UPPER TRIBUNAL (LANDS CHAMBER)

	
UT Neutral citation number: [2015] UKUT 0017 (LC)
   UTLC Case Number: LRX/30/2014

	TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

LANDLORD AND TENANT – service charge – major works – repairs and improvements – application of section 19 of the Landlord and Tenant Act 1985 to improvements – relevance of financial impact of service charge costs on leaseholders – appeal allowed in part.

IN THE MATTER OF AN APPEAL AGAINST A DECISION
OF THE FIRST TIER TRIBUNAL (PROPERTY CHAMBER) FOR THE LONDON REGION

BETWEEN:

			                 MISS C WAALER		    	Appellant
					   and
                 THE LONDON BOROUGH OF HOUNSLOW            Respondent

                                                 Re:  347 Summerwood Road,
 Middlesex
 TW7 7QP

Before: Siobhan McGrath, Chamber President – FtT (Property Chamber) sitting as a Judge of the Upper Tribunal (Lands Chamber)

Sitting at: 45 Bedford Square, London WC1B 3DN
on 
13th October 2014

Mr G Coyle for the appellant
Mr W Beglan (counsel) instructed by the Solicitor to the Council and by Brethertons LLP for the respondent

© CROWN COPYRIGHT 2015

The following cases are referred to in this decision:
Garside and Anson v RFYC Ltd and Maunder Taylor [2011] UKUT 367
Proudfoot v Hart (1890) 25 QBD 42 (CA)
Revenseft Properties Ltd v Davstone (Holdings) Ltd [1978] EWHC QB1
McDougall v Easington District Council (1989) 58 P&CR 201
The Post Office v Acquarius Properties Ltd [1987] 1 All ER 1055
Quick v Taff Ely [1985[ 3 All ER 321 (CA)
Carmel Southend Ltd v Strachan & Henshaw Ltd [2007] EWHC 289
Fluor Daniel Properties Ltd et al v Shortlands Investments Ltd [2001]
Sheffield City Council v Hazel St Clare Oliver [2008] LRX/146/2007

Decision
Introduction
1.	This is an appeal, by way of review against a decision of the FtT (Property Chamber) dated 9th December 2013. The appellant is Miss Waaler of 347 Summerwood Road, Middlesex, TW7 7QP. The dispute relates to the payment of service charges demanded by Miss Waaler’s landlord the London Borough of Hounslow in the sum of £55,195.95. The Tribunal’s decision was that, subject to some relatively minor adjustments, the sum was payable.
2.	Permission to appeal the decision was given by the Deputy President of the Upper Tribunal (Lands Chamber) on 1st April 2014 where he observed:
“Without wishing to encourage false hopes for the applicant, it seems to me to be arguable that when the F-tT considered whether the very substantial works undertaken by the landlord were reasonably incurred and properly the subject of service charges totaling more than £55,000 per leaseholder, it ought to have given greater consideration to the quantum of the total bill and the resources of the leaseholders expected to contribute towards it.”
3.	The facts of this matter are set out in greater detail below but for context it is helpful to consider that the costs in question derive from a scheme of major works carried out by the respondent council to an estate in Hounslow where the subject property is situate. The works were extensive and included the replacement of the flat roof to each block with a pitched roof. Additionally because of problems with the hinging to the windows the council replaced the original wood-framed windows with new metal framed units. This in turn necessitated the replacement of the exterior cladding and the removal of underlying asbestos. Finance for the works was partially provided from loans made available by central government as part of its Decent Homes initiative. Of the residents on the estate about 850 are secure tenants and 140 are long leaseholders whose leases were created under the right to buy scheme contained in the Housing Act 1985.
4.	The appeal was heard on 13th October 2014, when Miss Waaler was represented by Mr G Coyle and the council was represented by Mr W Beglan of counsel. Following the hearing I asked for further written representations which were received in November 2014.
Background
5.	The flat at 347 Summerwood Road is within a block of flats at IvyBridge Estate in Isleworth. The Estate consists of 4 tower blocks, 23 four and five storey blocks of flats, 13 houses and a block of sheltered accommodation. It was built in the late 1960s on a landfill site. The block itself was described in the contract documentation for the major works in question as “Block U”. It is four storeys high and contains 19 flats. It was originally constructed of concrete load bearing frames, floor and flat roof. It had painted timber windows with double thickness glazing. The flat roof was asphalt covered.
6.	By the early to mid 1990s it was clear that significant work was required to the Estate and on 18th November 2004, the council served a notice of intention to carry out works to 10 of the blocks. It was stated that the total estimated rechargeable cost was £8,326,139.48 with Miss Waaler’s estimated charges being £61,134.01. The works were carried out in phases, those to Block U falling within Phase 7 which was conducted simultaneously with Phase 8. These commenced on 10th January 2005 and practical completion was achieved on 21st May 2006. The final account with the contractor was signed on 17th December 2007. Four and half years later, on 23rd March 2012 a demand was issued to Miss Waaler in the sum of £55,195.95. The delay in presenting the invoice was said to be because the contractor went into liquidation soon after the completion of the contract and difficulties were encountered in retrieving the necessary information for the allocation of costs.
7.	In November 2012, the applicant, together with two other lessees, applied to the FtT for a determination of the payability of the charges. The application was made under section 27A of the Landlord and Tenant Act 1985. At a hearing in August 2013, Mr Coyle represented all three applicants. In its decision dated 9th December 2013, the Tribunal found that the charges were substantially payable. In making this finding the Tribunal rejected a number of arguments advance on behalf of the leaseholders. These included:
(a) A contention that the service charges were higher than they ought to have been because of the council’s failure to repair in a timely fashion (historic neglect); a contention that the flat roof should have been repaired rather than being replaced with a pitched roof; a contention that the windows should not have been replaced and that if they had been instead been repaired it would not have been necessary to replace the external cladding and the asbestos which lay beneath;
(b) A contention that section 20 of the 1985 Act had not been complied with and that recovery of the costs was statute barred under section 20B Act;
(c) A contention that the overall costs were unreasonable since the final bill in excess of £55,000 was over 62% of the total sum for which the flat was insured;
(d) A contention that having regard to Garside and Anson v RFYC Ltd and Maunder Taylor [2011] UKUT 367, it was unreasonable for the costs of the works to be charged in one year;

(e) A contention that the method of repair was inappropriate and had been driven by Government funding in respect of Decent Homes standards and that, in some relatively minor respects, the standard of the work was unsatisfactory as was the merit of the work insofar as it was argued that the costs were expensive, incorrectly measured and excessive.

8.	In January 2014, permission to appeal was sought from the FtT. The FtT rejected the application and a further request for permission was made to the Upper Tribunal on behalf of Miss Waaler. In a decision dated 1st April 2014, The Deputy President refused to give permission on the issues of section 20B and historic neglect but gave permission on four issues:
(a). Whether the FtT was correct to treat the replacement of the original flat roof of the building with a new pitched roof, and to replace the original wood-framed windows with new metal framed units (this necessitating the replacement of the exterior cladding and the removal of the asbestos) as work falling within the landlord’s covenant to repair the structure and exterior of the Flat and the Building at clause 5(b) of the lease.

(b)Whether the FtT was correct to conclude in paragraph 57 that because the applicant’s own expert accepted that the replacement of the roof with a pitched roof was not unreasonable both in terms of the works undertaken and the costs, it was not open to the applicant to argue that the costs had not been reasonably incurred.

(c) Whether the FtT was correct to conclude in paragraph 58 of its decision that the landlord’s decision to replace the windows (thereby necessitating the replacement of the cladding and its associated asbestos) was reasonable in all the circumstances.

(d) Whether, its conclusion that no order under section 20C, Landlord and Tenant Act 1985 ought to be made, should be reconsidered.
The Decision of the First Tier Tribunal
9.	It is necessary therefore to consider what the F-tT decided and why. The applications were heard over two days when evidence was given by Mr R Pettifor, senior project manager for the council, Mr K Nirmalakumaran, principal structural engineer for the council and by Mr D Whitehouse, an expert retained by the applicants.  It is clear that the Tribunal took great care to address the issues raised by Mr Coyle on behalf of the applicants and that in some respects the decision had been a difficult one. The Tribunal’s findings in respect of the roof and the windows are set out in paragraphs 57 and 58 of its decision as follows:
“57. The next heading under Reasonableness is the reasonableness of the costs. Insofar as the roof is concerned we think we can take this quite shortly. Much was made as to whether or not the roof was a cold or warm roof and the problems that had been had in the past. KN (an expert on behalf of the council) accepted that there had been little in the way of repair works for some time because the decision had been made in the 1990s to replace the roof. The Applicants’ own expert accepted that the replacement of the roof with a pitched roof was not unreasonable both in the actuality of the works and the costs. It seems to us therefore, that if the applicant’s own expert accepts that the replacement of the flat roof with a pitched roof was a reasonable step to be taken by the Council and has no particular complaint as to the costs of the pitched roof, that this is not an argument that can be taken any further by the Applicants. We therefore find that the replacement of the roof with a pitched roof was perfectly reasonable and that the costs associated therewith were also reasonable.

58. We then turn to the question of the windows which caused us far more concern. It appears that the windows had an inherent design problem. Two substantial panes of glass were installed in the tilt section of the window which seems to have placed an unreasonable strain on the hinges. We accept the evidence of the council that there had been hinge failure over the years and although they had tried to use the hinges taken from other windows in the development, these were no longer available and it was not possible to obtain replacement hinges from the source in Sweden. This appeared to be something that had been tried in earlier phases but it had not solved the problems with the hinges. We considered what steps the Council could take in the circumstances where it appears common ground that the hinges were an issue. Mr Matthews in his statement said the existing hinges were £140 per pair. Those, if they were the same as the original hinges, would in due course suffer the same problems unless works were done to the windows to lighten the weight. Accordingly to do so there would be the cost of removing the windows and replacing them, which would not in our view be a simple job, and of course there would be the associated scaffolding costs which may require to be in situ longer than just the straight replacement of the whole unit. These are clearly issues that needed to be considered. Added to that, of course, is that the replacement of the windows also resulted in the replacement of the asbestos and the cladding. The costs of the windows are not insubstantial. We were told however, that the aluminum window units will have a life span of twice that of the UPVC ones which might have been used at a lower cost. The question we have to determine is whether the Council’s course of action was reasonable, whether the standard of works was reasonable and whether the costs were acceptable. Doing the best that we can on the information that is available to us, which we have to say from the Council’s point of view was not as good as it should have been, we have come to the conclusion, albeit with some reluctance, that the Council were reasonable in seeking to replace the windows as a fresh unit and that the cost of replacing the cladding was an inevitable consequence. There is no doubt from the photographs of the development that the replacement of the windows and the cladding has again added to the aesthetic appeal of the black. We bear in mind also that the costs of the windows will also fall to be met by the Council. We were told that there were approximately 1,000 properties of which 140 were leasehold. We accept, therefore, that the upgrading of the windows has incurred substantial costs to the Council and although these may in part have been met by grant monies, the information we have been given is that the grant is repayable. It will also of course avoid the recurrence of problems that have affected the windows with the sheer weight and the hinges and should, therefore, ensure that the future costs are considerably reduced. Having accepted that the windows were to be replaced, the costs that flow with regard to the cladding and asbestos seems to us to be wholly reasonable and were not in truth challenged.”

The Lease
10.	As part of its determination the FtT considered the issue of whether the works constituted repairs or improvements. This is an important issue which requires a consideration of the terms of the lease and the nature of the works that were carried out. In paragraph 62 of its determination the Tribunal noted “Mr Coyle asks us to consider whether the works were repairs or improvements and if they were repairs, as he says is claimed by the council, then there should be no liability for improvement works which would include the windows, communal services, plumbing, electrics, entry phone and external decorations….It seems to us that Mr Coyle puts it too high when he says the respondents have claimed all the works were repairs. At paragraph 48 of the council’s submission the following wording is used: ‘In the alternative and in any event the council acted reasonably in replacing the windows which it was permitted to do under the lease. Costs of improvements are recoverable on the same basis as for service charges. The new windows benefit all tenants and lessees of the block.”
11.	The council’s obligations to repair under the lease are contained at clause 5 which provides at sub-clauses (b) and (c):
“(b) That the Council will keep in repair and redecorate when necessary the structure and exterior of the Flat and the Building including the drains gutters and external pipes thereof and will make good any defect affecting the structure…..”
(c) That the Council will keep in good repair and condition all other property over or in respect of which the Lessee has been granted rights under the Second Schedule hereto”
12.	As the lease was originally granted under the Right to Buy provisions contained in the Housing Act 1985, a similar covenant is in any event implied by virtue of paragraph 14 of schedule 6 to that Act requiring the landlord to “keep in repair the structure and exterior of the dwelling-house and of the building in which it is situated (including drains gutters and external pipes) and to make good any defect affecting that structure”
13.	The second schedule deals with rights and easements granted to the Lessee over access ways, the right to use the recreation areas and gardens (if any) and the right to use refuse bins.
14.	The tenant’s obligation to repair is contained at clause 4 which requires the lessee to:
“(a) Keep the flat and every part thereof (except such parts as are affected by the Council’s covenants in clauses 5(b) and (c) hereof) and all walls party walls sewers drainpipes cables wires and appurtenances thereto belonging in good and tenantable repair and condition including the renewal and replacement of all worn or damage parts and in particular (but without prejudice to the generality of the foregoing) so as to support shelter and protect the parts of the building other than the flat.”
15.	The demise of the flat is described in the First Schedule as:
““All that flat known as 347 Summerwood Road….Together with the internal walls and ceilings and floors of the said flat….And Together with all cisterns tanks sewers drains…Except and reserving from the demise the main structural parts of the building including the roof foundations and external parts (but not the glass of the windows of the said flat nor the door and door frames…)”
16.	Payments towards the cost of repairs is also dealt with in Clause 4. This requires the tenant to:
“(c) Pay to the Council in every Financial year a sum on account of the Service Charge attributable to the Flat in that Financial year demanded by the Council in accordance with the provisions of the Sixth Schedule hereto by equal monthly instalments in advance…..”
17.	The sixth schedule provides that:
“The Service Charge attributable to the Flat for the Financial Year shall be a proportionate part of the costs or estimated costs….incurred or to be incurred in that year by or on behalf of the Council in connection with the provision of services repairs maintenance or the Council’s costs of management and including:-
(a) the costs of complying with the Council’s covenant in clauses 5(b) and (c) of this Lease and with any similar obligations affecting any part of the Premises ….
(c) the costs of providing a reasonable reserve to finance future capital costs falling within sub-paragraphs (a), (b) and (c) hereof.”
18.	Finally, a further obligation to contribute to the cost of improvements is imposed on lessees by clause 4(e) which requires the leaseholder:
“(e) If and whenever the Council shall make any improvement affecting the Flat or the Premises or any part thereof upon the service of a written demand pay to the Council a fair proportion of the cost of the improvement based on a comparison of the rateable value of the Flat …”
Statutory provisions
19.	Sections 18-30 of the Landlord and Tenant Act 1985 make provision for the regulation of service charges in leasehold dwellings. The only provisions relevant to this determination are in sections 18 and 19 which provide:
“18(1) In the following provisions of this Act “service charge” means an amount payable by a tenant of a dwelling as part of or in addition to the rent –
(a) which is payable directly or indirectly, for services, repairs, maintenance, improvements or insurance or the landlord’s costs of management, and
(b) the whole or part of which varies or may vary according to the relevant costs.
……………..
19(1) Relevant costs shall be taken into account in determining the amount of a service charge payable for a period –
(a) only to the extent that they are reasonably incurred, and
(b) where they are incurred on the provision of services or the carrying out of works, only if the services or works are of a reasonable standard;
And the amount payable shall be limited accordingly.”
20.	It is worth reflecting that the definition of service charge contained in section 18 did not originally include the cost of improvements and that this was added by an amendment introduced in September 2003 by the Commonhold and Leasehold Reform Act 2002.
The submissions
21.	Mr Coyle made comprehensive submissions on behalf of Miss Waaler. His first argument is that the service charge costs related to works of improvement rather than repair. He argued that although clause 4(e) imposes a duty to contribute to the cost of improvements, there was no express right for the council to carry out improvements. He contended that the works did not fall within the council’s repairing obligations in clause 5(b) and (c) and that the costs were not recoverable under clause 4(c) and Schedule 6 to the Lease. He pointed out that Proudfoot v Hart (1890) 25 QBD 42 (CA) states that the standard of repair is governed by the age…locality and class of a property and the standard of repair is to be measured by the condition of the premises at the start of the lease.  He submitted that in 1991 when the lease was granted, the premises were decayed and part of a large densely populated and deprived council estate of poor design where there were problems of anti-social behaviour.
22.	Mr Coyle submitted that the major works in this case go beyond what was required or can have been contemplated as falling within the covenant to repair. He drew my attention to Revenseft Properties Ltd v Davstone (Holdings) Ltd [1978] EWHC QB1, paragraph 26 where Mr Justice Forbes observed that “In deciding this question, the proportion which the cost of the disputed work bears to the value or cost of the whole premises may sometimes be helpful as a guide.” In Revenseft the cost of the works was less than one percent of the rebuilding costs and on that basis alone, it could not be said that proportionately the works were works of improvement. Here however, Mr Coyle submitted that the total cost of the works to Miss Waaler was £55,000 whereas the insurance value for rebuilding was £88,000. Therefore the cost of the works represented 62.5% of that value.
23.	Mr Coyle asked me next to consider McDougall v Easington District Council (1989) 58 P&CR 201. There Lord Justice Mustill had given some guidance on how to discern the difference between works falling with in the repairing covenant and works going beyond such a covenant “…in my opinion three different tests may be discerned, which may be applied separately or concurrently as the circumstances of the individual case may demand, but all to be approached in the light of the nature and age of the premises, their condition when the tenant went into occupation, and the other express terms of the tenancy.” The first test is whether the alterations went to the whole or substantially the whole of the structure or only to a subsidiary part. In this case Mr Coyle contended that all of the works to the property should be taken together in deciding the question. The works to the whole estate were phased on a block by block basis; all of the works to the building were carried out at the same time and were billed as a single service charge.
24.	The second test is whether the effect of the alterations was to produce a building of a wholly different character than that which had been let. This is another aspect of his submission that the standard of repair is to be measured as at the time the lease was granted. Mr Coyle referred me to photographs taken before and after the works and submitted that it was clear that the character of the property had been changed. The third test is to consider what was the cost of the works in relation to the previous value of the building, and what was their effect on the value and lifespan of the building. 
25.	In Mr Coyle’s submission the damage to the roof and the failure of the hinges to the windows were both the result of inherent design defects. He referred to The Post Office v Acquarius Properties Ltd [1987] 1 All ER 1055 as authority for the proposition that disrepair is required to trigger a liability to repair an inherent fault and referred to the judgment of Lord Justice Slade who had stated “It seems to me that, if, as in the present case, landlords let to tenants a newly built premises of which parts are defectively constructed, clear words are needed to impose a contractual obligation on the tenant to remedy the defects in the original construction, at least at a time before these have caused any damage.” and in Quick v Taff Ely [1985] 3 All ER 321 (CA) Lord Justice Dillon stated that “In my judgement, there must be disrepair before any question arises as to whether it would be reasonable to remedy a design fault when doing the repair”. Also Mr Coyle submitted that Quick is authority for the proposition that disrepair relates to physical condition not lack of amenity or inefficiency. In this case Mr Coyle suggested that the FtT had erred in failing to recognize that there was no disrepair and that therefore there could be no obligation to repair. 
26.	The second basis for Mr Coyle’s submissions was that if the council was entitled to carry out improvements under clause 4(e) of the lease then the motivation here was not to put the properties into repair but to regenerate a mixed-tenure estate by improving the quality of the design and to meet the Decent Homes standard. In this respect he referred to Carmel Southend Ltd v Strachan & Henshaw Ltd [2007] EWHC 289 and Fluor Daniel Properties Ltd et al v Shortlands Investments Ltd in support of the proposition that if a landlord wishes to carry out repairs that go far beyond those for which the tenants, given their more limited interest, could fairly be expected to pay then, subject to the terms of the leases, the landlord had to bear the additional cost himself.
27.	Mr Coyle also contended that the costs were not reasonable in that they ought to have been spread over a number of service charge years. He referred to the Upper Tribunal decision in Garside and Anson v RFYC Limited and BR Maunder Taylor [2011] UKUT 367 where HHJ Robinson found that in deciding whether costs have been reasonably incurred, in some cases it will be relevant to consider whether works, and the cost of works, can be spread over a number of years. This may involve a consideration of the degree of disrepair and the urgency of the work or the extent to which it can wait. Also relevant might be the wishes of the lessees and, she suggested, hardship to the lessees.
28.	In this case, Mr Coyle contended that the council had failed to consider the impact of the charges on the lessees and the unfairness of imposing the costs in one service charge year. He said that the onus to demonstrate that the financial impact of the costs had been taken into account was on the landlord. Here no service charge reserve fund had been accumulated and this ought to have been put in place. Furthermore no part of the benefit of the Decent Homes loan had been passed on to the leaseholders. If this had been done then it might have been possible to spread the burden of paying the charges over a number of years. Finally no support had been offered to the lessees and no policies had been put in place to mitigate the impact of such a high bill despite there being a six year delay between completion and the service charge invoice being given. The invoices from the contractors were provided on a regular basis showing the running total of costs but this information had not been communicated to the leaseholders.
29.	Lastly, Mr Coyle also argued that the unreasonable delay in notifying the leaseholders of the costs meant that the costs could not be regarded as being reasonable. He contended that the explanation given for the delay was not rational. The final account was agreed in December 2007 but the council said that they could not have progressed matters as the contractor went into liquidation in 2008 and it took several years for the council to track down required information before issuing the final invoices. This, he said, made no commercial or management sense. The lessees had received notice of estimated costs but did not know what the final costs would be and this imposed an unnecessary financial and emotional burden on them. All of the costs, he said, were infected by the delay.
30.	Mr Beglan submitted that the council is entitled to recover the costs of both repairs and improvements; repairs as service charge costs under the sixth schedule and clauses 5(b) and (c) and improvements under clause 4(e). He accepted that whereas for repairs there is a clear description of the council’s obligations, by contrast there is no express right to repair. Instead that right must be inferred from the tenant’s duty to contribute to the cost of improvements. 
31.	He contended that it is settled law that remedying an inherent defect can amount to a repair: Ravenseft Properties Ltd v Davstone (Holdings) Ltd [1980] QB 12 and that it was for the FtT to consider the facts of this case and reach its own judgment upon the point. The question is, he suggested, not whether patch repairs would have been sufficient but whether it was open to the Tribunal to find that renewal was a reasonable way to deal with disrepair. He pointed out that there was no oral evidence provided to the Tribunal to suggest that the council had made unreasonable choices in relation either to the roof or the windows. The Tribunal had not therefore erred in law.
32.	So far as the roof is concerned, he said that Miss Waaler’s own expert had not contended that the council had made any unreasonable choice. The Tribunal dealt with this in its decision in paragraph 34 as follows:
“34……He was of the view it would have been perfectly possible to replace the existing flat roof with another but accepted that he had not seen the roof before the pitched roof was erected. He had no idea what the cost would be to reduce the upstands and relay the roof but that it may have been an appropriate way of dealing with the matter. However, when asked the specific question as to whether it was unreasonable for the council to proceed, he said as follows: “The replacement of the flat roof by a pitched roof is a reasonable step to take including all factors including costs. This is not necessarily a decision I would have taken.”
33.	Also, and importantly, Mr Beglan pointed out that the Tribunal did not restrict itself to this one piece of evidence but considered the evidence in its totality. The Tribunal, he said, was dealing not only with a complete absence or any evidence and/or any articulated case demonstrating that the landlord’s approach to the roof was unreasonable, there was substantial positive evidence supporting the installation of a pitched roof provided by both Mr Nirmalakumaran and Mr Pettifor.
34.	So far as the windows are concerned he again pointed out that Miss Waaler’s expert did not contend that the council had made any unreasonable choices in relation to the windows. He said there was no positive case in evidence supporting the alleged alternative of replacing window glass and hinges where required; nor any evidence as to how that would necessarily have overcome the problem with the window which was the movement on the hinge when it was operated. 
35.	He submitted that each of the elements of the major works was capable of being a matter of repair. The fact that for reasons of economy and expedition the Respondent reasonably decided to deal with 3 main elements of the building in one project does not change the proper approach to each element. In those circumstances, he says, it was a matter of fact and judgement for the FtT to consider whether the works fell within the definition of repair.
36.	So far as the decision in Garside is concerned, he contended that the judge in that case was not purporting to add a gloss to the application of the reasonableness test, rather she decided that “reasonable” should be broadly interpreted and was therefore capable of including such a factor as the financial impact on lessees. However, he also submitted that Garside was in fact wrongly decided and that it is no part of the test of reasonableness to consider the financial impact of the service charge on the occupiers of the properties.
37.	On the question of relative values, namely the value (or insurance value) of the flat and the cost of repairs, he suggested that the question has to proceed against the background that whether the building should be demolished or renovated had been considered and rejected by the occupiers and this was acknowledged by the Tribunal.
38.	Finally, Mr Beglan rejected the proposition that the reasonableness of the costs was affected by the delay in submitting the invoice in this case. He pointed out that the section 20 notice had put the lessees on notice that the costs would eventually be charged. The delay meant that the lessees had effectively been given several years to make arrangements to pay the costs.
Consideration
39.	I start with the terms of the lease. In my view under its terms the respondents are obliged carry out repairs and have the discretion to carry out improvements. Furthermore they are entitled to seek contribution to the cost of either type of work from the lessees. So far as repairs are concerned, clause 5(b) of the lease requires the respondent to keep in repair the structure and exterior of the property. At one stage I was concerned that this may not include the glazing to the windows (a very relevant matter in this case) because of the terms of description of the demise in the First Schedule to the lease. Following the hearing in October, I asked the parties to provide submissions on the case of Sheffield City Council v Hazel St Clare Oliver [2008] LRX/146/2007. This also concerned a service charge for works carried out by a local authority landlord to a flat purchased under the Right to Buy. One of the questions for the Upper Tribunal in that case was whether the obligation implied by paragraph 14 of schedule 6 to the Housing Act 1985 meant that the cost of works to Mrs Oliver’s windows were recoverable as service charges notwithstanding that the windows were reserved as part of the demise of the flat. Having reviewed the authorities on the meaning of “structure and exterior,” the President decided  that the costs were recoverable since the windows are part of both the structure and the exterior. I agree and find the principle applies equally in this case. 
40.	So far as improvements are concerned, I would observe that the drafting of the lease is unhelpful. Although there is a clear obligation on the leaseholder to contribute to the cost of improvements there is no separately articulated power for the respondent to carry out such improvements. In Sheffield City Council v Hazel St Clare Oliver  for example, the lease required the council to “keep in repair….and (if desirable in the opinion of the Council) to improve the structure and exterior of the demised premises and of the Building…” Nevertheless I accept Mr Beglan’s submission that, although tersely expressed, the proper way to construe the lease is to accept that there is a power to carry out improvements. Having concluded that the costs of improvements are recoverable under the terms of the lease the main question for determination is whether the costs were reasonably incurred?
41.	At the hearing I asked Mr Beglan whether he considered that different considerations would apply to the assessment of the reasonableness of incurring costs of repairs from that assessment in respect of improvements. He submitted that there is no difference and that the test is the same in either case. I accept that section 19 of the Landlord and Tenant Act makes no express distinction between repairs and improvements. However, in my view the approach must be different. In carrying out repairs a landlord is usually fulfilling an obligation under the lease. Failure to carry out the obligation would mean that he was in breach of the lease and vulnerable to an order for specific performance and possibly an award of damages against him. Improvements are a different matter and may simply be a matter of choice. I accept that when one is dealing with works to a building which might be a mixture of repair and improvement that the distinction will be blurred. It is for the landlord to decide how to discharge its obligations and provided it acts reasonably, it is for the landlord to decide how to go about the matter. The tenants cannot complain simply because the landlord could have adopted another and cheaper method of doing so.
42.	However, if a landlord decides to carry out a scheme of works which goes beyond what is required to effect a repair and seeks contributions to the cost from a leaseholder then in my view he must take particular account of the extent of the interests of the lessees, their views on the proposals and the financial impact of proceeding. As the President observed in the Sheffield case “It does seem to me somewhat surprising…that under the terms of this 125 year lease, if the council are of opinion that a particular improvement is desirable, they are able to carry out the works of improvement and to charge the lessee for them even though the lessee does not want them carried out..” 
43.	I appreciate that the council has responsibility for its secure tenants. However, it also has a responsibility as a landlord to the leaseholders. I do not underestimate the challenges that are faced by a public authority managing a mixed tenure estate where funding is offered to raise the quality of the housing provided to a decent standard. But in deciding what works to carry out it is not sufficient simply to rely on the right to recover the cost of improvements as a justification in itself for embarking on a scheme of very expensive works.
44.	It is convenient at this point to consider the case of Garside and Anson v RFYC Limited and BR Maunder Taylor [2011]. The circumstances there were very different from this case. In that matter the Upper Tribunal was concerned with service charges levied on a number of private sector leaseholders by a manager appointed under section 24 of the Landlord and Tenant Act 1987. That appointment followed a lengthy period of neglect by the landlords and resulted in an ambitious scheme of works being devised. The lessees argued that although it was accepted that works of repair were needed, it was not appropriate to carry the bulk of them out all at once. Rather, they said, the work should be phased so as to spread the increased service charge costs. At first instance the Tribunal decided that the ability of individual leaseholders to pay for the cost of works was not relevant to a consideration of reasonableness under section 19. On appeal HHJ Robinson reversed the decision of the FtT. However, the basis of her determination was not that the means of individual leaseholders could be determinative of the reasonableness of cost nor that works must always be phased to accommodate those means. Instead she overturned the decision on the basis that the Tribunal had failed to consider the merits of the argument whether “the scheme of works required is that which accommodates the truly pressing remedial works, and the means of the tenants on the Estate, with on-essential decorative and other work being phased over a sufficiently long period so as to management in terms of cost by the tenants”
45.	In my view Garside is limited in its ambit. Where works of repair are required and there is a reciprocal duty on a leaseholder to contribute to the cost of repair then the lessee’s means are usually irrelevant to the issue of whether costs are reasonably incurred. This is subject to the limited circumstance where an unexpected increase in service charges and the financial impact of such an increase may well be relevant considerations in a decision on how and when to effect repairs. 
46.	So far as works of improvement are concerned however, the financial impact on leaseholders is in my view relevant. Improvement in this context means works that go beyond what is required to effect a repair.  Where as here,  the cost of a scheme of works is high and the product of those works is a building, or part of a building which is wholly different than was the subject of the original demise, then in deciding whether to proceed, a landlord must consider a number of matters before proceeding. First the availability of alternative and less expensive remedy should be explored. Secondly,  greater weight should be given to the views and the financial means of the lessees who will be required to pay for those works. 
47.	Therefore although in this case the costs of both repairs and improvements are recoverable under the terms of the lease, the issue of whether particular works constitute repairs, improvement or a mixture of the two remains relevant. Having regard to the facts here, I consider that it is appropriate to look at the works in their separate categories. I do not accept Mr Coyle’s contention that it is necessary to consider the totality of the works in deciding whether the costs are reasonable. As I explain below, I am satisfied that some of the works were necessary works of repair and as Mr Beglan suggests, it is appropriate to look at the items of work carried out in turn.
48.	So far as the roof is concerned, the Tribunal decision indicates that it was in disrepair. Mr Coyle maintained that the cause of the disrepair was a design defect and contended that it could have been dealt with by patch repairs and regular maintenance. However, I am unable to say that the Tribunal erred in deciding that the costs of replacing the flat roof with a pitch roof were reasonable. I accept Mr Beglan’s submission that the Tribunal’s decision was not based solely on the concession made by Ms Waaler’s surveyor but was a decision of an expert Tribunal made on consideration of all of the evidence and on the submissions made by the parties. Insofar as the works addressed a possible design defect, this did not, in my view, detract from the fact that replacing the roof fell within a range of reasonable methods of repair open to the respondent. This is also in line with the guidance given in both The Post Office v Acquarius Properties Ltd [1987] and in Quick v Taff Ely [1985] 3 All ER 321 (CA).
49.	The windows and cladding are much more difficult. The Tribunal dealt with the evidence of Mr Nirmalakumaran on behalf of the council as follows:
"29……With regard to the windows, he told us it was not the state of repair so much as the inability to repair and the faulty working parts that had caused concern….
30. In respect of the windows and cladding, he told us he was of the view that the windows could not be removed without the cladding being taken off which would in turn disturb the asbestos lying beneath. There had, he said, been problems between the cladding and the asbestos in any event. Insofar as the problems with the windows were concerned, he thought that the hardwood frames were in reasonable order but it was the metal fixings and in particular the hinge on the tilt window which was causing the problems. He was asked why investigation into the possible retooling of the window hinges had not taken place, but indicated that he thought it was not possible. He produced evidence that he considered showed that there had been call-outs to the block in respect of window difficulties and although he accepted that the windows could perhaps have been removed internally, it would inevitably have affected the asbestos which had abutted the windows and accordingly that would have needed to have been dealt with.
31. On the next day of the hearing on 29th August 2013, KN told us that there had been attempts in phase 1 and 2 to replace the hinges but this had been unsuccessful. He recalled that he thought one window had in fact fallen out at some time in the past but was not able to give any particular details. They had been using hinges from windows in other blocks which had been replaced but this was for a limited period. He indicated that he had not himself made any observations or note of the windows and the decision to replace had been made by an architect. He was of the view that the windows did need to be changed but was not part of the decision making process. He did believe, however, that the tilt windows were too heavy for the hinges. He did not give any indication as to whether it had been considered that the tilt window section could have been replaced with a lighter double-glazed unit. He accepted that the replacement of the cladding only arose because the windows were being replaced. There were bits of cladding missing, he said, and some could have been salvaged but in his view replacement was a better solution. He told us in his initial responses that the cladding would need replacing  but not for another five to ten years as an estimate based on the BRE report and his own opinion. The replacement of the cladding when the windows were being replaced saved considerable sums in respect of scaffolding, preliminaries etc, at a later date.”
50.	Following the conclusion of the hearing further evidence was provided to the Tribunal about the windows which was dealt with as follows:
“45. We read the report by Mr Matthews also headed “Experts Report” which we did not consider it was and the further report by KN. Mr Matthews was employed as a carpenter, although may now have risen to higher levels in the local authority, and has been with them since 1998. He did give us more information as to the problems associated with the windows. He told us that replacement hinges had been sourced from Sweden at a cost of £140 per pair, not the £20 suggested by Mr Whitehouse. However, this it seems did not solve the problem as those hinges became unobtainable and other options proved unsuccessful. KN’s additional report sought to resile from the evidence he gave as to the life expectancy of the cladding which he now seem to be suggesting was 5-10 years from 1992. The only additional evidence he could find with regard to the replacement of the windows was a letter from Mr Taylor, the Assistant Chief Executive Property Services in January of 1997 referring to a telephone conversation, we suspect erroneously recorded as 14th January 1996, where it is suggested the window replacement should be carried out instead of repairs.”
51.	At the hearing of the appeal we looked again at the letter which reads as follows:
“I confirm our telephone conversation dated the 14 January 1996 that the window repairs to the above project are not required and that window replacement will now be carried out instead…”
52.	The Tribunal dealt with the issue of whether the works to the windows were repairs or improvements, in the context of their consideration of notices served on other lessees under section 125 of the Housing Act 1985 (which is not relevant to this appeal). At paragraph 63 it stated “It seems to us to be our responsibility to decide whether works are improvements or repairs. Insofar as the windows are concerned the evidence we have had from KN was that they were not in disrepair. The problem arose as a potential safety issue and a failure of the hinge which did not assist in the operation of the windows. The replacement of the windows is both a repair and an improvement…”
53.	At the FtT hearing there was no evidence that the windows themselves were in substantial disrepair. The failure of the hinges can be classified as disrepair but this was a result of the weight of the double thickness windows and was a design defect. There was also no evidence that the council had explored alternate methods of dealing with the windows. Mr Coyle produced some alternative costings on the basis that friction hinges could be provided at a cost of £20 for each window resulting, he said, in the total cost for block U of £10,640 (on the assumption that this would successfully resolve the problem) as opposed to the £459,000 actually spent on the cladding and windows at the block. However, Mr Coyle’s figures are extremely speculative and remain untested.
54.	For a number of reasons it is clear that the Tribunal had difficulty in deciding that the cost of the replacement windows and associated works to the cladding and asbestos had been reasonably incurred. In paragraph 58 of its decision that concern is articulated. The Tribunal identified the question to be decided as “whether the Council’s course of action was reasonable, whether the standard of work was reasonable and whether the costs were acceptable. Doing the best that we can on the information that is available to us, which we have to say from the Council’s point of view was not as good as it should have been, we have come to the conclusion, albeit with some reluctance, that the Council were reasonable in seeking to replace the windows as a fresh unit and the cost of replacing the cladding was an inevitable consequence.”
55.	I consider that the Tribunal erred in reaching this conclusion. The cost of works to the windows and the replacement of the cladding was very significant. On the evidence the only disrepair to the windows was caused by the design of the windows which were too heavy for the hinges. That defect must have been a problem since the properties were built and had been managed for at least thirty years. This is not to say that the Council ought not to have taken steps to remedy the problem, but in my view they ought to have made more effort to explore alternative, and less expensive, solutions. The only evidence before the Tribunal in this respect was the written report from Mr Matthews who the Tribunal did not consider to be an expert which was that “replacement hinges had been sourced from Sweden at a cost of £140 per pair, not the £20 suggested by Mr Whitehouse. However, this it seems did not solve the problem as those hinges became unobtainable and other option proved unsuccessful” In my view this evidence is insufficient to support a decision to go ahead and carry out a whole sale replacement of the windows and associated works. Other evidence on behalf of the council seems to have been equally unsatisfactory. At paragraph 31 of its decision the Tribunal recorded that Mr Nirmalakumaran said “he himself had not made any observations or note of the windows and the decision to replace had been made by an architect….he did not give any indication as to whether it had been considered that the tilt window section could have been replaced with a lighter double-glazed unit…”
56.	Furthermore there was no evidence that any consideration had been given to the financial impact on the lessees of replacing both the windows and the cladding. As I have stated, I consider that where works which go beyond works required to remedy disrepair are carried out, the financial impact of any particular course of action may have relevance to the question of whether costs have been reasonably incurred. In this case and on these specific facts, the cost of the works to the windows is a significant factor. 
57.	I bear in mind that the works were carried out as part of a wholesale renovation of the Ivybridge Estate and that the management decision to replace the windows and cladding was intended to benefit both the secure tenants and the leaseholders. I also accept that the funding for the works under the Decent Homes initiative was not by way of a grant but was a loan. However, in making that management decision there is no evidence that the cost of the works to the leaseholders was taken into account. There is, in fact, very little evidence to demonstrate how or why the decision was taken at all. One of the difficulties in this case is the passage of time both since the decision was made to replace the windows and cladding and also since the works themselves were carried out. If, as it seems, replacement works rather than the renewal of the hinges, was decided to be the preferred approach as long ago as 1997, then it is not surprising that evidence of the reasons for that decision cannot be identified. Ultimately however, the council failed to demonstrate that alternative methods of addressing the problems with the hinges had been explored and in those circumstances and having regard to the level of costs ultimately charged to the lessees, it is my view that the Tribunal ought not have been satisfied that the council’s decision to incur the costs was reasonable or that the whole of the cost of the replacement windows and cladding had been reasonably incurred.
58.	I therefore conclude that the appeal partially succeeds. The difficulty now is to quantify by how much the service charge costs should be reduced. Ms Waaler has had the benefit of the works that have been carried out and given my finding that it was not unreasonable for the council to have taken steps to remedy the defects to the windows, some costs would inevitably have been incurred in effecting a remedy. I therefore remit the case to the FtT to determine by how much Ms Waaler’s service charge must be reduced to reflect my findings in this decision. If the parties can agree a reduction then this will avoid the cost of a further hearing.
Section 20C
59.	At first instance the Tribunal declined to make an order under section 20C in favour of any of the lessees. This is explained at paragraph 67 of the decision as follows:
“67 Insofar as the claim under section 20C is concerned, our findings have by and large been in favour of the local authority. Mr Coyle adopted, as we have indicated above, a somewhat ‘kitchen sink’ approach to this piece of litigation. He appears to have gone through the Act and thrown every possible section and sub-section that he could into the mix in the hope that some of it may produce a successful outcome. That is not to say that some of the issues have not been properly raised by him but the poorness of his instructions to his expert did not assist the applicants in their case. We take the view, therefore, that it would be inappropriate for us to make an order section  20C. It is, of course, still open to the Applicants to challenge any costs that may appear as a service charge.”
60.	Mr Coyle submitted that if the appeal was successful Ms Waaler should have the benefit of an order under section 20C and that the FtT’s decision ought to be reversed to reflect the merits of the case. In opposing that request, Mr Beglan submitted that permission to appeal had not been given on a number of matters decided by the FtT and that it had been critical of the length of Mr Coyles submissions. Similar considerations applied, he said, to the conduct of the appeal.
61.	In my view it would be inappropriate to interfere with the decision of the FtT on section 20C. Although the appellant has been partially successful on appeal, the first instance hearing was concerned with numerous issues, some of which were not considered in this appeal and some of which, and in particular the challenge to the roof costs, have not been successful on appeal. By contrast I do think it appropriate to make a section 20C order in respect of the appeal proceedings. Ms Waaler has succeeded in a not insignificant aspect of the case which was conducted in an efficient manner.
										Siobhan McGrath
						President, FtT (Property Chamber)
 							sitting as a Judge of the Upper Tribunal

										26 January 2015