectrum of circumstances when considering discretionary improvements, from an improvement to benefit all tenants that may prolong the life of the building (such as replacement of windows to repair a design defect, as in Waaler), through to installation of a children’s play area that may only benefit some tenants. The further down the scale the works are, that is, the further away the works are from a repair, the greater the weight given to the factors set out above.

It should be noted that in Waaler the landlord could not recover the cost of replacing the windows in the block of flats, even though the works could be said to be necessary to prolong the life of the building. This was because the landlord had not sufficiently taken the tenants’ views into account, and had not obtained information about lower cost alternatives. This emphasises that the above three factors, at least to some extent, will be taken into account in cases concerning improvement or repair works.

Future guidance

The Court of Appeal was invited to provide general guidance to landlords, but declined to do so. The court found that different circumstances will come into play in deciding what is reasonable in any particular matter. The court found that Parliament had deliberately chosen an “open-ended and flexible test” in the Act, and that this should be preserved, with factual determinations left to the First Tier Tribunal.

This decision does not provide comfort for landlords as the court has not delivered a clear decision which provides certainty as to the recovery of costs of works from leaseholders. Landlords seeking to carry out repair or improvement work should therefore ensure that a full consultation process has been undertaken, and that the works have been considered carefully, and any lower-cost options have been explored.

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[1] [2017] EWCA Civ 45
[2] See the Service Charges (Consultation Requirements) (England) Regulations 2003