In March this year I reported on the Court of Appeal case of London Borough of Hounslow v Waaler , regarding recoverability by the landlord of their costs for discretionary improvement works, and whether the costs had been reasonably incurred according to Section 19(1) LTA 1985. One of the points emphasised in this case was that, where there was more than one possible reasonable course of action available, the landlord must choose which option to pursue.
This principle has recently been applied by the Upper Tribunal in the recent case of DeHavilland Studios Limited v Peries and another .
Ms Peries and Mr Voysey held a long lease of a live/work unit on the first floor of a converted factory in East London. The landlord was DeHavilland Studios Ltd.
The lease contained a covenant on the part of the landlord to keep the retained parts in “good and tenantable repair and decorative condition”, the costs being recoverable from the tenants through the service charge provisions.
The windows of the property were in disrepair. Whilst the tenants of flat 12 agreed that the windows were in disrepair, there was disagreement over the consequences of the disrepair. It was the landlord’s view that the windows could be repaired and that was the solution it proposed. The tenant believed the windows should be replaced. The cost of replacing all the windows in the building was significantly higher than repairing them.
The landlord took the decision to repair all of the windows in the building and sought to recover the cost of the works, to the tune of £100,242, through the service charge. The tenants believed that they were not liable for any part of this sum which had been included in the service charge.
The tenants applied to the First-Tier Tribunal (FTT) under Section 27A of the Landlord and Tenant Act 1985 for a determination of their liability to pay a proportion of this sum under the service charge.
The FTT held in favour of the tenants that the windows should be replaced, stating that “The costs to be incurred in respect of repairing the windows are not reasonable” and that “replacement of the windows is the most reasonable option“. The tenants were not liable to pay any part of the service charge relating to the replacement of the windows. The FTT claimed that in reaching its decision it had taken into account both expert’s reports, which had found that either replacement or repair was reasonable.
The landlord appealed on the ground that the FTT had applied the wrong test and, in particular, it had not determined that it was unreasonable for the landlord to repair the windows. Instead, it had determined that both repair and replacement were reasonable but that, in its view, replacement was the better option: this approach was wrong in law and contrary to authority. Permission to appeal was granted.
Whilst it could not be confident about its findings, the Upper Tribunal held that on balance the FTT had appeared to conclude that both replacement and repair were reasonable options, but that replacement was more reasonable.
In reaching its decision, the Upper Tribunal applied the principle laid down by Lewison LJ in Waaler, which was that:
“the tribunal should not simply impose its own decision. If the landlord has chosen a course of action which leads to a reasonable outcome the costs of pursuing that course of action will have been reasonably incurred, even if there was another cheaper outcome which was also reasonable.“
The Upper Tribunal held that the FTT had fallen foul of this principle. It had found that both replacement and repair to the windows would be reasonable but it preferred reinstatement, “and that was a course which was not open to it.“
The Upper Tribunal held that the landlord was entitled to a declaration that the decision to repair, rather than replace, the windows was a reasonable one and they were entitled to recover the reasonable cost of the repair via the service charge.
This case only serves to reinforce the importance of Waaler when considering the recoverability of service charges, and both landlords and tenants would be wise to bear in mind this decision when considering carrying out improvement works.