Landlords: do you carry out works on the basis that your tenants have to reimburse you for the costs? If you do, you may well come a cropper.
In February we blogged about the time consuming process that managers of residential blocks of flats must comply with where works are done to a building which result in a tenant contribution of more than £250.
On top of this, a recent decision of the Upper Tribunal (Lands Chamber)  has brought to light a key distinction on a landlord’s right to recover costs for works undertaken as improvements versus works undertaken as repairs to a building.
Landlords need to consider whether the proposed works are carried out as repairs (the ‘need to dos’) or whether they are being carried out as improvements (the ‘nice to haves’).
The case concerned the regulation  of the payment of service charges in leasehold dwellings. The legislation says that a landlord may only include costs in the service charge to the extent that they are reasonable.
Repairing or improving?
In this case a landlord had carried out works to replace tilting windows in a block of flats because the hinges were inadequate to support the weight of the glass. The replacement of the windows also necessitated replacing exterior cladding to the building and the removal of underlying asbestos. The tenant’s lease of the flat obliged the tenant to pay a contribution to the costs of the landlord carrying out both works to repair and works to improve. The tenant’s share of the estimated costs amounted to £61,134.00.
The First Tier Tribunal decided that the costs were substantially payable. The tenant successfully appealed to the Upper Tribunal, which found that replacing the windows with new units amounted to an improvement and not a repair and the landlord had an obligation to consider the leaseholder’s:
- view; and
- financial means.
when calculating the reasonable cost to be recovered. The Upper Tribunal found that there was no evidence that the landlord had given any thought to cheaper solutions such as replacing the heavy glass panes in the tilting sections of the windows with lighter panes, and had instead opted for a more expensive solution. Similarly, it didn’t appear that the landlord had considered the financial impact that the replacement window units and consequent cladding and asbestos removal would have on the tenants. The Tribunal’s view was that a landlord should take into account a leaseholder’s position when considering what improvement costs are reasonable.
The judge noted:
“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 interest of the lessees, their views on the proposals and the financial impacts of proceeding.
…improvement in this context means works that go beyond what is required to effect a repair. Whereas here, the cost of the 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 lessee who would be required to pay for those works”.
The decision goes a step beyond the legislation and makes a distinction between the ‘need to dos’ and the ‘nice to haves’. A landlord is obliged to carry out the ‘need to dos’ under a lease and would be in breach of its obligations if it did not. Where a landlord is entitled to carry out ’nice to haves’, careful thought should be given to cost recovery because the charge may not be easily passed to the tenants.
The key questions to ask:
- How is the service charge provision in a lease drafted – does the landlord have a right to charge for improvements as well as repairs?
- Are the costs reasonable? The landlord in this case had a power to carry out improvements and an obligation to carry out repairs. In either scenario, the tenant was obliged to pay a contribution for the costs of the works undertaken.
Where a landlord is obliged to carry out works of repair, and there is a duty on the tenant to pay towards these costs, the landlord would not need to take into consideration whether the leaseholder was financially equipped to cover the additional service charge costs when considering what works are reasonably. On the other hand, the right to improve a building by carrying out works leaves the tenant at the hands of a landlord who would otherwise be given carte blanche to undertake improvement works that could be well in excess of a tenant’s means to reimburse.
Moral of the story? Landlords should be careful not to rely solely on the obligation of their tenants to reimburse them for improvement works – before carrying out the works they must give consideration to the leaseholder’s interests, views and the financial impact of the reimbursement obligation. Is that ‘nice to have’ too nice to have?
 Waaler the Hounslow London Borough Council (2015) UK UT 1717 (LC)
 Landlord and Tenant Act 1985