Housing Matters January 2010

Leasehold Service Charges: Repairs or improvements?

The Decent Homes Initiative has put a spotlight on leaseholder service charges because of the unprecedented amounts that leaseholders are being asked to pay.  However, most RTB and RTA leases do not include the ability to recover the costs of improvements through service charges.

In asking whether the proposed works are repairs or improvements, many social landlords are hoping that they are the former and therefore recoverable.  However, this question is misleading and problematic because it puts too much focus on one element of the equation.

The approach of the Court of Appeal and the LVT is one which recognises that “repairs and improvements are not regarded as mutually exclusive: improvements can be included within repairs”. So what is the answer?

Context
The starting point is always the lease.  What does it say?  What is the context in which “repair” is used and what is the defect to be remedied by the proposed works?

In each case some or all of the following must be considered:  

• The nature of the building

• The terms of the lease

• The state of the building at the date of the lease

• The nature and extent of the defect sought to be remedied

• The nature, extent and cost of the proposed remedial works

• At whose expense are the proposed remedial works to be done 
 

• The value of the building and its expected life span

• The effect of the works on such value and lifespan

• Current building practice

• The likelihood of a recurrence if one remedy rather than another is adopted, and  

• The comparative cost of alternative remedial works and their impact on the use and enjoyment of the building by the occupants.

Spa Green and other cases for examples
Twenty seven leaseholders challenged the service charges payable for the works carried out by Homes for Islington and the Borough of Islington (known as the Spa Green Case, 2006).  In this case, one of the questions to be considered was whether the replacement of single-glazed windows with double-glazed amounted to an improvement rather than repair.  The lease did not allow for the recovery of service charges for improvement.

The LVT held that these works were repair and recoverable because:  

• In the context of other works being carried out, the cost of the windows was relatively small and comparatively insignificant in relation to the value of the buildings;

• The installation of double-glazed windows was necessary to comply with Building Regulations; and

• It appeared to be a reasonable way for the landlord to carry out its repairing obligations.
In September 2009, the case of Ledbury Lowrise Leaseholders v London Borough of Southwark, 17 leaseholders were asked to pay more than £33,000 for works including general repairs to external concrete brickwork, renewal of roofs, asphalt works to balconies and walkways.  One of the issues the LVT considered was: Is the newly installed insulation an improvement for which lessees are required to pay under the terms of their leases?

The tribunal found that:

• Improvements can be included within repairs.  

• The replacement roof, to obtain Building Regulations approval, had to incorporate modern standards of insulation.

• However, insulation panels had also been attached to exposed parts of the buildings, not to repair them, but to improve their thermal efficiency, particularly in relation to the Decent Homes Standard. This is improvement, not repair. Therefore the cost of this insulation was not reasonably incurred and is not payable by the leaseholders.
These cases demonstrate that an element of improvement can be included within repairs but that those works with the sole intention of improving thermal efficiency under the Decent Homes Standard will not.

Improvements allowed in the lease
A final point. Cases decided by the LVT also show that even where the lease allows recovery of service charges for improvement works, this will not guarantee recovery.  In all cases the overarching considerations will be reasonableness of cost, standard of works and the alternative methods available, to name but a few.