One of the most important aspects of maintaining a landlord’s investment in a property, is to ensure that it is kept in repair, and more fundamentally, that the costs incurred are paid by the tenants. The aim of this artcle is to establish what principles govern the term repair, whether a landlord can claim for improvements, and what can be learnt from case history.
What is the Meaning of Repair?
The covenants in the Tenant’s Lease set out the Landlord’s specific repairing obligations. However the question of what actually constitutes disrepair has been the subject of many court cases mainly in the context of Dilapidations. The overall concept has been established that in order for there to be disrepair, there must be deterioration from the building’s previous condition. Disrepair denotes the idea of making good damage so as to leave the subject, so far as possible, as though it had not been damaged.
In the context of service charge recovery the proposed remedial works must also be considered in light of a number of different circumstances. These are identified by Lord Justice Nicholls in the case of Holding and Management Limited Vs Property Holding and Investment Trust plc and Others (1990) 50 EG 75, and includes some or all of the following.
- the nature of the building
- the terms of the lease
- the state of building at the date of the lease
- the nature and extent of the defects sought to be remedied
- the nature, extent and cost of the proposed remedial works
- at who’s expense the proposed remedial works are to be done
- the value of the building and its expected life span
- the effect of the works on such value and life span
- current building practice
- the likelihood of a recurrence if one remedy rather than another is adopted
- the comparative cost of alternative remedial works
- the impact of the works on the use and enjoyment of the building by the occupants
- the likelihood of similar disrepair arising in other parts of the building if remedial work is not undertaken, and how soon such further disrepair is likely to arise
For example, using the case of Plough Investment Limited Vs Manchester City Council (1989) I EGLR 244 the various circumstances include.
- The building was an old office building on basement, ground and four upper floors built in circa 1925.
- The building was constructed of steel frame, reinforced concrete floors and brick and blockwork non load bearing curtain walling.
- Leases were dated 1973 and 1974 (proceedings began 1986).
- The defects identified included rusting of the steel frame in places, leading to cracking of the cladding.
- The works proposed included removal of the cladding, shot blasting of the steel frame, and enclosing it in concrete.
The Court found that the landlord had not fully established the extent of the defect. The landlord’s consultants had carried out limited opening up works and established that in some places corrosion had occurred, which led to the assumption that all steelwork was defective. The Judge stated that the landlord had not established the extent of the corrosion to justify the wholesale removal of the cladding to facilitate the remedial works.
Furthermore, when the leases were granted in 1973/4, the rusting of the frame had already begun, to the extent that cracking to the cladding was already evident. In the judges opinion the term repair did not include removal of the cladding in order to remove all the rust from the steel frame and to restore the steel frame to the rust free condition it enjoyed when the building was built. Nor would the term repair include the removal and replacement of every cracked brick or block. There were cracks when the leases were granted, and in a building of this nature, 60 years old, it was bound to have some cracks in the cladding.
He summarised by using the case Brew Bros Limited Vs Snax (Ross) Limited (1970) 212 EG 281. He said that the correct approach is to look at the particular building, to look at the state which it is in at the date of the lease, to look at the precise terms of the lease, and then come to a conclusion as to whether, on a fair interpretation of those terms, in relation to that state, the requisite work can fairly be termed repair. However large the covenant it must not be looked at in isolation. Quite clearly this approach involves, in every instance, a question of degree.
A similar case which conversely was found in favour of the landlord is Gibson Investments Limited Vs Chesterton plc (2002). In this case the Judge accepted that the landlord’s proposed works which involved opening up and treating the rusting steelwork were an acceptable way of repairing the building. The tenant who had proposed to only repair the cracked stonework covering the rusting steel frame lost as the Judge found that the tenant’s works would do little to prevent future rusting and would be required to be repeated every three years.
It should be mentioned at this stage that there are statutory tests for reasonableness that relate to residential lettings and where Section 18 of the Landlord and Tenant Act 1985 apply, the provisions of Section 19 of the Act provide two statutory limitations on costs which can be included in the Service Change;
- costs can be taken into account only to the extent that they are reasonably incurred; and
- costs incurred on the provision of services for the carrying out of works are only to be taken into account if the services or works are of a reasonable standard.
An example of this is the case Wandsworth Borough Council Vs Griffin (2000) 26 EG 147. The landlord of a block of flats replaced leaking flat roofs with pitched roofs and replaced the defective metal framed windows with PVCu double glazed units. The tenant argued that the landlord should have simply replaced the roof coverings and overhauled the window frames. It was held that these costs were reasonably incurred since they were better value for money over the term of the lease, taking into account both initial and future costs, even though the initial cost alone was higher.
Can a Landlord Improve a Property?
A landlord typically will have an obligation under the lease to keep the premises in good repair and condition. In order to maximise a property’s investment value, the landlord would be looking to make absolutely sure that liability for ongoing repair is placed fairly and squarely on the tenant. Useful guidance to the landlord seeking to recover the cost of repairs from a tenant is given in the case Postel Properties Limited Vs Boots the Chemist (1996) 41 EG 164. The judgement allowed financial recovery for the repairs as they were repairs which a building might need to undertake anyhow during the course of time, and did not amount to giving back to the landlord something different from that which already existed.
In these examples below, assume that where the tenant is liable, it is also liable for contributions under the Service Charge where the landlord carries out the works.
In the case of inherent defects a tenant may be able to argue that a property let to it with an inherent defect at the beginning of the term involved imposing a liability on the tenant. In the case Ravenseft Properties Limited V Davstone (Holdings) Limited, (1980) Forbes J said that the correct test to apply where an inherent defect has occurred was that
“it is always a question of degree whether that which the tenant is being asked to do can properly be described as repair, or whether on the contrary it would involve giving back to the landlord a wholly different thing from that which he demised”
In other words where the inherent defect has resulted in damage the tenant may be liable to eradicate the inherent defect itself as well as remedying the damage it has caused. However it may be that the eradication of an inherent defect may fall outside the scope of a covenant to repair. For example, if the inherent defect has not caused any physical damage to the property or whether remedy of the damage can be carried out without eradication of the inherent defect. Finally whether the remedial work is deemed to go beyond repair as a matter of fact and degree. Incidentally, the term inherent defect has no clearly defined meaning, and it would be preferable to refer to defects arising out of a failure to design and construct the building in a professional manner.
Aside from the specific issue of inherent defects is the question of whether a serious defect affecting a property can be interpreted as going far beyond the contemplation of the repairing covenant, and could therefore be deemed to be an improvement, or a rebuilding of the property, which would not be the liability of the tenant under service charge recovery. In these cases it would always be necessary to look at the individual property, the circumstances surrounding the letting itself, and the documentation governing the letting.
For example, if one considers, as in the case of Holding and Management Limited Vs Property Holding Investment Trust plc, the circumstances surrounding this letting. The property consists of a block of first class residential flats let on long leases of up to 75 years. A landlord, acting reasonably may deem it necessary to carry out works for the more convenient or efficient conduct and management of the building. Lord Justice Nicholls said in the case “as living standards rise, so this or that feature can be expected to be changed or added to the building. Examples might be high speed lifts or improving air conditioning”.
Mr Dowding QC in the recent case Fluor Daniel Properties Vs Shortlands Investments Limited (2001) 4 EGCS 145 submitted that where the landlord has an obligation to keep in good and substantial condition, this may require the carrying out of works which go beyond repair. The obligation is only triggered when, as a matter of fact and degree, the subject matter is not in good and substantial condition. Where it is triggered, Proudfoot Vs Hart (1890) 25 QBD 42 standard applies. The obligation does not require or entitle the landlord to carry out works which go beyond what is sensibly needed to remedy the defective condition in question. The Honourable Mr Justice Blackburne accepted Mr Dowding’s submission, and added that if a service, in this case air conditioning, was still capable of rendering to the tenant’s the particular service which the landlord has covenanted to provide, the landlord is unable to recover the expenditure incurred in renewing, much less improving the service.
However, if a service no longer conforms to the reasonable requirements of the tenants of the building, the landlord, provided it acts as required by the provisions in the lease, will be entitled to the reasonable cost of works to improve the service.
Compliance with Statutory Obligations is another example of where a Landlord may improve the property. For example the imposition of Part L of the Building Regulations will require in many instances improvements to, say, the windows of a property. However, the Regulations are not retrospective, and therefore the obligation will only apply when renewal of the windows is contemplated. The Landlord, if he is to recoup the costs under the service charge, can only consider renewal if the existing windows are in disrepair. Once again, it is a matter of fact and degree. The fact is that the windows are in disrepair and the only option available is to replace them. The degree is that new windows must comply with the new Regulations. The new windows may be an improvement, but the Tenant would still be required to pay for them.
In summary, the landlord can only carry out improvements if the condition of the item is no longer reasonably acceptable, with regard to its age, character and location of the premises, to a reasonably minded tenant. Furthermore the landlord must have proper regard to the interest of the tenant, and act reasonably.
An Example Using Case History
There is little in the way of case history in relation to service charges, which is surprising bearing in mind the obvious temptation for a landlord to improve his investment with the expectation that the tenant will pay for it! However one important case is Fluor Daniel Properties Limited Vs Shortland Investments Limited (2001) 4 EGCS 142 which has been discussed in part earlier. There are a number of issues that have important connotations and much can be learnt from it.
The case involves a high quality multi occupied office block built in or about 1980, and attracting substantial rents. The majority of leases are long term expiring 2016. If one applies the principles discussed earlier the obvious considerations are that it is in a good location, occupied by high quality tenants on long leases and the building has a considerable unexpired life span.
The dispute was over whether the landlord was entitled to recovery by way of the service charge from the tenants, the cost of various works to the building. These included principally aspects of the buildings air conditioning plant.
The landlord had recently carried out a full survey of the property, and as a result the managing agents reported to the tenants that it was necessary to replace large elements of the air conditioning system, in order to safe guard the continuing efficient use of the building. With due consideration to the prestigious location of the property and the need to maintain first class services and facilities the landlord maintained that it would be reasonable to carry these works out.
The tenants obtained their own expert, and found that the equipment was generally in satisfactory order, and the dispute arose.
The judgement was generally found in favour of the tenant, and as a result, there are a number of lessons that can be learnt:
- Expert Witnesses
The Judge criticised the landlord’s mechanical and electrical consultant’s evidence for not having adequately investigated aspects of the proposed works and their costings. They were heavily reliant on the views provided by another firm, and had to modify their stance when it became evident that there might be a different and cheaper way of approaching a problem. On the other hand the tenant’s expert was criticised for heavy reliance on a quotation from a firm who had not carried out a site inspection. Following an inspection their costs increased.
Although obvious it must be borne in mind that landlords and tenants alike are heavily reliant on information and opinions given by the consultants, and act upon the advice given. It is therefore imperative that the consultants should ensure that a thorough investigation is carried out into defect analysis, both the remedial works proposed and the associated costs.
- Life Expectancy
The landlord’s case for replacing the plant relied on the life expectancy tables produced by CIBSE, and maintained that because the plant had reached the end of its industry recognised standard life expectancy, then it should be replaced. However the landlord’s mechanical and electrical consultant had failed to inspect the maintenance records for the mechanical and electrical plant. These records are important as the usual indicators that plant is coming to end of its economic and working life is an increase in the frequency of breakdowns and an increase in the cost of maintenance. However, in this case, the records showed that this was not the case, and indeed some of the plant, despite its age, had never broken down.
The professional tables setting out the life expectancy of equipment are to be used as guidelines only. If equipment is carefully maintained then its life expectancy can be increased considerably.
If an item is therefore in working condition and providing the service for which it is intended, then it cannot be deemed to be in disrepair, and the landlord is not entitled to replace it and recover the costs from the tenant.
Costs and Standard of Repair
The landlord has an interest separate from that of the tenants, in ensuring that the building is properly serviced, thereby helping to maintain the reputation and attractiveness of the building to tenants, and not least to justify the high rent. The Plough Investment Limited Vs Manchester City Council case established that the repairing obligations of the landlord is not simply or even mainly for the tenant’s benefit, and provided it acts reasonably, it is for the landlord to decide how to go about discharging them.
Subsequently the tenants cannot complain simply because the landlord could have adopted the minimum standard of repair and consequently cheaper method. The landlord must however take into account the length of the tenants’ leases and standard of the works should be such that the tenant could be fairly expected to pay for.
In the opinion of The Honourable Mr Judge Blackburn presiding over the Flour Daniel Properties case, the landlord cannot overlook the limited interest of the tenants who are having to pay for works that are calculated to serve an interest extending beyond that of the tenants. If the landlord wishes to carry out repairs which go beyond the tenants’ interest, then additional costs must be borne by the landlord.
Finally the judge summed up that the landlord, if he is to recover the costs, is required to use its best endeavour to select that method of performing its obligations which results in the lowest reasonable cost. The emphasis is on reasonableness, and provided the landlord has acted so, he cannot be criticised merely because it can be shown that the materials, works or services could have been provided or performed at a lower cost.
In order for a landlord to carry out repairs to a multi occupied property, and recoup the cost from the tenants, he must establish that the item in question is out of repair, and a number of circumstances must be taken into account. These include the nature of the building, length of leases, extent of the defect and the life span of the building.
The question of standard also relies on a number of circumstances as laid down by Proudfoot Vs Hart. The standard must have regard to the age, character and locality of the building and whether the condition of the subject matter of the dispute is reasonably acceptable to a reasonably minded tenant of the kind likely to take lease of the building.
The landlord must have proper regard to the interests of the tenants, and in some circumstances may carry out improvements. As the environment in which the building operates is improved, a reasonable tenant may expect features to be improved such has high speed lifts, or more efficient air conditioning.
In short, the landlord must act reasonably, have proper regard to the tenants’ interests, and the obligation to repair must not be looked at on its own, and in every instance it is a question of degree.
The following cases are referred to in this article.
• Brew Bros Limited Vs Snax (Ross) Limited (1970) 212 EG 281
• Fluor Daniel Properties Vs Shortlands Investments Limited (2001) 4 EGCS 145
• Holding and Management Limited Vs Property Holding and Investment Trust plc and Others (1990) 05 EG 75
• Plough Investment Limited Vs Manchester City Council (1989) I EGLR 244
• Postel Properties Limited Vs Boots the Chemist (1996) 41 EG 164
• Proudfoot Vs Hart (1890) 25 QBD 42
• Gibson Investments Vs Chesterton (2002)
• Wandsworth LBC Vs Griffin (2002)
• Stapel Vs Bellshore Property Investments (2001)