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My landlord has referred to the case of Forcelux v Sweetman [2001] 2 EGLR 173 can you explain what the relevance of this case is to my major works service charge dispute?

Reader’s E-mail:

Hi, I am a leaseholder that is disputing a Major Works service charge liability. Our dispute will be heard by the First Tier Tribunal in early November and I will be representing myself as an Applicant in person.

A significant part of the Major Works cost relates to the replacement of the roof of my property (which is one flat in a block comprising 30 flats). The landlord contends that the roof has been repaired extensively, is close to the end of its life expectancy and needs to be fully replaced. I have had an independent surveyor do a site inspection of the roof and their view is that the roof has not been extensively repaired (this is supported by the landlord’s repair log), the roof still has plenty of life left in it, and the roof just requires minor repairs.

The landlord has always maintained that it is more ‘cost effective’ to replace rather than repair the roof now. The replacement would reduce the future cost of repairs.

I have asked for evidence to support this (e.g. a cost model comparing the replacement vs the repair scenarios) and the landlord has never provided one. The landlord has now disclosed that they did not produce a comparative cost model to inform their decision making process. I find this staggering because it suggests that the landlord (who is a local authority) did not approach their roof replacement decision in a reasonable fashion i.e. their decision making process was not evidence based or robust.

The landlord is relying on Forcelux v Sweetman [2001] 2 EGLR 173 to argue that the cost of the roof replacement was ‘reasonably incurred’ under s19(a)(a) LTA 1985, on the basis that the task of the Tribunal is ‘not to consider whether there were cheaper ways of achieving a particular end. Rather, it (the Tribunal should) consider the method actually chosen by the landlord and determine whether the decision to use that method was a reasonable one.’ In particular, the Tribunal’s task is to decide whether the landlord acted ‘reasonably in their choice of assumptions and in the conclusions that they drew from the
analysis.’

In my case, the landlord failed to undertake a reasonable level of analysis / assessment (i.e. no comparative cost model) to inform their decision. Please could you:

1) tell me the status of the Forcelux case. Is it an old case? Has it been overturned or superseded?

2) I find it strange that the landlord is relying on this case, given the facts of the matter. Have I misunderstood the case?

3) please could you send me a copy of the case (the landlord has helpfully not provided a copy as part of their evidence)?

4) are there any other cases that would help my argument (given the landlord’s rationale was ‘cost effectiveness’ without any quantification or assessment of the comparative costs to inform this rationale/decision)?

Reply From Service Charge Dispute Guide

1. From the description given in your e-mail it would appear that the relevant point to be taken from the Forcelux v Sweetman [2001] 2 EGLR 173 case is the one summarised at paragraph 39 of the decision:

39. In determining the issues regarding the insurance premiums and the cost of major works and their related consultancy and management charges, I consider, first, Mr Gallagher’s submissions as to the interpretation of section 19(2A) of the 1985 Act, and specifically his argument that the section is not concerned with whether costs are “reasonable”, but whether they are “reasonably incurred”. In my judgment, his interpretation is correct, and is supported by the authorities quoted. The question I have to answer is not whether the expenditure for any particular service charge item was necessarily the cheapest available, but whether the charge that was made was reasonably incurred.

2. To summarise the ‘gist’ of what was decided: the test to be applied under Section 19 (1) (a) of the Landlord and Tenant Act 1985 is not whether the landlord chose the best option or the cheapest one, but rather whether the option they chose fell within a range of reasonable options.

3. The same point, or one similar in effect, has been made in a number of more recent cases heard by the Upper Tribunal.

4. Your landlord could have also cited the cases of City of Westminster v Fleury and others [2010] UKUT 136 (LC), Regent Management Limited v Jones [2010] UKUT 369 (LC) and Southall Court (Residents) Ltd v Tiwari [2011] UKUT 218 (LC) (amongst others) in support of the same legal argument.

5. This legal argument is widely accepted on the strength of the legal authorities referred to above, and we would expect the majority of Tribunal panels to adopt it is as the starting point, or point of reference, in any consideration of the issue of whether a service charge had been reasonably incurred, whether or not your landlord had made reference to the Forcelux case in their statement.

6. This does not mean, and we want to emphasise this, that your landlord is automatically now going to win the case.

7. The Tribunal’s decision should be based on a careful consideration of the facts and circumstances under which the roof works took place, and the wording of your lease; the principle established in the Forcelux case (as we have summarised it above) does not exclude the possibility that you might still convince a Tribunal that you are not liable for a part or all of the service charge which your landlord is demanding.

8. The first point upon which you might still challenge the service charge is whether, in fact, the roof replacement works fell within a range of reasonable options. One factor, to which you refer in your e-mail and may be important in your case, is whether the landlord has taken adequate steps to assess the condition of the building prior to taking the decision to replace the roof.

9. In the case of Fernandez v Shanterton Second Management Co Ltd LRX/153/2006 the Lands Tribunal penalised a landlord (on the basis of reasonableness) for incurring legal costs in pursuit of the recovery of service charge without first taking legal advice to establish the landlord’s entitlement to the sums which were demanded.

10. This case connects the taking of appropriate professional advice (whatever its content) to the issue of whether costs are reasonably incurred. The same principle, or a similar one, is implicit in the decision of the LVT in the case of the Various Leaseholders of Merryweather & Brennand Courts v London Borough of Islington LON/00AU/LSC/2011/0228. In this case the Tribunal found that the failure of the Landlord to carry out an independent survey was in itself cause to doubt the reasonableness of the decision to carry out roof replacement works on the building in question.

11. We cannot find case law which suggests, as a point of law, that the issue of whether a consideration of all the options available is a factor which should be taken into account in determining whether a service charge has been reasonably incurred.

i. However, by the same token we are not aware of a principle of law given in the guidance of the Upper Courts and Tribunals which would clash with, or contradict, the notion that in order for a decision to be reasonable it must involve involve some consideration of other cheaper alternatives.

ii. If our analysis is correct, then it is an option for the Tribunal to exercise its judgement and penalise your landlord on this basis.

12. The question of whether your landlord considered all the alternatives, or at least some of them, may also be relevant to compliance with the Section 20 consultation requirements.

i. The consultation requirements in the 2003 regulations, for all 5 consultation processes, include a requirement that landlords give due regard to any observations they receive.

ii. If you made an observation during the consultation period suggesting a cheaper alternative scheme then it would be impossible, you might argue, for your landlord to have complied with the requirement that they give due regard to your observation without having undertaken a sufficiently rigorous consideration of the alternative you suggested.

iii. This in turn, you might argue, created significant prejudice for which you are entitled financial compensation as precondition of your landlord being granted dispensation.

iv. The key case law around prejudice and dispensation of the consultation requirements is the Supreme Court decision in the case of Daejan Investments Limited v Benson and others [2013] UKSC 14.

13. The second point upon which you might challenge your liability for the major works service charge relates to the question of whether the works fell within the list of rechargeable costs set out within the service charge covenants of your lease.

i. Your lease is likely to include a requirement that you pay for repairs, and that includes repairs to the roof. However, it may not include a requirement for you to pay for improvements.

ii. There is a lot of case law around the definition of a repair. We suggest a leading legal authority on this point worth referring to is Wandsworth LBC v Griffin [2000] 2 EGLR 105.

iii. The reason we suggest this case, over others, is that at paragraph 50 of the decision it provides a well formulated, common sense, test for determining whether the work undertaken really counts as a repair or something else:

In my judgment, the works carried out by the Appellant did constitute repair, if they were indeed cheaper than the alternatives, taking into account both initial and future costs.”

iv. In relation to the works your landlord chose to carry out, the question is whether they could have done lesser works so as to extend the life of the roof long enough to balance out the ‘enabling costs’ of those works, and any subsequent repairs required thereafter to maintain the existing roof. By ‘enabling costs’ we mean costs such as scaffolding, site huts, project design etc.

v. If so then the conclusion has to be, on the basis of the principles set out in the Wandsworth case, that your landlord has carried out improvement works.

14. A further point, which is not made explicit in any of the leading legal authorities, is that in order for works to be classed as a ‘repair’ they must be a response to ‘disrepair’. This flows from the natural meaning of the word repair. In normal language it makes no sense to say that someone repaired a thing which was not in some way broken, and this cannot therefore be the meaning intended when your lease was drafted.

15. In your e-mail you state that your landlord has referred to extensive repair works carried out previously to the old roof.

i. They have done so principally, we believe, as evidence of the existence of ‘disrepair’, the existence of which we consider a necessary prerequisite in order for the works they carried out to fall within the service charge covenant of your lease requiring you to pay for repairs.

ii. The question which you should be considering, if you have not already done, is whether the works which your landlord previously carried out to the old roof were a response to extensive disrepair, or whether the works were in fact part of scheme of maintenance works which would be expected in respect of a adequately functioning roof of this design and age.

iii. We suggest you give careful consideration to this as it may prove a key point in your case.

16. We wish you the best of luck with your case.

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