Reasonableness of Service Charges for Improvements

Whether works or services provided by a landlord can be recharge to leaseholders is a matter of the construction of the lease.

Typically leases will oblige the landlord to maintain or repair the premises, or the building the premises is contained within. However, there is nothing which prevents a lease also allowing a landlord to carry out improvements, or for any such improvements to be re-charged through service charges. Provided the lease allows for the re-charge of improvements there is no statutory provision which precludes the re-charge.

However, the important case of Waaler v LB of Hounslow UKUT 0017(LC) may have to make landlords re-think how they approach improvement works if they wish to re-charge leaseholders in full.

While there is nothing, other than the terms of the lease, which prevents re-charging of service charges for improvements, section 19 of the Landlord & Tenant Act 1985 does require that all service charges must be reasonable. The First Tier Property Tribunal has jurisdiction to determine whether charges are reasonable or not. Challenges over the reasonableness of charges are possibly the most frequent that we see. The reasonableness of service charges applies equally to repairs as it does to improvements. Or at least that used to be the case until Waaler.

In the Waaler case the Upper Tribunal took a somewhat different approach. The tribunal made a distinction between repairs and improvements. Repairs, maintenance or services, are generally contractual requirements on a landlord and there is an obligation on the landlord to do these. Improvements are typically something which the landlord can do, if they want. There is, therefore, no obligation on the landlord to carry out improvements. The landlord may choose to carry out improvements, or not. Yet it is the leaseholder who must pay if the landlord carries out improvements.

Due to this choice, in the Waaler case, the Upper Tribunal took the view that the landlord needs to take “particular account” of the extent of the interests of the leaseholders when deciding to carry out improvements. The landlord must give greater weight to the views of the leaseholders. In particular, the landlord must consider whether the leaseholders wanted the works and whether there were other alternatives or less expensive remedies. Therefore the landlord must take into account affordability of the works.

What are the implications of this? Taking into account leaseholders’ views is going to be necessary. It is likely, therefore, that an informal consultation process will be necessary. Setting out what works are planned, what the cost of the improvements are and taking into account whether the leaseholders want the works or can afford the works. Considering payment of charges by the leaseholders by instalments over an agreed time period may also be necessary.

For more information, please contact Alex Wyatt.


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