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Cite as: [2014] UKUT 400 (LC)

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UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2014] UKUT 400 (LC)

UTLC Case Number: LRX/29/2013

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

LANDLORD AND TENANT – service charges - construction of lease - whether works were done to the common parts or to demised parts of the building - Landlord and Tenant Act 1985 section 19

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE

SOUTHERN AREA LEASEHOLD VALUATION TRIBUNAL

BETWEEN:

CASTLE ROCK 2002 MANAGEMENT LIMITED Appellant

and

MRS VALERIE JEFFERY Respondent

Re: Apartment 1

Castle Rock

Mortehoe

Woolacombe

Devon EX34 7EP

Before: His Honour Judge Nicholas Huskinson

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

16 July 2014

Alexander Bastin, instructed by Michelmores LLP , on behalf of the appellant

Andrew Eaton Hart, appearing on public access basis, on behalf of the respondent

The following cases are referred to in this decision:

Billsom v Tristrew (unreported) Court of Appeal 12 January 1999

Stent v Monmouth District Council WL 492 624

Plantation Wharf Management Company Limited v Jackson [2011] UKUT 488 (LC)

DECISION

Introduction

1. This is an appeal from the decision of the Southern Area Leasehold Valuation Tribunal (the LVT) dated 11 January 2013 whereby the LVT decided certain matters regarding the recoverability by the appellant as landlord and/or manager from the respondent as tenant for the service charge years 2010-11 and 2011-12 of certain items of expenditure at Castle Rock.

2. Castle Rock is situated in an elevated position overlooking Woolacombe Bay with uninterrupted views across it. It comprises 11 apartments on four floors, 3 on each of the ground, first and second floors and 2 apartments on the third floor. The 8 upper flats have balconies. The middle ground floor flat was originally constructed with a wooden-decked balcony with a balustrade containing this decked area. Castle Rock was the result of a development completed in about 2002 by Prowting Homes South West Limited. The respondent holds flat 1 at Castle Rock from the appellant under a lease dated 19 December 2002 and made between (1) Prowting, (2) the appellant as manager and (3) herself as the owner. Flat 1 was demised to her for a term of 999 years from 1 April 2002 at a premium and a rent of one peppercorn. The lease contained service charge provisions and required her to pay one eleventh of the relevant costs.

3. It appears that, unfortunately, there were substantial problems which subsequently emerged regarding the quality and completeness of the construction of Castle Rock. This led to litigation between the appellant and, I understand, 9 of the 11 leaseholders of flats in the development, as claimants and Prowting as defendant. This litigation was in due course settled and appears to have involved the payment of money and the carrying out of certain further works. However as a result of these shortcomings in the construction of the property and the passage of time it became clear that substantial works were required to Castle Rock during the service charge years with which the LVT was concerned.

4. It was envisaged by the lease that Prowting would transfer the freehold to the appellant. This has occurred. Accordingly the appellant is now both the landlord (as freeholder) and also the manager in accordance with the terms of the lease. All of the lessees of the 11 units, including the respondent, are members of the appellant. The appellant’s only source of income is in effect the service charges payable by the tenants of the 11 flats.

5. There are two categories of work which were the subject of the LVT’s decision and which are the subject of the present appeal. These were:

(1) Works to the decked balcony at flat 2 (which was the central ground floor flat which possessed a balcony similar to the balconies of the upper flats) and to the patio of flat 3. In summary what occurred at flat 2 was that the decking of the balcony and the material immediately below such decking was removed, the metal balustrade was also removed and a paved patio similar to the other patios at ground floor level was installed instead without there being any restoration of any metal balustrade. As regards flat 3 the patio was renewed with new paving and the paved area was extended beyond the original area of the flat 3 patio. When referring to all of the foregoing works together I will call them “the patio works”.

(2) The installation of a wall. Castle Rock is situated on steeply sloping land with the land falling away from a point fairly close to the building. It was constructed originally with the ground floor flats 1 and 3 having a patio and with flat 2 having the decked area and balustrade and with there then being a flat area of only modest width between these patios and this balcony and the edge of the steep slope towards the beach. At the edge of this flat area a fence was originally erected. One of the categories of work carried out by the appellant which is the subject of the present dispute is work which involved the removal of the fence and the installation instead of a low retaining wall such that the flat area was held in place by this low wall and the land then fell away from this low wall with there no longer being any fence. I will call these works “the wall works”.

6. The LVT concluded that the appellant was not entitled to recover through the service charges from the respondent any expenditure in respect of the patio works or the wall works. It is against that finding that the appellant appeals.

7. There are two points raised in the LVT’s decision which should be noticed at this stage, because otherwise they may distract from the points the parties agree are central to the present appeal. The points arise because it is common ground between the parties that the service charge demands which had been sent by the appellant to the respondent for the service charge years in question which had not been paid in full and which had led the respondent to make application to the LVT, were service charge demands for on account payments rather than demands by way of final accounts for a particular year. At paragraph 83 of its decision the LVT states:

“The Service Charges (Consultation Requirements) England Regulations 2003 (“the Regulations”) oblige a Landlord to consult with tenants where it is proposed to carry out qualifying works in any service charge year, which will require a contribution of more than £250 per flat. In this case the payment on account of anticipated expenditure appears to be set at £1500 per flat. As it is a payment on account it can validly be demanded and collected but it cannot be used to carry out any works costing in excess of £2,750 in any year (11 x £250) without consultation prior to those works being undertaken.”

Also reference to the consultation requirements are made at various other points in the LVT’s decision. The two points to be noticed are these:

(1) It is agreed between the parties that the substance of the LVT’s decision, and the substance of the present appeal before the Upper Tribunal, concerns whether the appellant is entitled to recover from the respondent through the service charge provisions in respect of expenditure upon the patio works and the wall works. The case is not limited to the question of whether the appellant is entitled, in accordance with the provisions of the lease, to recover certain sums by way of on account payments, with the substantial question being left over for future consideration of whether the costs of the patio works or the wall works are properly recoverable. Therefore although the demands were only for on account payments it is agreed that the recoverability of expenditure in respect of the patio works and the wall works falls to be decided.

(2) The second point concerns the consultation regulations. It was common ground between the parties before me that this case does not turn upon any question of whether the consultation requirements were or were not complied with or whether dispensation (in respect of which no application has been made) should be granted. It was agreed that this is not a case where the LVT has decided that some relevant consultation requirement has been omitted such that there is a limit to the recoverability of charges in the absence of dispensation. Instead it was agreed that the LVT’s reference to the consultation material was of relevance to the LVT’s decision because the LVT found significant statements within that material which led it to make certain findings of fact regarding the reasons as to why certain works (especially the wall works) had been carried out. In summary therefore the present case does not concern alleged failure to comply with statutory consultation requirements or any question of dispensation from such requirements.

8. In summary the LVT’s reasons for concluding that the costs of the patio works and the wall works could not be included within the service charges to be recovered from the respondent were as follows:

(1) As regards the patio works these were disallowed because the works were carried out in relation to parts of Castle Rock which were demised to individual tenants (and which were therefore the responsibility of the individual tenants to do if they wished the works done) rather than being carried out to the common parts of Castle Rock for which the appellant was responsible. As a result of this the costs of the patio works were not within the definition of service charges within section 18 of the Landlord and Tenant Act 1985.

(2) As regards the wall works the costs of these were disallowed because the works were not needed or required to repair or maintain the building and had in fact been carried out not by way of repair or by way of works needed as a matter of safety but because it was desired to enhance and improve the views from the building. Also the LVT concluded (in paragraph 90) that “… the cost is not reasonable”. It was agreed between the parties that there had been no contention before the LVT that the actual price for the wall works was not reasonable – what had been an issue was whether this category of cost was recoverable at all. It was therefore agreed between the parties before me that when the LVT concluded that “the cost is not reasonable” the LVT is to be understood as meaning that the cost of the wall works was not reasonably incurred within section 19(1) of the Landlord and Tenant Act 1985. For the avoidance of doubt I should say that in my judgment this is indeed the correct reading of this aspect of the LVT’s decision.

9. Permission to appeal to the Upper Tribunal was granted by the Deputy President on 8 July 2013 in the following terms:

"The proposed ground of appeal regarding the extent of the common parts at Castle Rock raises a question of interpretation of the lease on which the applicant's contentions are arguable and which may have long term significance for the future management of work to the apartment block. The extent of the discretion available to the management company under clause 33 of the lease is also likely to be of continuing significance, and ought to be considered at the same time.

The viability of the appeal relating to consultation is more difficult to assess on the information available but the Tribunal's treatment of this issue and in particular its conclusion in paragraph 91 that the consultation notice "does not establish a need for the works therefore the cost is not reasonable" merits consideration.

The appeal will be by way of review."

Terms of the lease

10. The lease contains the following definitions in schedule 1:

(1) Castle Rock is defined as the land and building now or formerly comprised in Title Number DM270725.

(2) The Building is defined as: the main structure of the building of which the property forms part (being the building in which the individual flats are located and comprised within Castle Rock including the foundations the external walls the balconies and any rendering tiling or other fixtures and finishes upon the exterior thereof any joists and floor slabs the internal structure of any load-bearing supporting or retaining walls beams columns ceilings roofs voids but excluding any conduits).

(3) The Property is defined as the property specified in paragraph 5 of the Particulars and more particularly defined in the Eighth Schedule, which is in the following terms:

"Eighth Schedule: The Property:

73. The Property. The flat shown edged red on Plan 1 and the parking space shown edged blue on Plan 2 including by way of demise:-

73.1 The internal surface of the internal and external load-bearing walls and the internal surfaces of the door frames and window frames in exterior and other load-bearing walls

73.2 All internal non load-bearing partition walls and the door frames fitted in such partition walls.

73.3 The surface of the floors and ceilings and for the avoidance of doubt there being excluded from the demise:-

73.3.1 all such parts of the Building as are below the floor surface and

73.3.2 all parts thereof as are above the ceiling

73.3.3 the door frames and window frames in external and other load-bearing walls

73.4 The doors and the glass in the windows in the Property

73.5 All fixtures and fittings and plant machinery and equipment now or thereafter in or about the Property

73.6 All conduits as defined in the expression Conduits in the First Schedule which serve exclusively the Property save those belonging to any utility supply body

73.7 All radiators and installations and sanitary water gas electrical heating and ventilation apparatus within the Property exclusively serving it.”

(4) “The Properties” means the Property and the Other Properties. The Other Properties means: any flat or part thereof as the case may be in Castle Rock including Exclusive Conduits and the other garages but excepting the Property and the Common Parts.

(5) The Common Parts are defined as: Castle Rock except the Properties and including the Common Accessways, the Visitors Parking Spaces and the Conduits.

(6) The Service Charge is defined as such percentage of the Service Expenditure as is specified in paragraph 11 of the Particulars (this percentage is expressed as 1/11^th).

(7) The Service Expenditure is defined as: all the expenditure properly incurred by the Manager in carry out its obligations in this Lease including the items set out in the Ninth Schedule.

(8) The Ninth Schedule sets out various categories of service expenditure of which the following two are relevant:

"74.1 All expenditure incurred by the Manager in fulfilling its obligations under this Lease

74.7 All other expenditure which the Manager deems appropriate for the proper running [and] administration of Castle Rock."

[The document is cropped-off and it is unclear whether the word 'and' or 'or' and some other word is missing].

11. The appellant's covenants as manager under the lease are contained in the Third Schedule. These include in paragraph 26 a covenant:

"To keep in good and substantial repair and condition and whenever necessary rebuild reinstate renew and replace all worn or damaged parts of the Common Parts..."

There is also in clause 33 the following covenant:

" To do anything else necessary for good management.

To do or cause to be done all such other things as at its discretion are necessary or advisable for the proper maintenance safety or administration of Castle Rock or for the benefit of safety of the owners (or any of them) including the provision of any additional facilities for them either within Castle Rock or on any adjoining land which is now or may become the property of the Seller or the Manager."

12. So far as concerns covenants by the respondent as owner of her flat these include in clause 9 the following covenants:

"9.1 To repair maintain renew uphold and at all times keep the Property and all parts thereof including so far as the same form part of or are within the Property all glass and doors, (including their locks, fastenings and hinges) and all fixtures and additions in good and substantial repair and condition....

9.2 To paint and paper vanish colour grain and whitewash all the inside parts of the Property respectively heretofore or usually painted paper vanished coloured grained and whitewashed as often as shall be requisite."

In clause 19.7 the respondent covenanted:

"Not to place outside the Property any flower box, pot, bird table or other like objects save within any patio forming part of the Property and to comply with the Manager's requirements in respect of any such items."

Also in clause 19.23 the respondent covenanted:

"Not to paint the outside face of the window frames of the Property or the outside of any door to the Property and not to paint any part of the exterior of the Property or any other part of the building."

The appellant's submissions

13. On behalf of the appellant Mr Bastin advanced the following arguments.

14. As regards the LVT's disallowance of the recovery of the patio works on the grounds that these works were carried out to demised parts of the building (i.e. to Other Properties as defined in the lease) rather than to the common parts, Mr Bastin drew attention to the precise wording of the lease. He submitted that it is clear that the lease is drafted so that all that is demised to a tenant is the shell in which the volume of their flat is contained, such that apart from the surface of any wall or any floor or any ceiling all is retained and all other structural matters are retained by the appellant. That much is made clear in the eighth schedule so far as the interior of any flat is concerned - thus the surface of the floor is demised but anything below the floor surface i.e. including the floorboards themselves, apart from their top surface, is excluded from the demise. He submitted that so far as concerns any outside area, including in particular the decked balcony area for flat 2 and the patio of flat 3, nothing was demised except for the airspace stopping microscopically above the finish of the floor (whether this was the decking floor at flat 2 or the patio floor at flat 3).

15. In support of this argument he referred to the fact that the definition of the Building is expressed to include the balconies. He also drew attention to page 75 of the trial bundle and to the plan attached at page 79. Page 75 was the appellant's response to the respondent's statement of case. The response at paragraph 2.1 complained that a plan put in by the respondent contained wrongly hand-drawn red lines and stated that:

"The actual Conveyance Plan at Appendix 1.. hereto shows the red line clearly inside the balcony balustrading (as it is for all apartments with balconies)."

The attached document at Appendix 1 did indeed show red lining for flat 2 which was just inside the outline of the iron balustrade.

16. Mr Bastin pointed out that it was agreed that the terms of the other leases were in the same form as the respondent's lease which was before the Tribunal. Accordingly as far as concerns flat 2 and the question of the balustrade what was demised was:

"The flat shown edged red on the Plan 1 ..."

The red edging deliberately stopped just short of the metal balustrade. Also that was consistent with the theme of the lease which made clear that anything beyond mere surfaces were excluded from the Property which was demised. Accordingly even if the surface of the decked floor of flat 2 has been demised anything lying beneath that surface was not demised and, together with the balustrade itself, formed part of the common parts. The same argument applied in relation to the patio of flat 3, such that even if the surface of the patio was demised (which Mr Bastin did not accept) anything lying below that surface was excluded from the demise and formed part of the common parts for which the appellant was responsible.

17. Mr Bastin pointed out that the patio works involved works done underneath the surface of the wooden decking at flat 2 and underneath the surface of the patio at flat 3. The larger bundle of documents which had been before the LVT (hereafter called the LVT bundle) at page 194 showed what was done in relation to flat 2:

"Carefully remove existing balustrade and deck from Flat 2. (Below balcony 5A). This includes a GRP drainage tray to allow for removing any associated below ground drainage."

Also the relaying of the patio at flat 3 obviously involved work below the surface of that patio.

18. Mr Bastin pointed out that the LVT did not decide against the appellant on the basis that the patio works at flat 2 and flat 3 were not needed or that there existed no wants of repair which needed remedying. Instead the decision against the appellant was on the basis that the works were carried out to property which actually part of the demised flats 2 and 3 rather than being work to the common parts for which the appellant was responsible.

19. Mr Bastin relied upon the categories of service expenditure in paragraphs 74.1 and 74.7 (set out above). He also relied upon clause 33 which he argued was in very wide terms. He drew attention to Billson v Tristrem, a Court of Appeal decision dated 12 January 1999 of which he had a transcript. As regards the point raised by the respondent to the effect that the works to flat 2 involved the removal of the balustrade and the substitution of a paved area for the original decking, he argued that the evidence showed that in fact it was substantially cheaper to put flat 2 into repair in this manner rather than by reinstalling a repaired decked area and balustrade. He referred to Stent v Monmouth District Council [1987] WL 492 624 and he submitted the question was whether the mode of repair was one which a sensible person would have adopted. He argued that there was no dispute that the balconies needed to be replaced (corrosion of mild steel used in their construction, rotting timbers and defective drainage and flashing) and that the replacement of flat 2's balcony with a patio was a much cheaper way of carrying out the work. He drew attention to the LVT bundle at page 240 showing a large saving (over £20,000) in repairing the balcony at flat 2 by changing it to a patio rather than by reconstructing a decked area with a balustrade. The works adopted had successfully put this area of the building into repair and it was a sensible economy to do it in this manner rather than the more expensive way of reconstructing the balcony with balustrade.

20. As regards the wall works Mr Bastin accepted that the LVT had purported to make a finding of fact that the reason for the wall works was to enhance the appearance and improve the views from the building rather than because of any safety need or other need to do the works. He drew attention to the risk assessment contained in the LVT bundle at pages 178-9, which had been prepared by an architect, and which showed there was a safety consideration which weighed heavily in favour of removing the fence and introducing the retaining wall. He submitted that the LVT appears to have disbelieved this risk assessment without giving any sustainable reasons and to have wrongly accepted the respondent's subjective view that the wall works were done only for aesthetic reasons. He accepted that one of the reasons for the works was aesthetics, but that did not remove the fact that there was a genuine safety reason for the works as well. He argued the LVT had either ignored this reason or had rejected it without giving any sustainable reason for doing so.

21. Mr Bastin advanced an alternative argument in relation to the wall works based upon clause 33. He argued that even if (which was not accepted) the LVT was entitled to conclude that the wall works were done merely to enhance the appearance and improve the views from the building rather than for any reasons for safety, then the cost of the works was nonetheless recoverable under clause 33. He submitted that clause 33 on its proper construction was wide enough to cover the cost of works done merely for aesthetic enhancement because the appellant was entitled in its discretion to decide that such works were necessary or advisable for the benefit of the owners (or any of them) within section 33. He accepted that the mere fact that an item of work fell within clause 33 would not of itself mean that it could be charged for through the service charge provisions, because the operation of section 19 would still have to be taken into consideration. However he submitted that there was no sufficient finding by the LVT (i.e. no sufficient finding to the effect that the costs of such aesthetic works have not been reasonably incurred) as to justify exclusion of these costs under section 19.

22. Mr Bastin also asked the Tribunal to disturb the LVT's decision to make an order under section 20C of the 1985 Act preventing the appellant from including in the service costs, so far as they were to be recovered from the respondent, the costs of the proceedings before the LVT. He argued that the appellant in good faith has tried to carry out works for the benefit of all; that the freehold is in effect owned by the lessees through the appellant; that the appellant's only income is from the service charge; and that if the appellant cannot recover its full costs from the tenants then there is a genuine problem regarding the continued solvency of the appellant because it has no other source of income. He referred to Plantation Wharf Management Company Limited v Jackson [2011] UKUT 488 (LC) and argued that this Tribunal should not make any section 20C order as far as concerns the costs of the proceedings before the Upper Tribunal and should also quash the LVT's decision to make a section 20C order in respect of the costs before it.

Respondent's submissions

23. On behalf of the respondent Mr Eaton Hart advanced the following arguments.

24. As regards the patio works Mr Eaton Hart argued that the LVT's decision in favour of the respondent was on the basis (a) that the patio works were not work to the common parts but were instead works to a demised property, and (b) that in any event the works were works of improvement rather than repair. As regards whether the latter point was in issue before the LVT Mr Eaton Hart drew attention to paragraph 59 of the LVT's decision which stated:

"59. In this case the issues relate to both the reasonableness of the service charges for the disputed years and whether these are payable by the Applicant. It is contented that the disputed service charges relate to works which the Respondent had no obligation to undertake or to works to individual owners property or to works of improvement and not repair and therefore should not be recoverable."

He drew attention to material which was before the LVT by way of an email dated 16 July 2010 from someone on behalf of the appellant to the respondent making clear that one aim was the enhancement of towards the sea views.

25. Mr Eaton Hart did however accept that the only reason actually given by the LVT in its decision for concluding that the cost of the patio works could not be included within the service charge was because the patio works involved works to demised properties and not works to the common parts. He accepted there was no separate finding by the LVT that in any event these works were works of improvement and not of repair.

26. Mr Eaton Hart's principal argument in relation to the patio works was that these works were not works to the common parts. He drew attention to the terms of the eighth schedule and to the red lining showing that the area of the balcony (for flat 2) was included within what was demised. Similarly the area of flat 3's patio was shown as being a demised area. The eighth schedule contained provisions regarding the inclusion only of the surface of any floor. However this he submitted could only operate in relation to the interior of the flats and could not be applied to the outside decking (flat 2) or patio (flat 3). As regards these outside areas he submitted that the whole of the outside area i.e. down to a substantial depth, was part of the demise. As regards the red line on the plan attached to the appellant’s response document (page 79 of the trial bundle) he did not accept that this was a precisely accurate rendition of exactly where the red line was on the plan to the lease of flat 2. Neither the original lease nor counterpart for flat 2 was available. Even if this plan at page 79 was an accurate representation, it was notable that the red line ran right up against the black line of the apparent balustrade, rather than being pulled significantly from it as was the treatment given to the internal walls.

27. Mr Eaton Hart also drew attention to clause 19.7 of the lease which proceeded upon the assumption that there may exist a "patio forming part of the Property" - i.e. a recognition that the patio did form part of the property. He drew attention to the tenant's repairing obligation in clause 9.1 and he submitted therefore that the tenant of flat 2 was responsible for repairing the decking area and balustrade and the tenant of flat 3 was responsible for repairing the patio and that there was in consequence no part of Castle Rock which fell neither within the repairing obligations of the tenant nor of the landlord. The lease could work perfectly well with the tenant being responsible for repairing these outside areas.

28. Mr Eaton Hart submitted that, while the flats on the upper floors had what could generally be described as balconies the decked area surrounded by a balustrade for flat 2 could not properly be described as a balcony. He referred to the Oxford English Dictionary definition of balcony as "a platform enclosed by a wall or balustrade on the outside of a building, with access from an upper floor window or door".

29. So far as concerns the works to the flat 3 patio, he drew attention to the additional area (being an area which on any basis it was agreed was outside the area of the flat 3 patio) which had also been paved in a similar manner. He submitted that this had blurred/obliterated the demarcation between what was demised and the common parts and involved an unjustified extension of the foot print of the flat 3 patio.

30. In summary he submitted that the LVT was correct to hold that the patio works were not works to the common parts but instead works to demised property which was the respective responsibility of the tenant of flat 2 and the tenant of flat 3 rather than the responsibility of the appellant.

31. As regard the wall works Mr Eaton Hart submitted that the LVT had in effect found that the reason relied upon before it by the appellant as to why the wall works were done (namely safety reasons or partly safety reasons) was not the real reason. The LVT had found that the real reason was aesthetic and in consequence had found that the costs of these works were not reasonably incurred. He submitted the LVT was entitled so to find and gave adequate reasons. He emphasised that the LVT had had the benefit of a site inspection, had seen the lie of the land, had seen the remaining fence which surrounded an adjoining part of the land, had heard the witnesses and considered the documents and had made a finding of fact at paragraph 91 that the reason wall works were done:

"... was the desire perhaps prompted by the architect to enhance the appearance and improve the views from the building."

That was a finding of fact with which the Upper Tribunal should not interfere. The LVT had not disregarded the safety argument - indeed the LVT had expressly referred to the argument that the works were required on safety grounds. The LVT had not found those arguments persuasive. The LVT was entitled so to find.

32. As regards clause 33 Mr Eaton Hart submitted that the appellant was not entitled to charge the cost of the wall works under this provision. The clause was apparently wide and should be construed against the appellant. The clause is only triggered if the appellant has in its discretion actually reached a decision that it is necessary or advisable that certain things be done for one or other of the stated purposes. He drew attention to a letter from the respondent to the appellant at page 218 of the LVT bundle asking whether the appellant was relying on clause 33 and if so for details as to the basis on which each of the improvements were considered necessary or advisable. He said there was no evidence of any response to this enquiry. He submitted that in order properly to engage clause 33 it is necessary for the appellant in advance actually to address its mind to the wording of clause 33 and to form a decision that certain works are necessary or desirable for the stated purposes. If this is not done then it is not open for the appellant retrospectively to say, in relation to works which otherwise do not fall within the service charge provisions, that the appellant can rely on clause 33 (having not previously considered it) so as to make the works chargeable after all.

33. As regards clause 74.7 of the lease he submitted that that could only cover administration costs and not repair costs.

34. As regards the appellant's submission that the Tribunal should quash the LVT's decision to make an order under section 20C he submitted that the Deputy President had granted permission on certain grounds and had not granted permission to challenge this ruling. Quite apart from this he submitted on the merits that there should be no interference with this order. So far as concerns the proceedings before the Upper Tribunal, he made an application for an order under section 20C on behalf of the respondent in respect of the costs of the proceedings before the Upper Tribunal. He recognised that the outcome of that application would depend to an extent on the ultimate decision reached by the Tribunal on the substance of the appeal.

Discussion

35. The only reason given by the LVT for concluding that the cost of the patio works was not recoverable through the service charge was because it was:

"... impossible to justify that works to balconies or patios belonging to individual flat owners can be communal so that the costs are properly recoverable as part of the service charge."

(Paragraph 78)

The LVT concluded that the appellant had no obligation to carry out the patio works and could not recover the costs, see paragraph 79 and also paragraphs 1 and 2 of its decision.

36. This is not a case in which there is a finding that there was no want of repair in the decked area or balustrade of flat 2 or in the patio of flat 3. Nor is there any finding that the costs incurred were unreasonably high. Nor is there any finding that the works were not done to a reasonable standard. Nor, despite the fact that the question of whether certain items were improvements rather than repairs was raised by the respondent and referred to by the LVT, has the LVT made any finding that the costs of the patio works were irrecoverable because the works involved improvements rather than repair.

37. Accordingly the appellant's appeal against the LVT decision that the cost of the patio works could not be included within the service charge turns upon whether the LVT was correct in concluding that these works were works to demised parts of the building (which were therefore the responsibility of individual tenants) rather than to common parts (which were the responsibility of the appellant).

38. The lease makes clear that the expression the Building includes the balconies (although no reference is expressly made to the patios). The LVT recorded that flat 2 was originally constructed with a wooden decked balcony. This appears in my judgment, and despite the dictionary definition of the word balcony relied upon by Mr Eaton Hart, to be a correct finding of fact - I have seen the photographs of the building as it was before the works. Accordingly the flat 2 balcony was part of the Building. The eighth schedule defines the Property which is demised. This makes clear that it is only the surface of floors which are demised and it provides that there are excluded from the demise "all such parts of the Building as are below the floor surface." I see no reason to read these words as limited to all such parts of the Building as are below the floor surface inside the flat and as not applying to all such parts of the Building as are below the floor surface of the balcony. As regards the balustrade itself I accept that the red line on the plan is shown as running slightly inside the black line of the balustrade. I was not shown the original lease or counterpart for flat 2. However I was shown the original lease of another flat in the building with a balcony where the red line was shown in just the same way as on page 79 of the bundle, namely just inside the black line of the balustrade. So far as concerns the patio of flat 3, the patio is part of the Property which is demised (see the reference to "edge red" in the opening words of the eighth schedule and see also clause 19.7 of the lease). However in my view the patio also forms part of the Building having regard to the words within the definition of that expression namely "... and any rendering, tiling or other fixtures and finishes upon the exterior thereof..." The same reasoning process then applies as in relation to the decked balcony of flat 2. The surface of the patio was part of the demised Property but anything lying under that surface was excluded.

39. The works which were carried out to the balcony at flat 2 plainly involved works below the surface of the decked area, see paragraph 17 above. Further the works to the patio at flat 3 plainly involved works which went below the surface of this patio.

40. Accordingly the patio works, as regards both flat 2 and flat 3, involved works to the common parts. The only reason given by the LVT for disallowing the inclusion of the costs of these works within the service charge was therefore, in my judgment, wrong. The costs can properly be included.

41. As regards the wall works the LVT made findings of fact in paragraph 91, namely that it did not accept that the works were required on safety grounds and the true reason for the carrying out of these works was a desire to enhance the appearance and improve the views from the building. As pointed out by Mr Eaton Hart, this is a finding of fact made by the LVT after a site inspection where they were able to see the steepness of the slope and also able to see some fencing, apparently similar to the fencing that was removed to make way for this wall, at an area close to where this wall was constructed. The LVT did not overlook the argument that the wall works were required on safety grounds - they expressly referred to this contention. It is true they could have given fuller reasons for the conclusion which they reached, but in my judgment their conclusion was adequately expressed and was a conclusion that they were entitled to come to on the material before them. The consultation notice itself referred to the restoration or enhancement of the appearance of the building and grounds and views from the building and grounds as one of the reasons for the works. There was reference in other documentation emanating from the appellant to the desire to enhance seaward views. Accordingly, leaving aside for the moment clause 33, the cost of the wall works is not recoverable from the respondent.

42. As regards the argument by the appellant that, even if the wall works were done for aesthetic reasons rather than for safety reasons, the costs are nonetheless recoverable under clause 33, I am unable to accept that argument for the following reason. The reason does not depend upon the width of clause 33 and, bearing that in mind, it is not necessary or appropriate for me to analyse the width of that provision. I am prepared to assume (but without deciding) that if the appellant had addressed its mind to the relevant considerations under clause 33 and had concluded that the wall works were necessary or desirable for one of the stated purposes, then so far as concerns the terms of the lease the costs of the works would have been potentially recoverable through the service charge provisions. However I deliberately say potentially recoverable, because the mere fact that (on this assumption) the costs would have been recoverable under the terms of the lease does not mean that they are actually recoverable once the provisions of section 19 of the Landlord and Tenant Act 1985 are also taken into consideration. In the present case the LVT had made a finding in paragraph 91 that the cost of the wall works was not reasonable, which is agreed by the parties (and in any event I so interpret the finding) to be a finding that the cost of the wall works was not reasonably incurred. The provisions of section 19 are a potentially important protection for a tenant where there is a clause in such wide terms as clause 33. There is nothing before me to enable me to conclude that the LVT was wrong in finding that the cost of the wall works was a cost which was not reasonably incurred.

43. It follows that the cost of the wall works is not recoverable from the respondent through the service charge provisions.

44. The appellant is not assisted by clause 74.7 of the lease which in my judgment is limited to running and administrative costs rather than the costs of substantive works to Castle Rock, which are dealt with under other provisions.

45. As regards the questions of costs, I accept Mr Eaton Hart's argument that I cannot and should not interfere with the LVT's decision to make an order under section 20C in favour of the respondent. I so decide because:

(1) The appellant has not been given permission to challenge this costs decision by the LVT and I am not prepared to extend the ambit of the permission to appeal;

(2) In any event this was a decision reached by the LVT after hearing the full case argued. It is an order which the LVT "considers just equitable in the circumstances.” It is a decision which has not been reached upon any wrong principle and it would be wrong for me to interfere with the decision.

46. So far as concerns the respondent's application for a section 20C costs order in respect of the costs of the hearing before the Upper Tribunal, I decline to make such an order. The appellant has been partly successful. Also I recognise the difficulties the appellant may be put into by such an order bearing in mind its only stream of income is from the service charge.

Conclusions

47. The result therefore is that I allow the appeal, but only to the extent of ruling that the costs of the patio works can properly be included in the service charge to be recoverable from the respondent. The costs of the wall works remain irrecoverable from the respondent through the service charge.

His Honour Judge Nicholas Huskinson

10 September 2014