De Havilland Studios Limited v Cecilia Peries, Paul Voysey [2017] UKUT 0322 (LC)

Iris Hyslop v 38/41 CHG Residents’ Co Ltd [2017] UKUT 0398 (LC)
15th November 2017
Welcome to the Law & Lease advent calendar 2017
30th November 2017
Show all

Can there be degrees of reasonableness?

In this case, the FTT said yes. Read on to discover whether the Upper Tribunal – HHJ Behrens this time – agreed.

The De Havilland Studio

De Havilland Studios, London E5 was originally a factory, but has been converted to house 41 flats. Flat 12 is a first floor live/work unit.

De Havilland Studios Ltd was the original lessor, and Cecilia Peries and Paul Voysey were the original lessees under a 125 year lease under which De Havilland covenanted to keep:

“Such part of the retained parts … in good and tenantable repair and decorative condition and to repair repaint and redecorate the same as and when the landlord shall deem appropriate”.

It was common ground that whilst the window frames fell within DHS’s covenant the re-glazing of the windows did not.

Ms Peries and Mr Voysey’s service charge contribution was 1,205/46,355 of the costs incurred by the landlord in relation to its obligations under the lease.

The s.27A application

Work to windows is frequently at the root of a dispute before the FTT, and so it was here in a reversal of the normal state of affairs.

Landlord and lessees agreed that the windows were defective, but they could not agree how to remedy the problem:

  • De Havilland, the landlord, wanted to repair them;
  • Ms Peries and Mr Voysey, the lessees, wanted to have them replaced.

Replacement was likely to cost five times as much as repair. It was estimated that the repairs would cost just over £100,000.

The FTT’s decision

The Ft-T had reports from two experts:

  • The lessees’ expert provided a report on the windows of flat 12;
  • From the landlord’s expert, there was a report from 2012 on the whole building, and responses to the lessees’ expert’s comments in a letter dated 2016.

Oddly, to my mind, the FTT did not hear oral evidence from either because the landlord’s expert was unable to attend the hearing.

The FTT also took account of a report from another surveyor, which was included in the hearing bundle and dated September 2012.

This is the key text of the FTT’s determination:

“… The costs to be incurred in respect of repairing the windows are not reasonable. The tribunal considers that replacement of the windows is the most reasonable option”. 

What did the FTT decide?

“Regrettably,” observed HHJ Behrens, “it must be said that the decision is not clear”.

The two sentences in the FTT’s key paragraph were inconsistent:

  • In the first, the FTT said that the repair costs were unreasonable, but
  • In the second, the FTT implied that both repair and replacement were reasonable, with the FTT preferring replacement.

The body of the decision did not help: the FTT made findings that both supported and undermined the reasonableness of repairs.

“I regret”, concluded HHJ Behrens, “that I cannot be confident about the findings of the FTT”.

On balance, he interpreted the FTT as having determined that both repair and replacement were reasonable, but that replacement was the “more reasonable”.

The landlord’s grounds of appeal

De Havilland applied for permission to appeal on several grounds, including that the FTT had applied the wrong test on the window repair/replacement question.

The FTT, said De Havilland, had gone too far: it had decided that it was reasonable for De Havilland to either repair or replace the windows, but it had then determined that of those two reasonable approaches, the replacement was the “most reasonable option”. The replacement costs were therefore recoverable, but the repair costs were not.

That further step was wrong as a matter of law, a point that the lessees accepted.

They effectively therefore conceded that ground of appeal. 

The legal test for reasonableness

Agreeing with the lessees’ concession, HHJ Behrens cited Lewison LJ’s judgment in Waaler v Hounslow LBC [2017] EWCA Civ 45.

I suspect that this is not the last time that the Upper Tribunal will refer to Waaler on the reasonableness of incurring costs. Here is what Lewison LJ had to say in Waaler at paragraph 37:

“In my judgment, therefore, whether costs have been reasonably incurred is not simply a question of process: it is also a question of outcome. That said it must always be borne in mind that where the landlord is faced with a choice between different methods of dealing with a problem in the physical fabric of a building (whether the problem arises out of a design defect or not) there may be many outcomes each of which is reasonable. I agree … that the tribunal should not simply impose its own decision. If the landlord has chosen a course of action which leads to a reasonable outcome the costs of pursuing that course of action will have been reasonably incurred, even if there was another cheaper outcome which was also reasonable.”

In HHJ Behrens’s view, the FTT had failed to follow that principle:

“It has found that both replacement and repair to the windows would be reasonable but it has preferred reinstatement. That it is a course which is not open to it”.

The lessees’ respondents’ notice

They may have conceded one point, but lessees did not accept that the costs of repairing the windows were recoverable. They filed a Respondents’ notice, seeking to have the FTT’s decision upheld for different reasons to those given by the FTT.

They argued that the FTT:

  • Had determined that it was reasonable as a matter of fact to replace all the windows in the building, and
  • Ought to have found that the costs of repair were unreasonable and a waste of money because repairs would not remove existing defects in the windows.

The Upper Tribunal’s decision

HHJ Behrens’s first consideration was the nature of the appeal: it was not a re-hearing, but a review of the FTT’s decision.

He would only have the power to decide the matter afresh if the FTT had erred in law in making its findings of fact.

“That”, said HHJ Behrens, “is a relatively high hurdle for an appellant to surmount”.

On his reading of the FTT’s decision, the FTT had found as a fact that the directors of De Havilland had not taken an unreasonable decision when they decided to repair, rather than replace the windows.

That, in HHJ Behrens’s view, was a finding that was open to the FTT on the available material. It was a finding that he was not prepared to disturb.

The following factors in particular informed his decision:

  • Both experts preferred replacement as a remedy for the window issues, but neither reported that repair was unreasonable;
  • The surveyor’s report from 2012 included a specification that appeared to have included repairs to individual flats;
  • Replacing the windows would cost much more than repairs, even if individual lessees would be paying for the glazing in those windows, thereby reducing the difference in cost that had been quoted in the experts’ reports. The directors of De Havilland were entitled to take that cost into account, especially as the company was resident-owned and held limited assets;
  • The windows were not at the absolute end of their natural life, and repair might extend that life by as much as 15 years;
  • Even if repairs would not provide a solution of the same quality as replacement, they would ensure that the landlord was no longer in breach of covenant, and would provide a real improvement in the situation, and
  • There was no real evidence of a design defect in the windows.

Disposal of the appeal

The appeal was therefore allowed on the question of the reasonableness of the decision to repair rather than to replace the windows of Flat 12: De Havilland was entitled to recover the reasonable cost of the repair through the service charge.

Section 20C

HHJ Behrens dismissed the lessees’ application for an order under section 20C of the 1985 Act on the ground that the landlord, De Havilland, had been successful.

The reasonableness of the cost of the repairs

HHJ Behrens then turned to £100,242 estimated cost of the repairs.

The lessees criticised the estimate on these grounds:

  • They were insufficiently detailed;
  • The provisional costs were guesses rather than proper estimates;
  • Overall, there was not enough information to be able to determine if the sums claimed were reasonable.

Regrettably, the Upper Tribunal was unable to deal with the detail of the figures:

“The material is simply not before it. Thus, my provisional view is that it will have to be determined by agreement or remitted to the Ft-T for determination”, said HHJ Behrens.

The prospect of remitting the decision to the FTT was not however attractive:

  • The amount of money involved appeared to be disproportionate to the costs involved. Ms Peries’s and Mr Voysey’s joint contributions would total about £2,600, even if the full amount were recoverable;
  • It was agreed that the windows were not in repair. In those circumstances it was highly unlikely that any reduction from the full amount would at most be a few hundred pounds, especially because the amount claimed was an estimate, not the final figure;
  • By the date of the appeal hearing, all of the other flats had had their windows repaired, which meant that the accuracy of the estimate could actually be measured against real costs.

“It would in my view be far better if the parties could agree a sum in respect of the anticipated expenditure”, observed HHJ Behrens, setting out a short timetable that allowed for settlement negotiations to take place.

The application to review the Upper Tribunal’s decision

Settlement negotiations appear to have been some distance from the lessees’ minds however.

The Upper Tribunal normally circulates its draft decision to the parties before it is published so that typing mistakes and other simple factual errors can be corrected.

On receipt of the Upper Tribunal’s draft decision, the lessees raised four main areas of concern. Those areas went beyond typing mistakes or simple factual errors.

HHJ Behrens decided to treat the lessees’ concerns as an application for a review of his decision. He therefore invited De Havilland to respond, which it did, opposing the application.

In the event, none of the lessees’ four main areas of concern caused HHJ Behrens to review his decision.

Observations

We will have to wait and see whether the lessees apply for permission to appeal to the Court of Appeal. My money would be on permission being refused, given section 19’s relative recent outing to those rarified heights in Waaler.

Frames and glazing

One point that did not receive any detailed treatment, was the mixed repair liability for the windows: the landlord was responsible for repair of the frames, whereas the lessees were responsible for the glazing.

Can it be correct that where a landlord is liable to repair or replace the woodwork of a window, the lessee is liable to pay for the (re)placing of the glazing into the frame?

It seems to me that if, in the course of complying with its covenants, a landlord damages property for which a third party bears the repairing responsibility, it should be for the landlord to repair any damage that it causes.

That position may be altered by the terms of the lease, but without more, I struggle to agree with the position that appeared to be agreed between the parties here, ie that the lessees would be obliged to pay for the glazing in replacement window frames.

The section 20C order

Just a final word on costs: HHJ Behrens declined to make a section 20C order on the ground that the landlord had been successful on the appeal. That is rather throwing case law to the wind. Technically, success is not the only factor in deciding a section 20C application: the court or tribunal is required to consider whether, as per section 20C(3), it is just and equitable to make the order.

By of aide-mémoire therefore, I will sign off here with the full text of section 20C:

(1) A tenant may make an application for an order that all or any of the costs incurred, or to be incurred, by the landlord in connection with proceedings before a court, residential property tribunal or leasehold valuation tribunal or the First-tier Tribunal, or the Upper Tribunal, or in connection with arbitration proceedings, are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by the tenant or any other person or persons specified in the application.

(2) The application shall be made—

(a) in the case of court proceedings, to the court before which the proceedings are taking place or, if the application is made after the proceedings are concluded, to the county court;

(aa) in the case of proceedings before a residential property tribunal, to a leasehold valuation tribunal;

(b) in the case of proceedings before a leasehold valuation tribunal, to the tribunal before which the proceedings are taking place or, if the application is made after the proceedings are concluded, to any leasehold valuation tribunal;

(ba) in the case of proceedings before the First-tier Tribunal, to the tribunal;

(c) in the case of proceedings before the Upper Tribunal, to the tribunal;

(d) in the case of arbitration proceedings, to the arbitral tribunal or, if the application is made after the proceedings are concluded, to the county court.

(3) The court or tribunal to which the application is made may make such order on the application as it considers just and equitable in the circumstances.

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

Click here to read the full text of the decision on the Lands Tribunal website.