England and Wales Lands Tribunal

[2000] EWLands LRX_40_1999 (27 March 2000)

LRX/40/1999

LANDS TRIBUNAL ACT 1949

SERVICE CHARGE - Landlord and Tenant Act 1985 s19 - Block of flats forming part of local authority estate - replacement of flat roof with pitched roof - replacement of metal framed windows with uPVC double glazed windows - whether costs reasonably incurred - cost in use calculations indicated proposed works offered better value for money over life of building - Decision: cost of such works reasonably incurred - appeal allowed.

IN THE MATTER of an APPEAL FROM A DECISION of the LEASEHOLD VALUATION TRIBUNAL FOR THE LONDON RENT ASSESSMENT PANEL

BETWEEN LONDON BOROUGH OF WANDSWORTH Appellant

and

MRS C GRIFFIN Respondents

and

MR J D CUNNINGHAM

Re: Smithwood Close and Weydown Close

The Argyle Estate

Southfields

London SW19

Before: N J Rose FRICS

Sitting in public at 48/49 Chancery Lane, London WC2A 1JR on 15-17 February 2000

The following cases are referred to in the decision:

Greetings Oxford etc. v Oxford Square Investments (1989) 18 NSWLR 33

Minja Properties v Cussins Property Group [1998] 2 EGLR 52

Holding & Management Ltd v Property Holding & Investment Trust Plc [1990] 1 EGLR 65

Andrew Jordan instructed by Judge and Priestly, solicitors of Bromley, Kent for the Appellant

Mr J D Cunningham, one of the Respondents, for the Respondents


 


DECISION OF THE LANDS TRIBUNAL

1. This is an appeal by the Mayor and Burgesses of the London Borough of Wandsworth (the Appellant) from a decision of the leasehold valuation tribunal for the London Rent Assessment Panel (the LVT) determining that the Appellant's decision to carry out certain major works on the Argyle (Smithwood) Estate, Southfields, London SW19 (the estate) was unreasonable and that the costs incurred thereby were not reasonably incurred in accordance with s19 of the Landlord and Tenant Act 1985 as amended (the 1985 Act). The works in question comprised the installation of uPVC double glazed windows to replace the existing metal framed windows in the flats, and the replacement of the original flat roofs to the blocks with pitched roofs.
2. This is the first appeal concerning the reasonableness of a service charge to have been heard by this Tribunal since the Housing Act 1996 transferred such disputes from the County Court to the LVT. Leave to appeal against the LVT's decision was given by the President of this Tribunal on 21 October 1999.
3. Mr Andrew Jordan, counsel for the Appellant, called 5 of its officers who had been involved, to varying extents, in making the relevant decisions. They were Mr R D Marsh BSc, chief surveyor in the technical and programming section of the Housing Department, Mr A J Shaw, BSc, FRICS, MBEng, MBIM, head of the Property Audit Team, Mr B J Dickenson, BSc, ARICS, senior quantity surveyor in the Design Service, Mr D P Lawrence, BSc, project controller within Contract Services and Mr Roy Evans, Assistant Director of Housing.
4. Mr J D Cunningham appeared on behalf of the Respondents, himself and his sister, Mrs C Griffin, who are the lessees of 120 Smithwood Close, and who made the original application under s19. Apart from producing photographs of the exterior of his flat, taken before the windows were renewed, he did not adduce any evidence. The lessees of flats in four other blocks affected by the works were joined as parties on the Respondents' original application to the LVT, and it was agreed that the LVT's determination would affect the service charges payable in respect of all the blocks on the estate except 25-63 Smithwood Close (25-63). Those other lessees did not appear at the LVT hearing. They could not therefore have been respondents to the present appeal. However, there was no evidence before me to suggest that the considerations applying to their flats were different from those applying to that of the Respondents.
5. The block containing 120 Smithwood Close was referred to at the hearing as block 7.
6. The parties indicated that they were content for me to decide whether a site inspection was necessary. Bearing in mind that the original roof has been completely covered and that the windows have been removed, I did not consider that a visit to the property would be of material assistance to me.

Background

7. The estate consists of 229 properties at Smithwood Close and Weydown Close in a mixture of two five storey and nine three storey blocks of flats, together with a small number of houses and bungalows, and some stores and garages, all built in the mid 1950s. It was transferred by the Greater London Council to the Appellant in 1971. About two-thirds of the flats on the estate have been purchased by tenants on 125 year leases under the right to buy scheme, and all or most of the houses and bungalows have been sold freehold. The remaining flats are let to local authority weekly or fortnightly tenants. Some of the long leaseholders have the benefit of structural defect guarantees.
8. In 1997-98, the Appellant carried out major works to all the blocks on the estate, except the one containing 25-63. The works included those with which this appeal is concerned. A share of the costs of the works was charged to each of the lessees of the relevant blocks as a service charge. 25-63 had been provided with a pitched roof and the windows had been overhauled (but not replaced) in about 1988.
9. The Respondents' lease expires in 2112. It requires them to pay 5.69% of the amount spent by the Appellant in complying with its obligations in respect of block 7 under the Fourth Schedule and 0.46% of the Appellant's expenditure on its obligations in respect of the entire estate under the Fifth Schedule. Paragraph 2 of the Fourth Schedule obliges the Appellant

"at all times during the term well and substantially to repair ... and maintain the exterior of the block and the ... roof ... and all structural parts thereof ..."

Paragraph 3 of the Fourth Schedule requires the Appellant

"to repair ... and maintain the exterior of the windows window frames window sashes and the glass therein to the flat and as often as may be necessary to replace the whole or part of the windows window frame sashes and window furniture (as appropriate)."

Statutory limitation of service charges

10. Services charges payable, either directly or indirectly, by a tenant of a dwelling for services, repairs, maintenance or insurance or the landlord's costs of management, the whole or part of which varies or may vary according to the relevant costs, are subject to the provisions of ss18 to 30 of the 1985 Act. S19(1) reads as follows:

"Relevant costs shall be taken into account in determining the amount of a service charge for a period -

(a) only to the extent that they are reasonably incurred, and

(b) where they are incurred on the provision of services or the carrying out of works, only if the services or works are of a reasonable standard;

and the amount payable shall be limited accordingly."

The expression "relevant costs" is defined in s18(2) as

"the costs or estimated costs incurred or to be incurred by or on behalf of the landlord, or a superior landlord, in connection with the matters for which the service charge is payable".

Issues

11. The Respondents accept that the roof coverings (but not the windows) required replacement. The issues in dispute before me may be summarised as follows:

(a) Whether the additional cost of installing the pitched roofs, over and above the likely cost of replacing the flat roofs (including the installation of temporary roofs), was reasonably incurred.

(b) whether the cost of replacing the existing windows with double glazed units, over and above the likely cost of overhauling and redecorating the existing windows, was reasonably incurred.

(c) If the answer to (b) is no, whether the reasonable cost of overhauling and redecorating the windows should be the lowest figure tendered for that work in 1996, or a figure based on the actual cost in 1988 of overhauling and redecorating the windows in 25-63, updated by reference to the building costs indices in the intervening period.

History

12. From the evidence and documents submitted, I find that the relevant history was as follows. In 1989, the Appellant carried out a condition survey of all blocks on the Argyle Estate, which extended beyond the estate itself and was scattered across the borough. From this survey, a revised programme of external refurbishment was produced, with block 7 being included with the other properties on the estate (except 25-63) in phase IV. Each of the first three phases included a roof renewal programme, but only timber windows were renewed, all metal windows being overhauled, as they had previously been at 25-63. The works proposed for phase IV included converting the original asphalt covered flat roofs to the three and five storey blocks of flats to pitched roofs, covered to match the appearance of 25-63. Existing metal windows and doors were to be thoroughly overhauled and repaired, but not renewed. Existing outside paint finishes were to be completely stripped off, with component parts renewed as necessary. Ill-fitting opening windows and doors were to be straightened and re-hung and missing, broken or defective parts renewed. Landscaping proposals included the provision of additional car parking bays, with associated planting of shrubs and trees.
13. In June 1994 the Appellant established a Major Works Review Sub-Committee (MWRSC). This was to be a forum where the "reasonableness" of leaseholders' service charges resulting from major works could be considered independently by a panel of Council members. The ultimate work content - or indeed the need to undertake works at all - could be reviewed and varied at the Director of Housing's discretion on the recommendation of the MWRSC, to which a qualifying group of leaseholders could refer issues of contention for scrutiny.
14. In order to ascertain the views of residents at the earliest stage of the major works process, following the appointment of the Appellant's Design Service as the scheme consultant and prior to the drafting of the full specification, an open door public meeting was held on 19 April 1995. This meeting resulted in a clear request from both leaseholders and tenants that the existing metal windows be replaced by double glazed uPVC units. Requests were also made to reduce the proposed provision of additional parking spaces.
15. Following this meeting, a petition containing the names of 132 residents was submitted to a local Councillor. The petition stated:

"We the residents of the above estate are not impressed with the recently announced refurbishment plans. For 22 years the general exterior maintenance has been neglected. Instead of offering us fancy railings and reducing our green space, we would prefer and require window replacement and exterior painting as promised over several occasions in the past.

We earnestly approach you as our local Councillor to heed our request and our concerns."

A response to this petition was provided to Councillor Howlett by the Assistant Director of Housing on 21 June 1995. This stated that the windows were considered basically sound and that there were no technical grounds to justify their replacement. However, in view of the concerns expressed, the consultant had been instructed to obtain comparative costs for window replacement for use in further consultations. The petitioners' views in respect of environmental works were taken into account, with the amount of additional car parking being reduced.

16. On completion of a revised specification and receipt of the consultant's estimated costs, indicative consultation with leaseholders pursuant to s20 of the 1985 Act commenced on 5 January 1996, with each leaseholder being given details of its potential individual service charge. The letter sent to the Respondents included the following information:

"I would also point out that as the flat roof needs renewing, it is proposed to erect a pitched roof to offer a long term solution to the present problems. However you will not be charged a proportion of the additional costs relating to pitched roof (£75,047.15 excluding fees), you will only be expected to contribute towards the equivalent estimated cost (£46,450.50 excluding fees) of replacing a flat roof, a substantially lower cost."

17. The letter indicated that the Appellants' proportion of the cost of all the works proposed amounted to £9,102.18.
18. A further open door meeting to which all residents were invited was held on 23 January 1996. This meeting was divided into two sessions, the first being held on an informal basis and allowing residents to raise any individual queries relating to the works or charges. The second session took the form of a full platform meeting, chaired by a Councillor and attended by 32 residents. The informal part of the meeting involved a number of leaseholders expressing concern about the size of their estimated contributions towards the cost of the works. However, the platform meeting resulted in residents expressing an overwhelming demand for new windows. In general terms, residents expressed a greater preference for new windows in place of landscaping and environmental works. Officers attending this meeting on behalf of the Appellant again advised that, from a technical viewpoint, it was not considered necessary to replace the existing windows. It was also emphasised that the inclusion of such works would result in increased costs to some leaseholders. Following the meeting, residents representing 15 addresses presented a further petition to Councillor Howlett. This petition stated:

"We the following wish to refer the matter of replacement windows back to the Council for consideration. This follows on the letter of the 8 January and subsequent meeting held on the 23 January 1996, our preferences for new windows."

19. The 15 residents who signed the petition consisted of 4 tenants and 11 leaseholders, with 5 of the latter having the benefit of structural defect guarantees. In order to ascertain the views of those leaseholders whose service charge contributions would increase if the windows were replaced, a letter was sent on 4 March 1996, with estimated details of the increased costs involved. Of the 44 leaseholders within this category, 28 responded. 19 expressed a desire for new windows and 9 objected to paying any additional cost for such work.
20. In response to the residents' petition, a meeting of the MWRSC took place on 6 June 1996. It considered a lengthy report by the Director of Housing, which ended with the following recommendation:

"The Sub-Committee are requested to agree with the Director of Housing's recommendation that a programme of refurbishment and repair to existing windows be entered into and that following receipt of tenders further consultation with residents will take place."

21. The MWRSC received a deputation from the Residents Association for the estate. The Association presented a further petition signed by 102 residents requesting new windows. An additional request was made for some additional environmental improvement work. This work was subsequently added to the scheme. During the meeting one of the members of the MWRSC asked whether any cost in use calculations had been carried out and he was told that they had not. The same member later commented that, faced with a similar situation in Housing Associations, it was common practice to replace metal windows with uPVC windows and he would like to see a cost in use calculation (CIU) carried out. The MWRSC supported this proposal and resolved (among other things)

"that a 'cost in use' assessment should be made of both repair/redecoration and replacement options in order to determine their relative long-term cost implications ..."

22. In order to report back in compliance with this resolution, the consultant was instructed to prepare tender documents so as to obtain competitive tenders for the following four options:

Option A - Pitched roof with window renewal

Option B - Flat roof with window renewal

Option C - Pitched roof with window overhaul

Option D - Flat roof with window overhaul

23. Tenders were sought in September 1996, with a return date of 16 October 1996. Six contractors submitted tenders for all four options. Due to the complexity of the tender and the closeness of the returned tenders, the Housing Department instructed the consultant to prepare a full analysis of the two lowest returns, from Higgins and Sons and J Hodgson Ltd. The tenders by these companies for all four options fell within 10% of the anticipated tender sums, with Higgins being the lowest for Options A, B and D and Hodgson lowest for C. The consultant recommended that the Higgins tender be accepted for options A, B and D and that from Hodgson for C.
24. CIU - or life cycle costing - is an analytical tool used to evaluate an asset over its operating life, including initial acquisition costs. It is a method of making a choice between alternatives that commit the owner to the initial capital costs and any periodic repair or replacement. It attempts to offset the effects of interest rates and inflation over the predicted life cycle by using discount rates to arrive at an overall present value. The value of repairs and/or replacement in any future year is expressed as the equivalent present value by converting it to a sum that would need to be invested now to accrue to the sum required in the future. The exercise is designed to provide an indication of the best value for money over the life of the building.
25. CIUs had in the past only been carried out occasionally for projects undertaken by the Appellant, which had no guidelines on the subject. Mr Marsh and Mr Shaw agreed that it was important for standards to be set for this particular exercise which would help to achieve consistency in the future. They agreed that Mr Shaw should do some research and produce some guidance notes for Mr Marsh to agree on behalf of the Director of Housing. Mr Shaw studied the publications on CIU prepared by the Royal Institution of Chartered Surveyors (RICS). He produced draft notes on the key points, which were discussed with Mr Marsh on a number of occasions in June and July 1996. Mr Shaw then prepared a note on CIUs, which he sent to Mr Marsh on 1 August 1996. Mr Marsh agreed the contents of the note, which was sent to the Appellant's consultant on 18 October 1996.
26. The conclusions to the note read as follows:

"In summary, the report should set out the condition of the windows, the alternative options, the pros and cons, and the life cycle cost analysis. It should be noted that the techniques used do not remove the responsibility to apply judgments and to make decisions, but should offer a reliable analysis. The summary and conclusion should make clear recommendations on which the final decisions can be based."

27. The consultant carried out the CIUs, utilising the lowest appropriate tender figures, related to both the window renewal/repair and the pitched/flat roof options. The other assumptions built into the exercise were arrived at in the light of RICS and manufacturers' recommendations, the Housing Department's previous experience and detailed consultations between the Housing Department and the Property Audit Team.
28. The CIUs indicated that the window renewal option offered the Appellant better value for money over an assumed 60 year life of the building. They also showed that the pitched roof renewal option was cheaper than the flat roof renewal option for discount rates of 3%, 4% and 5%. Above 5% the flat roof renewal option was cheaper, indicating that this comparison was sensitive to changes in interest rates in relation to inflation. The discount rate generally used by the Appellant was 6%, but the rates suggested by the RICS for this particular purpose were 4% and 5%. At the request of Property Audit the CIUs included a list of advantages and disadvantages of each option. These were prepared by Mr Lawrence and approved, with minor amendments, by Property Audit in March 1997.
29. A further consultation meeting was held with residents on 12 February 1997 and formal consultation notices under s20 of the 1985 Act were served on 18 February 1997, prior to the MWRSC meeting on 24 March 1997, when the matter was reconsidered following the sub-committee's previous recommendation. The report to the MWRSC by the Director of Housing included the following comments:

"12(a) Revised assessment of window options

The Director of Housing has re-appraised the options of renewal or repair in the light of the cost in use calculations showing that further repair would be uneconomic. This is a powerful argument in leading to a conclusion that renewal is necessary now, and would be reasonable, and that further repairs would be wasteful and inappropriate. Such a conclusion would have the incidental benefit that it would avoid the greater disruption that would be caused by the repair option (three major capital works projects on the estate with attendant scaffolding, security risks, noise etc, over the next 14 years, as opposed to one project with the renewal option). Added to this are the majority views of leaseholders and tenants, and the clear disparity between the current national environmental and thermal insulation standards in the flats and the current UK and European standards that would be achieved with renewal. For all these reasons it is considered replacement of the windows is both now necessary and reasonable.

(b) Pitched roof renewal v flat roof renewal

The cost in use analysis in respect of works required to the roof area is slightly more straightforward in that it is accepted that the existing roof coverings have exceeded their design life cycle and are therefore in immediate need of renewal. On the assumption that the re-covering of the existing flat roof using high performance bituminous felt would have a life of 20 years, it is apparent that over the longer term the pitched roof option offers a more attractive financial solution.

Comments by the Borough Solicitor

13. So far as window renewal/repair is concerned, in view of the Director of Housing's revised conclusions in light of the cost in use calculations, supported by the Consultant and the Property Audit Team, it would be open to the Council (acting through the Director of Housing) to decide that window renewal is now 'necessary' under the terms of the relevant leases, and that the costs would be reasonably incurred for the purposes of section 19 of the Landlord and Tenant Act 1985. The test of 'necessary' requires the Director of Housing to be satisfied that renewal is needed now and that further repair would be wasteful. In the circumstances there would be a requirement for further consultation under section 20 of the Landlord and Tenant Act 1985 in respect of any proposal for window renewal and the Council would be required to have proper regard to any observations received in response before making a final decision.

So far as flat/pitched roof renewal is concerned, in view of the Director of Housing's comments in paragraph 12(b) and those of the Property Audit Team in paragraph 16, it would be reasonable to adopt the pitched roof solution.

Comments by the Property Audit team

14. Complete replacement of the windows with modern units would have distinct benefits, and the cost in use exercise shows that window replacement would be more economic in the long term, although the initial capital costs would be higher than for window repairs. This, and various other factors - including the legal position - should be taken into account by the sub-committee when formulating their advice.

15. The Director of Housing and the Consultant have previously reported that the existing metal windows are in need of repair and repainting, and there is no technical reason why this cannot be done even though the repaired windows would have limited life. The Property Audit Team made its own independent assessment and reached the same conclusion. Similar windows on other estates, and indeed on the same estate (Chobham Gardens and 25-63 Smithwood Close) have been repaired and redecorated at other times. However, the cost in use analysis has now shown that in terms of total costs, better value for money would be obtained from window renewal which would also bring the windows up to current standards for the residents.

16. With regard to the roof, the team's independent assessment again supports the technical view that complete renewal is necessary and that there would be advantages in providing a new pitched roof instead of re-covering the existing flat roof (eg longer life, reduced maintenance and improved appearance).

Conclusion by the Director of Housing

28. In fully considering this matter, it is important to give proper weight to the technical and other issues which present themselves in this options appraisal.

29 The cost in use exercise clearly demonstrates an economic advantage to be derived in renewing the windows now and such a course also offers incidental amenity benefits some 45 years since the estate's original construction, i.e. reasonable energy, comfort, security and economy expectations.

30. In view of the cost in use evidence which is now available, and the views of the Design Consultant and Property Audit Team, I am inclined to conclude that the replacement option is both necessary now and reasonable to secure the most economic solution with incidental amenity benefits for leaseholders and tenants, and that it would be wasteful to undertake further repairs.

31. I am therefore minded to issue immediately further section 20 notices based upon window renewal to all lessees. If embarked upon as soon as the sub-committee have considered this approach it would just permit due assessment of responses, and, if deemed appropriate allow an order to be placed within the further extended tender acceptance period, thereby ensuring that best value is not lost by a need to renegotiate or re-tender."

30. The MWRSC endorsed the Director of Housing's recommendation that the lowest tender received for roof over-pitching and window replacement should be accepted, subject to no meaningful objections being received. Once appropriate s20 notices had been served and had expired, the Appellant's Housing Department placed an order with the lowest tenderer, D J Higgins and Sons Ltd. The works commenced on site in June 1997 and were completed in July 1998. The final s20 notice served on the Respondents indicated that their proportion of the costs of all the works proposed would be £12,825.

Case for the Appellant

31. Mr Jordan submitted that the dispute was not about whether work was necessary to the roof and windows. The Respondents agreed that the roof needed renewal and that the windows needed repair. Rather, it was about whether it was reasonable or unreasonable of the Appellant to have replaced the flat roof with a pitched roof and to have renewed the old metal windows with uPVC windows.
32. The Appellant's obligation to repair the exterior of block 7, including the roof, included an obligation to replace and renew, when that was the most appropriate method of maintaining the building in proper repair. The duty to repair became a duty to replace when it was unreasonable to waste money on repairs. Mr Jordan referred to Greetings Oxford etc v Oxford Square Investments (1989) 18 NSWLR 33 and Minja Properties v Cussins Property Group [1998] 2EGLR 52.
33. He said that the expressions used by the Appellant in the course of the decision making process, such as "better value for money" and "wasteful to repair" were entirely appropriate. The question was whether, in order to carry out the duty to keep in repair, it was better to replace or mend? That was the choice that faced a landlord burdened with an obligation to repair, whenever the option of repair or replacement presented itself. This was so, whether or not the covenant expressly permitted renewal if it was "necessary".
34. Mr Jordan put forward as an example a tiled roof, 100 years old, which was leaking. Patched repairs would solve the problem for the moment. Eventually, replacement would become necessary. Was now the right time? If repair costs were substantial, a freeholder must ask himself whether they were worth it or would he do better to renew? He could not reasonably be expected to wait until renewal was absolutely necessary or the roof was completely beyond repair.
35. Similarly, it may never be "necessary" to replace a lift, because repairs could always be carried out unless the building was demolished. The lift may, however, be beyond economical repair. Thus the issue was: looking at the cost of repair; the cost of replacement and the cost of future maintenance of each item, was it wasting resources for the Appellant to spend money on repair now? Adopting that analysis, the Appellant could use its CIU as a guideline. That was simply a tool in the decision-making process, although in the case of the windows Mr Jordan suggested that the result of the CIU was clear-cut.

Case for the Respondents

36. Mr Cunningham agreed with Mr Jordan that a CIU was a relevant tool in the decision making process, but he said that it should not be relied upon in isolation. In particular, it depended for its accuracy upon assumptions and, if the assumptions were wrong, the answer would also be wrong. CIU was probably an excellent tool to show which option was cheaper in the long term. That was not enough, however. The length of that long term must also be tested for reasonableness. Otherwise, the most outrageously expensive option might be chosen, if it could be shown eventually (over the life-time of the building) to be cheaper.
37. The desire of the Appellant had always been to fit pitched roofs, as it had done at 25-63. The purpose of its CIU was merely to confirm that intention and to justify charging the leaseholders for the additional cost. The documents disclosed by the Appellant included a graphical representation of the information in the CIU. This showed the build-up of costs, discounted to present value, over the life-time of the particular item. In the case of the roof, it demonstrated that the pitched roof option did not provide better value until about 40 years had passed, and even that was subject to the sensitivity of the discount rate.
38. Mr Cunningham argued most strongly that 40 years or more was an unreasonably long time for an individual to consider. The longest term loan that an individual could normally enter into was a mortgage and this was generally for a maximum of 25 years. That might have been a more reasonable term over which to run the CIU, given that leaseholders were to be charged on the basis of the result. It was accepted that the existing flat roof was in need of replacement, but there was no technical reason why a pitched roof was needed rather than a flat one. A pitched roof should be considered as an improvement to the building and therefore was not chargeable in full to the leaseholders.
39. The Appellant had rescheduled works planned for the 1992/93 financial year as a result of financial constraints. This demonstrated that the Appellant, like ordinary leaseholders, must occasionally cut its coat according to its cloth.
40. Turning to the windows, Mr Cunningham said that it was both unnecessary and unreasonable to replace them. It was not disputed that they could have been made to last for at least another 14 years. The windows were of good quality and, despite the fact that they had not been repainted externally for over 40 years, they were in sound condition. The Respondents' expert had given evidence to the LVT that, if the old windows were regularly painted, they would not have needed replacing for 50 years. The Appellant accepted that its policy had been to react rather than anticipate in terms of maintenance and this must have added to the predicted refurbishment costs. Mr Cunningham accepted that these costs would have fallen on the leaseholders over the years anyway, but if so the predicted refurbishment costs would have been reduced. The refurbishment costs as tendered and included in the CIU varied very considerably from the earlier estimates made by the consultant and the Appellant's historical experience elsewhere. This must call into question the validity of any analysis based on those costs.
41. Mr Cunningham did not accept that a decision to replace the windows in block 7 should be based on the condition of windows across the estate, rather than on the windows in block 7 alone.
42. The CIU assumed repainting of the overhauled windows at 7 yearly intervals. History did not suggest that this was a valid assumption and there was no evidence that there had been a change in the Appellant's policy with respect to this type of maintenance. This called into further question the validity of the CIU. Despite what the CIU may have indicated and regardless of its validity, the windows did not need to be replaced. Indeed, there was considerable evidence that the Appellant had for a long time considered it unreasonable to replace them, even to the extent of issuing a s20 notice based on repair only. Moreover, the evidence of Mr Lawrence showed that, even with the new windows in place, condensation and damp would remain a problem.
43. In conclusion, Mr Cunningham explained that his argument related simply to the position of the Respondents as leaseholders of 120 Smithwood Close, and what costs for major works could be justified as necessary and reasonable for them. He accepted that the Appellant had to satisfy many competing interests, but he said that this was not relevant to his argument. Similarly, the fact that irrecoverable costs of the works would have to be covered in the housing revenue account and thus in effect be paid for by the weekly and fortnightly tenants, had no bearing on the matter.
44. Finally, Mr Cunningham pointed out that, in January 1996, the Appellant had issued a s20 notice, indicating that the reasonable service charge payable by the Respondent would be approximately £9,000. The effect of the Appellant's decision to rely on the CIU was that, 15 months later, the "reasonable" service charge had increased by over 40%.

Decision

45. The duty of the Appellant under paras. 2 and 3 of the Fourth Schedule to the Respondents' lease is to repair and maintain the roof and the windows of block 7. The questions for me to determine are therefore, firstly, whether what was done to those elements of the building amounts to repair; secondly, if it does, whether in all the circumstances it was reasonable to carry out those works and, thirdly, if it was reasonable, whether the costs of carrying them out were reasonable.
46. I shall deal with the last question first. The costs of the new roof and windows were based on the lowest of six tenders, all submitted by reputable contractors and all falling within a small margin of the total costs that had been recently estimated by the Appellant's consultant. The number of contractors involved in this process was entirely adequate and I have no hesitation in finding that the costs of carrying out the disputed items were reasonable.
47. The second question is whether the installation of a new roof and windows went beyond works of repair. An authority which, although not referred to before me, seems to me to be of assistance is that of the Court of Appeal in Holding and Management Ltd v Property Holding and Investment Trust Plc [1990] 1 EGLR 65. That case concerned charges payable by the long leaseholders in a block of flats towards the cost of repair and maintenance carried out by a "maintenance trustee" who was responsible for looking after the building. In the course of his judgement, Nicholls LJ considered the tests to be adopted when deciding whether particular works could fairly be regarded as constituting "repair". He said:

"... the exercise involves considering the context in which the word 'repair' appears in a particular lease and also the defect and remedial works proposed. Accordingly, the circumstances to be taken into account in a particular case under one or other of these heads will include some or all of the following: 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 the proposed remedial works are to be done, the value of the building and its expected lifespan, 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, the comparative cost of alternative remedial works and their impact on the use and enjoyment of the building by the occupants. The weight to be attached to these circumstances will vary from case to case."

48. The context in which the word "repair" appears in paras 2 and 3 of the Fourth Schedule is as follows. The lease was a long lease of a flat in a block on a local authority estate, constructed in the mid-1950's and subsequently the subject of an extensive 'right to buy' sales campaign. The unexpired term of the lease was approximately 114 years and the expected lifespan of the building was at least 60 years.
49. I now consider the remedial works themselves and the necessity for remedial works as expensive as those that the Appellant decided to carry out. It is agreed that the overhaul of the windows and the installation of a new flat roof both constituted repair. The Appellant says that when it compared the present value of the initial and future costs of those works with the equivalent costs of a new pitched roof and uPVC double-glazed windows, the latter were shown to be cheaper. It does not seem to me that a repair ceases to be a repair if it also effects an improvement. In my judgment, the works carried out by the Appellant did constitute repair, if they were indeed cheaper than the alternatives, taking into account both initial and future costs.
50. Having reached that conclusion, I also conclude that it was reasonable for the Appellant to carry out the disputed works, provided they were "cheaper" than the alternatives, as defined in the previous paragraph.
51. In order to consider which alternative remedy was appropriate by reference to this test, the Appellant prepared CIUs. In my opinion, therefore, the question to be determined under s19 is whether, considered objectively, the Appellant prepared its CIUs in a reasonable manner.
52. Mr Cunningham does not dispute that it is legitimate to use the CIU as a tool when considering which alternative method of repair is appropriate. However, in applying the CIU to 120 Smithwood Close, he suggests that the matter should be considered in the context of the Respondents only and that the interests of all other parties concerned with the proposed works are irrelevant.
53. The disputed costs were incurred by the Appellant in its capacity as local authority landlord of block 7, which forms part of an estate, constructed as a single estate, and managed as such ever since. The Respondents' lease requires them to pay only a small proportion of the Appellant's expenditure on one of the blocks on that estate. Against that background, it is in my opinion entirely artificial to suggest that, in deciding whether elements of such expenditure were reasonably incurred, no account is to be taken of the interests of either the Appellant as landlord or of the other residents on the estate.
54. Mr Cunningham also suggests that, in applying the CIU, it is only appropriate to consider which alternative offers better value over a maximum period of 25 years. It follows, he argues, that the Appellants' CIU, which assumed a life cycle of approximately 60 years based on the assumed life of the building, was based on a flawed approach. In my judgment the Appellant was fully entitled to have regard to the estimated life of the building when considering the options that were available to it. Mr Cunningham gave as the reason for proposing a 25 year cut-off the fact that mortgages are rarely granted for more than 25 years. In my view, there is no justification for restricting the CIU in this arbitrary fashion. It ignores the fact that the Respondents' lease will not expire until the year 2112. Mr Cunningham may well be right to suggest that most long leaseholders of such flats can be expected to move within 25 years. When they do, however, they will wish to dispose of the unexpired terms of their leases. The prices which they will then obtain will be influenced by the general condition of the block at that time, including its roof and windows, and on whether substantial expenditure on those items is anticipated shortly or, as a result of prudent maintenance and repair in the past, only in the longer term.
55. The purpose of the CIU is to express the relative immediate and future costs of alternative works in terms of their present value, having regard among other matters to the life expectancy of each of those alternatives. In my opinion, for such an exercise to be meaningful, realistic estimates of life expectancy must be made. In that context, the length of a particular lessee's mortgage - or, indeed, the fact that there is a mortgage at all - is of no significance whatever.
56. Mr Cunningham also criticises various other assumptions made by the Appellant in its CIU applied to the windows. His main criticisms are:

(i) The assumption that the existing windows would need replacing after 14 years is not justified. He says that evidence was given to the LVT that they would last for over 50 years if they were regularly painted.

(ii) In view of past experience, he suggests there was no justification for assuming that the existing windows would be repainted at seven yearly intervals.

(iii) He says that the cost of overhauling the windows should have been based on the windows in block 7 alone, and not across the estate.

(iv) He argues that the cost of overhauling the existing windows would have been lower if they had been regularly maintained in the past. It was also much higher than had been estimated by the Appellant's consultant.

57. It is the practice of this Tribunal to treat an appeal from the LVT as a fresh hearing of the issues to which the application gives rise, except (which does not apply in this case) where leave has been granted on conditions that limit the Appellant to particular grounds (Lands Tribunal Practice Direction 2/2000). There was no evidence before me to support Mr Cunningham's contention that the existing windows would have lasted for over 50 years if regularly painted. Moreover, this criticism is inconsistent with the suggestion in (ii) that such regular painting would not have taken place. The Respondents' lease includes a covenant by the Appellant to decorate the exterior of the flat "as often as may reasonably be required." On the evidence, I am satisfied that it was reasonable for the Appellant to prepare the CIUs on the assumption that the windows would be repainted at seven yearly intervals and that, if the windows were simply overhauled, they would need replacing in 2010, when they would be approximately 55 years old.
58. Mr Cunningham's next criticism is that the cost of overhauling the windows should have been based only on the windows in block 7. There was no evidence to suggest that the windows in block 7 were in a condition materially different from the average across the estate. I do not consider there is any force in this criticism.
59. Mr Cunningham also suggests that the Appellant's maintenance policy in the past increased the cost of overhauling the windows. If the windows had been regularly repaired and redecorated, he implies, the result of the CIU might have been different. In my judgment, to the extent that costs are incurred as a result of past neglect on the part of the lessor, they are not "reasonably incurred" for the purposes of s19(1)(a). In this case, however, there was no evidence to suggest that the tendered cost of overhauling the windows was increased because of the Appellant's earlier neglect. Indeed, although Mr Cunningham did not call expert evidence before this Tribunal, he did point out that the expert called by the Respondents at the LVT hearing had stated that, notwithstanding the lack of external painting, the windows were in sound condition.
60. It is clear from the evidence that the initial cost of overhauling the windows was very significantly higher than the original estimates prepared by the Appellant. Moreover, certain of the Appellant's officers expressed to the consultant their concern that the repairs specified by the latter to the existing windows and associated ironmongery appeared to be excessive. Nevertheless, there was no evidence before me to the effect that the window overhaul works were over-specified, nor that the figures used in the CIUs for those works were based on anything other than the lowest tenders. Indeed, Mr Cunningham specifically accepted that the Appellant had prepared the CIUs professionally. In those circumstances, I consider that the fact that some of the figures were higher than those originally estimated is of no significance.
61. Mr Cunningham's further criticisms of the Appellant's approach in relation to the roof were:

(i) The CIU was merely a means of confirming a decision which had already been taken.

(ii) The Appellant had previously considered that it was unreasonable to include the full cost of a pitched roof in the service charge.

(iii) There was no technical reason why a pitched roof was needed rather than a flat roof.

62. It is perfectly true that the Appellant had decided at an early stage that it would prefer to replace the flat roof with a pitched roof. At that time, it considered that an element of improvement would be involved in such work and it indicated that the service charge would only include the cost of a new flat roof. The Appellant's policy changed following the MWRSC meeting on 6 June 1996, when it was decided to prepare CIUs to compare the alternative options. Mr Cunningham does not suggest that it was unreasonable of the Appellant to have prepared a CIU and in my view the Appellant was perfectly entitled to change its policy in this way. Having done so, the calculations indicated that the pitched roof option offered better value for money. In my view, it was entirely reasonable for the Appellant to take the CIU results into account in deciding how to proceed; indeed, it would have been unreasonable for it to disregard those results when reaching its eventual decision.
63. I heard evidence from 5 officers of the Appellant who were involved in the decision making process. Opinions throughout the departments concerned were not unanimous. Nevertheless I am satisfied that the final decision was only reached after a careful investigation of the alternatives. Mr Cunningham pointed out, perfectly correctly, that the results of the CIU depended on the assumptions used. For example, if the Appellant had decided to restrict its consideration of the roof options to an analysis using a 6% deferment rate, the outcome might well have been different. This Tribunal's task, however, is not to determine which assumptions should have been fed into the CIU; it is to decide whether the Appellant acted reasonably in its choice of assumptions and in the conclusions that it drew from the analysis. In the light of all the evidence, I am satisfied that it did.
64. So far as the Appellant's change of approach is concerned, I can entirely understand Mr Cunningham's surprise and even annoyance at being charged for a pitched roof and new windows, when he had previously been told this would not happen. I am satisfied, however, that once it had reached the conclusion that these works constituted the most appropriate method of complying with its repairing obligations, the Appellant had no alternative in law but to include their full cost in the service charge.
65. Mr Cunningham's final point is that there was no technical reason why a pitched roof was needed rather than a flat one. That is a matter of fact, about which there is no dispute. In my opinion, however, it does not alter the position that the Appellant was entitled to consider which of the two options offered better value for money. Once it became clear that the pitched roof was more cost effective, it was perfectly reasonable for the Appellant to adopt that alternative, notwithstanding that it was also technically possible to install a flat roof.
66. The appeal is therefore allowed. I determine that the Appellant's decision to replace the original flat roof with a new pitched roof and to renew the windows with uPVC double-glazed windows was reasonable, and that the costs thereby incurred were reasonably incurred for the purposes of s19(1)(a) of the 1985 Act.
67. In case that decision is wrong in law, I also consider the Respondents' suggestion that, as decided by the LVT, the window overhaul element of the service charge should be based, not on the lowest figure tendered for that work in 1996, but on the costs incurred in 1988 in overhauling and redecorating the windows of 25-63, updated by reference to the building costs indices.
68. Mr Lawrence's evidence - which I accept - was that the works specified for the windows at 25-63 were significantly less extensive than those which were considered necessary at block 7. In particular, the latter specified stripping off all paintwork to external surfaces, whereas the only preparation specified at 25-63 was to remove flaking paintwork. As previously mentioned, there was no evidence before me to suggest that the works to which the six 1996 tenders related were over-specified, nor that the prices for window overhaul contained in the lowest of those tenders were excessive. That being so, I prefer the figures in the lowest up-to-date tender to an exercise based on less extensive works that had been carried out to a different building 8 years earlier. Accordingly, if the service charge should in law have been based on the reasonable cost of overhauling the windows, I would have determined the relevant figures to be those based on Higgins' tender.
69. Since this appeal has been entirely successful, the Appellant would normally be entitled to apply for an award of costs in its favour. When he gave leave to appeal, however, the President imposed a condition that the Appellant would be responsible for its own costs in any event. Accordingly, I make no order as to costs.

Dated: 27 March 2000

(Signed) N J Rose