The Anchor Trust v Mr Tom Corbett & others [2014] UKUT 0510 (LC)

For example, if it is an advance demand, is it being demanded at the time provided for?

If it is a one-off demand for major works, is the landlord entitled to raise it or is he/she restricted to making one advance and one balancing demand per year?

The costs at issue were the costs of upgrading the fire alarm at retirement flats at Elliott Gardens in Rednal, West Midlands.

The Anchor Trust was the landlord: Mr Corbett and his fellow tenants were assured tenants, occupying their flats under assured monthly periodic tenancies.

When it decided to upgrade the fire alarm system at Elliott Gardens, the Anchor Trust proposed to spread the cost over 15 years. The total cost of the upgrade was some £57,311, and the plan was therefore to charge the tenants £8.85 per month over that period.

Mr Corbett and his neighbours did not agree with that plan, and applied to the LVT for a determination of whether the amount they were being asked to pay was reasonable.

Under their leases, the tenants paid a monthly charge for their flats, comprising rent, service charges and rates.

The service charge was described as a “contribution towards the costs … [of] providing services for your home… They include a contribution of a reasonable amount to a sinking fund to cover future costs…

“We review the service charge each year according to the income we received and the cost we incurred during the previous 12 months. We may also take account of any reasonable known or expected costs for the next 12 months”.

The list of services provided by the Anchor Trust included, under the heading “Provision for renewal of equipment”, contained the following:

• Fire detection alarm and smoke dispersal system, and
• Fire-fighting equipment.

Limbs 1 and 2

The LVT made a three-limbed determination. Limbs one and two were straightforward:

1)    The lease allowed for the recovery of the new fire equipment;

2)    The charges had been made in accordance with the Landlord & Tenant Act 1985. They:

• Had been reasonably incurred;
• Were reasonable in amount, and
• Had been consulted for in compliance with the relevant statutory requirements.

Limb 3: common law liability

Matters went rather pear-shaped on limb 3.

“The existence of these two words “reasonable” appears”, said HHJ Huskinson diplomatically, “to have formed some part in the LVT’s reasoning which led it to its conclusions under the heading of “Common Law Liability””.

This is the LVT’s reasoning:

• It asked itself whether there was any common law restriction upon Anchor’s power to demand the sums;
• It was exercised by the fact that the word “reasonable” appeared twice in the service charge clauses of the lease;
• It decided that, even if the word “reasonable” in the lease did not prevent Anchor from recovering the costs of the fire alarm renewal, those costs needed “to satisfy the over-riding requirement of a service charge that the expenditure has to be fair and reasonable in accordance with Finchbourne v Rodrigues [1976] 3 All ER 581”;
• On the facts of the case, the parties could not have intended that the tenants should pay such a high sum when entering the tenancy agreement. “The sum of £8.85 per month may be a minor amount to employed members of the public but to the retired tenants living at the property who are required to be on low income to satisfy Housing Corporation requirements … it could be a substantial sum”.

It concluded that the amount sought by Anchor from the tenants was unreasonable and irrecoverable.

Martin Rodger QC granted permission to appeal on the ground that, in the light of its findings, the LVT may realistically have been wrong to determine that:

• It was an overriding requirement of a service charge that expenditure must be fair and reasonable, and
• That the application of that requirement in Mr Corbett’s case prevented the Anchor Trust from recovering the cost of the fire alarm equipment.

The LVT’s findings of fact

HHJ Huskinson noted the LVT’s decision:

• That all of the statutory requirements had been fulfilled, including:
  • That the cost of the fire alarm system had been reasonably incurred;
  • That the works were reasonable in standard;
  • That the consultation requirements of section 20 of the 1985 Act been followed;
  • That the costs were recoverable as a matter of contractual interpretation under the tenancy agreement.

None of these elements of the decision had been appealed.

The appeal therefore turned on the LVT’s analysis of what it described as “common law liability”.

Finchbourne Ltd v Rodrigues

One of the issues before the Court of Appeal in Finchbourne was whether a term that costs should be fair and reasonable should be implied into a tenancy agreement. On the facts of that case, Cairns LJ held that:

“It cannot be supposed that the plaintiffs were entitled to be as extravagant as they chose in the standards of repair, the appointment of porters etc … In my opinion the parties cannot have intended that the landlords should have an unfettered discretion to adopt the highest conceivable standard and to charge the tenant with it”.

The long hot summer of ‘76

1976 was the year in which England baked in the unrelenting heat of a seemingly perennial sun.

It was also the year in which Finchbourne was decided, some nine years or so before the coming into force of the Landlord and Tenant Act 1985.

That chronology had a decisive effect on HHJ Huskinson’s reasoning:

“This protection [ie of the Landlord and Tenant Act 1985] was not available to the tenant in Finchbourne v Rodrigues. Applying the approach in Finchbourne v Rodrigues the question to ask would be whether, having regard to the terms of the present tenancy agreements and the operation of the Landlord and Tenant Act 1985, it can properly be said that: “… the parties cannot have intended …” that the [landlord] should be under no restrictions regarding the reasonableness of service charges beyond the contractual terms of the tenancies and the provisions of the 1985 Act. The answer to this question is in my judgment plainly: No that cannot properly be said”.

Re-writing the agreement

Were the LVT’s decision to stand, it would, in HHJ Huskinson’s view, effectively involve a re-writing of the tenancy agreement.

This was because the LVT had determined not only:

• That the amount charged to Mr Corbett should be fair and reasonable – which it determined it was not, but also
• That it should be fair and reasonable that the parties should have agreed that the upgrade should be paid for by the lessees in the first place.

The second limb of that determination was, in HHJ Huskinson’s view, unsustainable in circumstances where the lease “expressly contemplated that the service charge may include charges for the renewal of equipment for fire detection alarm and smoke dispersal equipment and for fire fighting equipment”. It was tantamount to re-writing the tenancy agreement to remove terms which the parties had expressly agreed.

Part of the buildings?

It took HHJ Huskinson a mere three lines to dismiss Mr Corbett’s argument that the fire alarm system and equipment were part of the buildings because they were hard-wired and could not therefore be charged for, presumably by reason of the limitations of section 11 of the Landlord and Tenant Act 1985.

If the amount was unreasonable

HHJ Huskinson’s penultimate reason for allowing the appeal was that, even if the amount charged by the Anchor Trust was too high, there was “no reason to conclude that the parties must have intended that nothing whatever was payable by way of service charge for such an item”.

The payment period

The final argument dismissed by HHJ Huskinson related to the lifespan of the new system and the time frame for payments.

The lessees argued that it was not reasonable for them to pay for a system that was likely to last fifteen years, even if the tenancy agreement provided for them to do so.

HHJ Huskinson did not accept that submission – the expected life of the new system was fifteen years, and the Anchor Trust was charging its cost to the tenants over a fifteen year period, rather than demanding it all at once. He therefore did not consider that there was anything unreasonable in the Trust recovering the costs by way of monthly instalments.

The LVT had made a section 20C order against the Anchor Trust because it had not been successful before it. That outcome having been reversed on its appeal, HHJ Huskinson also quashed that determination.

Section 11 of the Landlord and Tenant Act 1985

Why do assured tenants appear so rarely in service charge disputes? On the whole I think it must be because they are tenants under short term tenancies – for example weekly or monthly periodic tenancies.

Section 11 of the Landlord and Tenant Act 1985 implies into those tenancy agreements an obligation on the landlord to keep in repair the structure and exterior of the demised premises, provided that the tenancy is for a term of less than seven years.

The landlord therefore bears both the repairing liability and the liability to pay for the costs of those repairs.

Section 12 of the Act restricts the parties’ power to contract out of the obligation.

It follows therefore that an assured tenant can only be asked to pay for those services which do not fall within the landlord’s repairing obligations under section 11.

Hence the Anchor Trust’s inclusion of the fire alarm system in the service charge, and hence also the short point dealt with by HHJ Huskinson at the end of the judgment as to whether the fire alarm system was part of the building.

If it was part of the structure or exterior of the building, responsibility for its maintenance, repair and renewal would have fallen onto the Anchor Trust, and the tenants would not have had to contribute at all.

Affordability

The key case on affordability of major works generally is Garside v RFYC Ltd, Maunder-Taylor [2011] UKUT 367 (LC), a decision of the Upper Tribunal handed down by HHJ Alice Robinson. I have commented on it before, but the key passages of the decision bear repetition:

In Garside, HHJ Alice Robinson held that:

“14…the financial impact of major works on lessees through service charges and whether as a consequence works should be phased is capable of being a material consideration when considering whether the costs are reasonably incurred for the purpose of section 19(1)(a)…”, but

“20. It is important to make clear that liability to pay service charges cannot be avoided simply on the grounds of hardship, even if extreme. If repair work is reasonably required at a particular time, carried out at a reasonable cost and to a reasonable standard and the cost of it is recoverable pursuant to the relevant lease then the lessee cannot escape liability to pay by pleading poverty”.

Click here for a printer-friendly version of this post.