London Borough of Southwark v Samuel David Oyeyinka [2014] UKUT 0258 (LC)

This was a pocket-sized “block” compared to some that Southwark owns and administers. In fact it was a house with two flats in it. The windows needed attention.

In September 2007 Southwork served a stage 1 consultation notice which stated that it planned to carry out – amongst other things – “window repairs/renewals”.

In October 2008, it served a stage 2 notice, containing an estimated cost to Mr Oyeyinka of £8,038.48. The cost of the “window repairs/ renewals” was included, and Mr Oyeyinka was informed that he could inspect detailed estimates for the works at Southwark’s offices if he wished. Mr Oyeyinka, it transpired, did not so wish.

The estimates in fact contained two alternatives for the window works:

• Repairs (the decision says replacement, but I think that “repairs” is intended), at a cost of £3,025.00 per window, or

• Replacement, at a fixed cost of £8,107.50 per window.

Had Mr Oyeyinka inspected the estimates, he would have seen that only the lower of the two alternatives had been included in the stage 2 notice. This was because Southwark wanted only to repair, not to replace, the windows.

The works were carried out (I think) between April and September 2009. A demand for the estimated costs of £8,038.48 was made. In fact the decision states that the works were carried out in 2005, but I have a feeling that that is a slip.

On 18 October 2010, Southwark, presumably having settled the final account, demanded a further £6,054.18 from Mr Oyeyinka. The total cost of the works to Mr Oyeyinka was thus £14,092.66.

The cost of the works had increased by 75% overall. The cost to Mr Oyeyinka had increased by 50%.

Whence the increase?

• The window works had increased from £3,025.00 to £8,107.50 because Southwark had had to replace, rather than repair, the windows;
• The site preliminaries, calculated on a percentage basis, had accordingly increased from £1,290.34 to £4,114.73;
• More scaffolding had been required, raising the cost from £2,188.08 to £3,953.11.

Mr Oyeyinka applied to the LVT for a determination of his liability to pay on two grounds:

1. Southwark had failed to follow the consultation procedure;
2. An increase of nearly 75% in the cost of the works was excessive and unreasonable.

Unfortunately, Mr Oyeyinka did not give any evidence to the LVT as to the reasonableness of the amounts claimed by Southwark.

The LVT noted that Southwark had originally planned to carry out limited repair work, but the windows were so rotten that they had to be replaced.

It considered that it was required to decide whether the works which were carried out were so different to the works for which Southwark consulted that the consultation process was effectively vitiated.

The LVT concluded that in the circumstances, Southwark should have consulted afresh when it realised that it was going to have to replace the windows rather than simply repair them.

It determined that the reasonable cost of all of the works was:

• The original contract cost, plus
• A 10% tolerance, plus
• In respect of what it described as the “additional window works”, the £250 limit applicable where a landlord does not consult.

The landlord appealed. HHJ Gerald heard the appeal in the Upper Tribunal (Lands Chamber).

The consultation requirements

HHJ Gerald set out three paragraphs from Schedule 3 to the Service Charges (Consultation Requirements) (England) Regulations 2003/1987.

He then (for reasons which are not altogether clear to me), set out a paragraph of Schedule 4 to the Regulations, although he does not specify whether that paragraph is drawn from Part I or Part II of the Schedule.

Broadly, the relevant consultation requirements for the purposes of the decision are that:

• The stage 1 notice must describe the works;
• The stage 2 notice must inform the lessee of the amount that the works are likely to cost, and that the estimates are available for inspection. A time and a place for inspection must be given.

Compliance with the consultation requirements

HHJ Gerald then set to work on the question of whether Southwark had complied with those requirements. Four points sprang to his attention:

1. The works in both section 20 notices described the works as “window repairs/renewals”;
2. The LVT itself had described the original specification as being almost entirely one of window repair and replacement;
3. Had Mr Oyeyinka inspected the tender documents he would have seen that two alternatives were provided for in the window department, and
4. Construction contracts often contain provisional sums, which are then crystallised when the works begin and the extent of the work becomes clear.

HHJ Gerald then moved in on the LVT, but his observations were rather more mellow than they have been in the past.

The LVT had, in his view, tried to be reasonable from both landlord’s and tenant’s perspective. In order to be fair to the tenant, it had allowed Southwark to recover the window repair costs of £3,025, but so as to balance the scales for the landlord, had held that the landlord was entitled to recover a further 10%, ie £302.50 on top. It had then allowed the statutory limit of £250 because Southwark had not consulted on the window replacement works.

Unfortunately, that approach was a legal impossibility:

• The less costly works had not been carried out, and therefore nothing was payable in that respect;
• If the section 20 notice was invalid, Southwark could only recover £250, but
• If, as he had found, the section 20 notice was valid, Southwark was entitled to recover the full window replacement cost of £8,107.50.

He buttressed his decision by observing that the LVT seemed to have misunderstood the evidence: the more expensive works were not additional works – they were simply alternative works, albeit more costly ones.

It was, he said: “inaccurate to describe the works as “additional” in the sense that there is something new not previously envisaged by the contract and therefore added to it. If they were completely new works which had not been in anybody’s mind at the time, it may possibly follow that a new consultation should have been carried out, but that is not the case here”.

Finally, there was no argument to be had on the reasonableness of the more expensive window works because Mr Oyeyinka had not adduced any evidence that any of those costs were unreasonable.

HHJ Gerald was at pains to emphasise that it was the absence of evidence from Mr Oyeyinka, not the absence of opportunity, which had resulted in the increased costs remaining unchallenged:

“What needs to be borne in mind here is that as far as the statutory framework is concerned even after the consultation provisions have been complied with and the works carried out, it remains open to a tenant to challenge the reasonableness of the works and it is not uncommon for tenants to challenge the actual cost of execution of the works. In this case the tenant, the respondent did not avail himself of that opportunity”.

To my mind, there is no doubt that HHJ Gerald applies the correct law here, but the decision as published contains an incorrect recital of stage 2 of the consultation regulations.

In an excess of enthusiasm I have written to the Upper Tribunal about it. It strikes me that this is not so much a question of an appeal: it is more about decisions needing to reflect the law accurately so that they can be relied on.

HHJ Gerald will no doubt be relieved to hear that I am happy with the decision itself, although I cannot help feeling for the LVT: it must have thought that it had come up with a good compromise, only to be overturned by the law.

Reciprocity

This case highlights the reciprocal nature of the consultation regulations. A landlord is obliged to make estimates available for inspection, and lessees can familiarise themselves with the detail of the works.

The difficulty for lessees on major works contracts however is that detailed tenders can be opaque without professional input. I’m not sure that, as a lessee, I would feel inclined to have instruct (and pay) a surveyor to review a tender which has been put together by another surveyor, for whose services I am likely to have to pay through the service charge.

Mid-work consultation and the 2014 Service Charge Summit

One final point – and a plug. The Upper Tribunal has yet to be asked to decide a case where extensive extra unconsulted-for work is required in the course of qualifying works, and without which the consulted-for works cannot continue. Does the landlord stop work – presumably at extra cost – and re-consult? Or does s/he instruct the contractor to carry out those extra works without consulting?

I do not have a short answer to this question, but here is the plug: my colleagues James Fieldsend and Cecily Crampin are planning to run a workshop on these questions at the 2014 Service Charge Summit on 30 September.

James’s cases include Daejan Properties Ltd v Benson [2013] UKSC 14 and (1) BDW Trading Ltd (2) Comet Square Phase 2 Block Management Co Ltd v South Anglia Housing Ltd [2013] EWHC 2169 (Ch).

Cecily appeared in Country Trade v Noakes [2011] UKUT 407 (LC) and St John’s Wood Leases Ltd v Joan O’Neil [2012] UKUT 374 (LC), a wide-ranging case on section 20C.

Booking is not yet open for the Summit. The date is however fixed and the venue booked: we will be at 200 Aldersgate again.

We are planning new workshops, including two for beginners: one an introduction to service charges and the second a starter’s guide to consultation. We have pencilled in rentcharges as a subject for discussion, and a session on costs in the light of the Standard Apartments case.

Other ideas include: service charges and utilities; an overview of remedies under sections 18-30 of the Landlord and Tenant Act 1985 folllowing Morshead Mansions v Di Marco [2014] EWCA Civ 96.

These plans may change over the summer or with feedback, but if there is an area of service charge law that you would like to see covered at the Summit, please let me know: amandagourlay@tanfieldchambers.co.uk.

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