UT Neutral citation number: [2010] UKUT 194 (LC)

LT Case Number: LRX/22/2010

                            TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

LANDLORD AND TENANT – service charges – communal heating and hot water system – landlord renewing radiators and pipes in tenants’ flats – whether cost of this properly included in service charge – construction of leases – held cost properly included – appeal allowed

         IN THE MATTER OF AN APPEAL FROM A DECISION OF THE LEASEHOLD

           VALUATION TRIBUNAL FOR THE LONDON RENT ASSESSMENT PANEL

                                                                           B Y

                                              LONDON BOROUGH OF CAMDEN                                       

                                                    Re: Flat 8 and Flat 45 Kennistoun House

                                                           Leighton Road

                                                           London NW5 2UT

                                                           Before: The President

                                  Sitting at 43-45 Bedford Square, London WC1B 3AS

                                                                 on 15 June 2010

Greville Healey instructed by London Borough of Camden Legal Services

                                                                    DECISION

Introduction

1.           This is an appeal from a decision of the Leasehold Valuation Tribunal for the London Rent Assessment Committee, in which it determined that the landlord, the London Borough of Camden, was not liable to pay as service charges amounts incurred by the landlord in renewing the central heating and hot water systems in each of two flats, numbers 8 and 45 Kennistoun House, Leighton Road, London NW5 2UT.  The LVT granted permission to appeal, having said in its decision that the point in issue was an important one that could have far reaching consequences for the council.  The tenants do not respond to the appeal.

2.           The tenants of each of the two flats hold the premises under right to buy leases granted respectively on 27 August 2001 and 3 March 1997.  The provisions that bear upon the point now in issue are in effectively identical terms.  The flats are contained within what the leases refer to as “the Building” or “the Managed Buildings”, which consist of three conjoined blocks of flats four storeys in height and constructed in the 1930s.  Each flat in the building is supplied with space heating and hot water by means of a communal system.  In 2005 the council appointed mechanical engineers to undertake a feasibility study to assess the options for replacing the system that then existed.  The pipes, radiators and other plant were reaching the end of their lives and needed to be replaced.  The system supplying the building was faulty, and the supply was erratic.  It was difficult to isolate any part of the system as the pipes taking the hot water around the building passed vertically through the individual flats.  There were no thermostatic valves, and the residents were only able to control the system within their flats by isolating radiators. 

3.           In the light of the engineers’ report the council undertook the consultation process required by section 20 of the Landlord and Tenant Act 1985 and contractors were engaged for a project which was to include the renewal of all communal pipework and the radiators and pipework serving each flat.  Heating and hot water was to be provided from three boilers located in each of the roof voids of the three blocks, with hot water being circulated through primary pipes, which would no longer pass vertically through individual flats but horizontally through new pipes to be installed under the walkways of the communal balconies and from which connections could be made to individual flats.

4.           The works were carried out, and the council included in the service charge for each flat the cost of the works within each flat.  The tenants of the two flats applied under section 27A for a determination of whether the amounts were reasonable and payable.  The cost of these in-flat works included in the service charge was £3,823.69 in the case of flat 8 and £6,940.11 in the case of flat 45, and the LVT determined that these amounts should be deducted from the total amount due as service charges.  There was also a consequential further deduction because the management fee was 3%, applied to the total amount determined to be due.

5.           The relevant provisions of the lease of flat 8 are as follows.  The demise in clause 2 is of “The Premises”, which are identified in clause 1.1 as the ground floor flat numbered 8 Kennistoun Court and are defined in the First Schedule.  The definition includes the following:

“The Premises include the surface of the floors above the joists or other supporting floor structure … (but including … all wires pipes cables conduits sewers and other conducting media serving exclusively the Flat) …”

6.           Under clause 3.2.1 the tenant covenants:

“To pay to the Landlord on demand by way of further additional rent subject to the restrictions set out below at Clauses 3.2.2 and 3.2.3 the Service Cost.”

7.           “Service Cost” is defined in clause 1.1 to mean the amount payable by the tenant as the tenant’s proportion (calculated in accordance with the Fourth Schedule) of the Service Charge; and “Service Charge” is defined as:

“All those reasonable costs overheads and expenses and outgoings incurred or to be incurred by the Landlord in connection with

(a)        the management and maintenance of the Estate

(b)        the carrying out of the Landlords obligations and duties and providing all such services as are required or appropriate to be provided by the Landlord under the terms of the Lease and:

(c)        the repair and maintenance, renewal, decoration insurance and management of the Block including all such matters set out in the Fifth Schedule.”

8.           “Estate” is defined as the Kennistoun House Estate; and “Block” is defined as

“The building or part of the building in which the Flat is situated together with any other building or buildings on the Estate which are physically linked for the purpose of the provision of services.”

9.           The Fifth Schedule (Items of Expenditure) includes the following:

“1.     The expenses of maintaining repairing redecorating and renewing (or replacing as appropriate) amending … the Block and all parts thereof including … all appurtenances apparatus and other things thereto belonging including those items included in Clauses 4.2 and 4.3

2.      The cost of periodically inspecting maintaining overhauling repairing and where necessary replacing the whole of the heating and domestic hot water systems and gas electricity and water pipes and cables serving the Block and the lifts lift shafts and machinery therein (if any).”

10.        Clause 4.2 contains the landlord’s covenant “to maintain repair redecorate renew and amend” etc items that are then set out, which include these:

“4.2.2  The sewers drains channels watercourse gas and water pipes electric cables television aerials and wires and supply lines and all other connecting media in under and upon the Block save and except where such items exclusively serve the Flat.

4.2.3    The boilers and heating and hot water apparatus (if any) in the Block save and except such items (if any) as may be now or hereafter installed in the Flat serving exclusively the Flat and not comprising part of a general heating system serving the Block.”

11.        Clause 3.10.1 contains the tenant’s covenant to repair, which is in these terms:

“Throughout the Term and from time to time and at all times to keep the Flat and everything demised therein and the Landlord’s fixture and fittings sanitary apparatus and appurtenance installed in or affixed to the Flat and the window glass thereof (but excluding any portion thereof which the Landlord covenants herein to repair) with all necessary reparations cleansing and amendments whatsoever well and substantially repaired cleansed maintained and renewed …”.

12.        The lease of flat 45 contains provisions that are effectively the same as the ones I have quoted from the lease of flat 8.  The flat is a fourth floor flat.  The Fifth Schedule refers to “the Estate” rather than “the Block” and in clause 4.2.2 “Managed Buildings” (defined as the buildings on the Estate) appears in place of “Block”.  There is no significance in these differences.

13.        In an earlier case decided on 2 February 2009 a differently constituted LVT had determined an application in respect of flat 31, in which the same question as in the present case – whether service charges were payable in respect of works to the in-flat heating and hot water systems – arose.  The provisions in the lease were in all relevant respects the same as in the leases in the present case.  The tenant, Mrs Nicodimou, argued that the charges were not payable.  The council, contending that the terms of the lease were clear, said that clause 4.2.3 imposed on them an obligation to repair the in-flat hearing and hot water apparatus, so that the cost of this was properly included in the service charge.  The LVT concluded in the tenant’s favour.  It said:

“30.   The Tribunal agrees with Camden’s position in so far as it implicitly regards the relevant provisions of the lease as clear enough not to call for any preferential approach to construction.  The question is really one of fact: did “all radiators, cylinders and pipe work within flats”, which Camden replaced, exclusively serve the flat or were they part of a general heating system serving Kennistoun House?  Under the lease provisions, Camden was entitled to renew these separate although connected items only in so far as they were part of the general system.  In the light of its Inspection and of the explanations plus photographs proffered at the Hearing, the Tribunal considers that the factual answer is fairly clear: only the down pipe running through the Premises as well as through other flats is part of the general system while the secondary or ‘ring’ pipes through which hot water runs to the radiators etc connected to it exclusively serves the flat.  This finding seems completely consistent with the easement granted in para.2 of the Second Schedule of her lease:

‘The free and uninterrupted passage and running of water and soil gas and electricity from and to the Flat through the sewers drains channels and watercourses cables pipes and wires which now are or may at any time during the Term be in under or passing through the Estate or any part thereof’.

It is unlikely that Mrs Nicodimou was intended to acquire any rights over the radiators, cylinders or secondary pipes in other flats (or neighbours with similar leases any rights over her radiators etc):  all she (and any neighbour) needed was the passage of hot water trough the down pipe – if the secondary/ring pipe were blocked off in one flat, the general hearing system would not be adversely affected.

It follows from this, in the judgment of the Tribunal, that the submission made on behalf of Mrs Nicodimou must be accepted:  Camden was not entitled to renew or replace the radiators, cylinder or secondary pipes within the Premises without her consent, which has not been suggested.  Therefore, the costs of and incidental to doing so cannot be regarded as reasonably incurred for service charge purposes.”

14.        In the present case the LVT took a different view.  It concluded that the council acted responsibly in replacing the central heating and hot water system and it found that the amount of the contract was reasonable and that there was no evidence that the proportions demanded of the applicants were not the correct proportions.  It then went on to consider the previous decision of the LVT (of which the chairman had been Professor J.T. Farrand), and it said:

“26.   Although the Tribunal is not bound by earlier Tribunal decisions, the fact that this decision was recent and relates to another flat within the same building means that this Tribunal must have regard to its findings.  The Tribunal accepts that the view of Professor Farrand had merit but there are other factors which the Tribunal considers require consideration.”

15.        The decision then quoted clauses 4.2.2 and 4.2.3 and paragraph 2 of the Fifth Schedule, and it went on:

“29.   The Tribunal heard evidence that any tenant in the Building who wishes to install an individual system would need consent under Clause 3.15 of the Lease.  It was made clear that for the reasons outlined, the Respondent would grant no such permission.  The result is that no tenant of the Building would be entitled to have an individual gas central heating system unless it was connected to the existing system.  It follows that an oil-fired system would also be impossible to install.  The Tribunal heard evidence that it was not possible for the individual tenants to disconnect their own flat from the system as the connection was outside the flats and within the area controlled by the Respondent.

30.        The inability of the individual tenants to install their own systems means that, unless they are connected to the system provided by the Respondent, they will have no heating supply.  The Lease includes in the definition of ‘Services’ an obligation to provide a communal heating system and the Tribunal finds that the obligation in Clause 4.2.3 of the Lease in effect includes an obligation to maintain the system supplied by the Respondent but that the inclusion of words ‘if any’ allow that, should a tenant have somehow installed their own system, the Respondent’s obligations under the Leases would not extend to that system.

31.        In addition to the Respondent’s specific obligations in the Leases, there is also the statutory obligation in Section 14 of the Housing Act 1985 which requires a landlord under a Right to Buy Lease to maintain services at a reasonable level and it follows that this includes an obligation to repair the radiators and internal pipes.

32.        The Respondent has provided a communal heating and hot water system and the radiators and secondary pipes are the only current means of heating available to the Applicants.  The issue before the Tribunal is whether, having regard to the terms of the Lease, the pipework and radiators serving the Flats are part of the general form part of a common system or whether they should be excluded as ‘exclusively serving the flats’ (see Clause 4.2.2 of the Lease) and ‘not comprising part of a general heating system serving the Block’ (see Clause 4.2.3 of the Lease).  Having carefully considered the evidence, the Tribunal is minded to conclude that, on balance, the repair of the internal pipes is part of the Respondent’s repairing obligations to maintain the communal heating system under Clause 4.2.3 and that the Respondent is entitled to recover the sums spent in accordance with the provisions of Paragraph 2 of Schedule 5.”

16.        Despite thus concluding that the council was entitled to recover the costs of the in-flat works, however, the tribunal determined in the following paragraph that it was not so entitled.  It said:

“33.   The Tribunal has reservations about making a finding that the radiators and pipes were not part of a communal system, although it recognises that Professor Farrand has argued otherwise.  The Tribunal is under no obligation to follow the earlier decision but recognises that it would be inconsistent to have two decisions relating to the same issue and in the same Building within ten months that came to differing conclusions.  In order to maintain consistency within the Building, the Tribunal accordingly determines that the Respondent was not entitled to renew or replace the radiators, cylinders or secondary pipes within the Flats as they form part of the demise and the costs attributable cannot be regarded as part of the service charge.  The Tribunal considers that this is an important point that could have far reaching consequences for the Respondent, who has numerous leases throughout Camden drawn in the same terms.  It is a matter that the Respondent may wish to have considered by the Lands Tribunal to resolve any potential inconsistencies in the findings affecting this Lease and other similar leases of which they are in the position of landlord.”

17.        For the council Mr Greville Healey submits that the correct conclusion is that the council are obliged under clause 4.2.3 to repair and if necessary renew the in-flat parts of the heating and hot water system, that the other provisions of the lease are consistent with that obligation and that the council are accordingly entitled to include in the service charge the cost of the works of replacement.  He says that the LVT in the earlier case was wrong to conclude otherwise and that its reliance on the provisions of paragraph 2 of the Second Schedule was erroneous.  I agree with these submissions.

18.        Under each lease the council is entitled to include in the service charge the reasonable costs of carrying out its obligations as landlord and of the repair and renewal of the Block (or the Managed Estate) including all such matters as are set out in the Fifth Schedule (see the definition of “Service Charge”).  Set out in paragraph 1 of the Fifth Schedule are the expenses of maintaining and renewing (or replacing as appropriate) the items contained in clauses 4.2 and 4.3, and paragraph 2 specifies the cost of maintaining and where necessary replacing the heating and hot water systems serving the block.  Of key significance, in my judgment, are sub-clauses 4.2 and 4.2.3 of clause 4.2 and in particular the concluding phrase in sub-clause 4.2.3.

19.        While in 4.2.2 the obligation is in relation to the sewers etc in the Block and is “save and except where such items exclusive serve the Flat”, in clause 4.2.3 the obligation relates to the boilers and heating and hot water apparatus in the Block save and except such items installed in the Flat “serving exclusively the Flat and not comprising part of a general hearing system serving the Block.”  Although I can see an argument that the “general heating system serving the Block” means the common parts of the heating system (and not including, therefore, any part exclusively serving an individual flat), the better interpretation, in my judgment, is that the concluding phrase of 4.2.3 (which does not appear in 4.2.2) is intended to add to what goes before and is not surplusage.  It is part of a provision that imposes a twofold test that an item must satisfy if it is to be excluded from the repairing obligation.  It must serve the flat exclusively and it must not comprise part of a general heating system serving the Block.  Components of the heating system that serve the flat may yet be part of a general system that serves the Block, and indeed that is clearly the case here, in my view.  If it had been intended to exclude only that part of the system serving the flat alone (as with the cold water pipes in 4.2.2) there would have been no need for the additional words.

20.        Moreover it seems to me to be perfectly understandable that where, as here there is a single central heating system serving the whole of the building, the landlord should wish to have control over the maintenance and renewal of all those parts of it through which the water circulates.  Interpreted in the way that appears to me to be correct, the provision can thus be seen to perform an obvious practical purpose.

21.        In the earlier decision the LVT placed particular reliance on the easement granted in paragraph 2 of the Second Schedule, which appears in the quotation from its decision that I have set out above.  It said that this was “completely consistent” with its conclusion that only the downpipe running through the premises as well as the other flats was part of the general system, but I see no inconsistency at all with the interpretation that seems to me to be correct.  It is moreover to be noted that the tenant’s obligation to repair etc the demised premises (in

clause 3.10.1) is qualified so as to exclude the obligation in respect of any portion of the premises “which the Landlord covenants herein to repair”.  Thus there is express contemplation that the landlord is or may be obliged to repair things that form part of the demised premises.

22.        The LVT in the present case found support for its conclusion in the fact that the tenant could not install an individual system without the consent of the landlord under clause 3.15.  However, this does not, it seems to me, point to any particular construction of the repairing covenants.  And it seems improbable anyway that a tenant, obliged to pay his proportion of the costs of the communal system in any event, would choose to reject the hot water to which he was entitled and install an independent system instead.  Similarly I am not sure that the obligation of the council under paragraph 14 of Schedule 6 to the Housing Act 1985 to maintain services at a reasonable level, to which the LVT apparently intended to refer in paragraph 31 of its decision, is of assistance in defining the landlord’s rights and duties under the leases.

23.        My conclusion is that the LVT was right in concluding (as it did in paragraph 32 of its decision) that the council are entitled to recover the sums spent on the in-flat works and that it was wrong not to give effect to that conclusion.  The appeal is allowed.  The LVT, as I have said, had concluded that the cost of the work was reasonably incurred and was reasonable.  The amount that it found to be due as service charges in respect of flat 8 was £4,830.42, having deducted £3,823.69 for the in-flat works before adding 3% for the management fee to the total.  Including the in-flat works cost the amount due before the management fee is £8,513.42, and the addition of 3% to that produces a final amount due of £8,768.82.  For flat 45 the amount due before the 3% addition becomes £18,105.74; after the 3% addition £18,648.91; and, following the deduction of an allowance of £1500 which was found to be due, the amount due is £17,148.91 (rather than the amount of £10,000.60 in the LVT’s decision).  I therefore determine the amount due in respect of flat 8 to be £8,768.62 and in respect of flat 45 to be £17,148.91.

Dated 17 June 2010

George Bartlett QC, President