Decision Nº LRX 2 2009. Upper Tribunal (Lands Chamber), 24-02-2010
| Jurisdiction | UK Non-devolved |
| Judge | Mr Andrew J Trott FRICS |
| Date | 24 February 2010 |
| Court | Upper Tribunal (Lands Chamber) |
| Judgement Number | LRX 2 2009 |
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UPPER TRIBUNAL (LANDS CHAMBER) |
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UT Neutral citation number: [2010] UKUT 47 (LC)
LT Case Number: LRX/2/2009
TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007
LANDLORD AND TENANT – service charges – whether landlord’s source of funding relevant to leaseholders’ liabilities – whether “blanket policy” against discretionary relief relevant to whether service charge payable – whether replacement windows were repairs or improvements – appeal dismissed – sections 19, 20A and 27A Landlord and Tenant Act 1985 – section 219 Housing Act 1996 – The Social Landlords Discretionary reduction of Service Charges (England) Directions 1997
IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE LEASEHOLD VALUATION TRIBUNAL FOR THE LONDON RENT ASSESSMENT PANEL
(1) HOMES FOR ISLINGTON LIMITED
(2) THE LONDON BOROUGH OF ISLINGTON Respondents
Re: Flats at Spa Green Estate,
Rosebery Avenue,
Islington,
London, EC1R 4TS
Before: A J Trott FRICS
Sitting at 43-45 Bedford Square, London WC1B 3AS
on 3 November 2009
Justin Bates, instructed by Anthony Gold, solicitors, for the Appellants
Ranjit Bhose, instructed by London Borough of Islington Legal Services Department, for the Respondents
The following cases are referred to in this decision:
Continental Property Ventures v White [2006] 1 EGLR 85 (LT)
Haringey Borough Council v Ball (2004) unreported
Ruddy v Oakfern Properties Limited [2007] Ch 335
R (on the application of Burkett) v Hammersmith and Fulham LBC (No.1) [2002] 1 WLR 1593
R v Secretary of State for the Home Department ex parte Venables [1998] AC 407
Canary Riverside PTE Limited v Schilling (2005) (LT, LRX/65/2005, unreported)
Rapid Results College Limited v Angell and Others [1986] 1EGLR 53
Gilje v Charlesgrove Securities Limited [2002] 1 EGLR 41
Holding and Management Limited v Property Holding and Investment Trust plc [1990] 1 All ER 938
Post Office v Aquarius Properties Limited [1985] 2 EGLR 105
Brew Bros Limited v Snax (Ross) Limited [1970] 1 All ER 587
Postel Properties Limited v Boots The Chemist Limited [1996] 2 All ER 60.
Minja Properties Limited v Cussins Property Group plc [1998] 2 EGLR 52
The following cases were referred to in argument:
Stent v Monmouth District Council [1987] 1 EGLR 59
McDougall v Easington District Council [1989] 1 EGLR 93
Wates v Rowland [1952] 2 QB 12, CA
Schilling v Canary Riverside PTE Limited (2008) (LT, LRX/41/2007, unreported)
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This is an appeal, which the parties agreed should be by way of review, against a decision of the Leasehold Valuation Tribunal for the London Rent Assessment Panel dated 20 October 2008. The application to the LVT was made under Section 27A of the Landlord and Tenant Act 1985 on 17 July 2006 seeking a determination as to liability for service charges in the years 2006 to 2008 in respect of the Spa Green Estate, Rosebery Avenue, London EC1R 4TS. The disputed items related to “external repairs & decoration, window/roof renewal”, with an estimated value of approximately £5.62m and a final cost in excess of £5.7m. The LVT said that the individual charges to the 21 appellant leaseholders were very substantial, ranging from £30,000 to £40,000 each. The LVT granted leave to appeal, without limitation or conditions, on 2 December 2008.
Facts
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The Spa Green Estate comprises three blocks of 129 residential flats known as Tunbridge House (48 flats), Wells House (48 flats) and Sadler House (33 flats). They were constructed between 1938 and 1950 and were listed as grade II* in 1998.
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The appellants all hold flats in the premises under long leases granted under the “right to buy” provisions as consolidated in Part V of the Housing Act 1985 (as amended). All of the leases impose repairing obligations upon the lessor and service charge obligations upon the lessees. There are three different forms of lease but the repairing provisions are substantially the same except in one material respect. Two of the forms of lease include as service charges expenses incurred in “the repair maintenance and renewal and improvement” of the premises. The third, earlier, form of lease, which is held by four of the appellants, does not include the words “and improvement”.
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The first respondent, Homes for Islington Limited (HFI) is an Arms Length Management Organisation (ALMO) created and wholly owned by the second respondent, the London Borough of Islington (the council). The creation of the ALMO was in response to the Government’s Decent Homes Programme, a national strategy for the renewal of local authority housing introduced in 2000. The council successfully applied to the office of the Deputy Prime Minister (whose responsibilities passed to the Department of Communities and Local Government (DCLG) with effect from 5 May 2006) to establish the ALMO in January in 2004 and since 1 April 2004 HFI has been responsible for the management of the entirety of the council’s housing stock. However, the council remains the freeholder of the Spa Green Estate and the lessor of all the appellants’ flats.
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DCLG provides financial support for local authorities with qualifying ALMOs in two ways. Firstly, by capital funding through Supported Borrowing (which replaced Supplementary Credit Approvals after 2004/04); and, secondly, through an ALMO Allowance which is an element of Housing Revenue Account Subsidy paid to local authorities by DCLG that covers the interest payments and any compulsory repayment of capital that a local authority must make on the supported borrowing.
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The funding of ALMOs therefore operates as a permission to borrow with the interest on the money borrowed being fully covered by Government subsidy. There is no cost to the council or HFI. The sum borrowed is not repaid unless the housing stock is transferred to a housing association but remains as a long-term liability in the council’s Housing Revenue Account. In its “Guidance on Arms Length Management of Local Authority Housing, 2004 edition” the Government explained that “ALMO funds are principally available as a contribution towards the minimum necessary cost of reducing the number of non decent homes” (paragraph 4.3). That means tenanted homes and not properties that have been sold on long leases under the right to buy provisions.
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In its January 2004 application to transfer management functions to a proposed ALMO the council estimated that it would cost some £615m to deliver “decent homes”. The council’s own resources were estimated at £336m to 2010/11, giving a shortfall of £279m. This was reduced to £178m (due to other PFI strategies) and subsequently to £157m, which was the figure included in the ALMO bid (covering the years 2004/05 to 2010/11). The ALMO bid of £157m represented the shortfall (approximately 25% of the total) between the estimated expenditure of £615m and the council’s own resources.
Issues
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At the hearing the parties agreed three issues that required determination by the Tribunal:
(i) Funding
Whether the LVT erred in its conclusion that the sources from which the respondents obtained the funds to carry out the works was irrelevant to the appellants’ service charge liabilities.
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Discretionary relief
Whether the LVT erred in its treatment of the Social Landlords Discretionary Reduction of Service Charges (England) Directions 1997.
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Replacement windows
Whether the LVT was right to conclude that the replacement of the single glazed Crittall windows with modern, double glazed Crittall windows was a “repair” or a “renewal” rather than an “improvement”, with the result that the costs were recoverable from all the leaseholders, and not just from those whose leases provide that expenses incurred in improvements are within the scope of the service charge.
The LVT’s decision
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The LVT said the following about the three identified issues.
(i) Funding
“22. In principle, the source from which a lessor obtains the funds to meet costs incurred in supplying services or undertaking works in accordance with the lease is irrelevant to a lessee’s service charge liability. It is even less relevant if, as here, the funds have been borrowed and must be repaid. The circumstances in the case cited in support of her submissions by Miss Osler [for the applicants] are so different as to render...
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