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Council wins Upper Tribunal battle over service charge and replacement central heating

The Upper Tribunal (Lands Chamber) has ruled that the London Borough of Southwark can recover a service charge for work in a leaseholder’s flat after the First Tier Tribunal (FTT) said nothing was payable.

Resident Michelle Baharier successfully argued at the FTT that she need not pay £24,486.88 towards the £800,000 cost of replacing a central heating and hot water system serving the block of flats in which she lives because this was an improvement and not a repair, and so was not covered by her lease.

Southwark argued in the Upper Tribunal before Martin Rodger, deputy chamber president, and PD McCrea, that this was the wrong conclusion in law because there was a covenant to provide services, to which the distinction between repair and improvement was irrelevant and the FTT used a flawed approach to evaluate the differences between the original and replacement systems. 

The council argued that most of the design principles of the two systems were identical and the work simply involved replacing new for old; the conclusion that no part of the cost was recoverable was therefore irrational.  

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In its ruling the Upper Tribunal commented that Ms Baharier lawyer “realistically acknowledged the force of the landlord’s first ground of appeal and, without conceding the point, he devoted most of his submissions to a skilful attempt to avoid the consequences”.

Finding for Southwark in London Borough Of Southwark v Baharier (LANDLORD AND TENANT - SERVICE CHARGES - heating and hot water system) [2019] UKUT 73 (LC), the tribunal said: “It is unrealistic to suggest that the parties entering into the lease intended the building to remain unchanged throughout the term.”

The lease was given in 2008, when the heating system was already 40 years old, and runs for 125 years.

“The only sensible expectation would have been that the existing installations would be replaced in their entirety in the relatively short term, and would probably be replaced again during the remainder of the term,” the tribunal said.

“In that context the parties cannot have intended that the landlord’s only obligation should be to repair what was present or replace it with something satisfying modern requirements at its own expense.”

The ruling concluded: “We are therefore satisfied that the FTT directed itself and the parties by reference to the wrong question. 

“It ought not to have asked whether the costs of the replacement system were costs of repair or costs of improvement, but rather whether they were costs and expenses of…ensuring so far as practicable that those services were maintained at a reasonable level.”

Tribunal members added that while they had to consider the legal interpretation of a lease, but “in human terms it is another example of the serious problems that can befall tenants of modest financial means who, having exercised their statutory right to buy their homes are later faced with very large service charge bills when their local authority landlord carries out major works projects to the building”.

Mark Smulian

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