The case of The London Borough of Hounslow v Waaler [2017] EWCA Civ 45 involves an issue of considerable debate within residential leases over whether charges, particularly in relation to major works, imposed on leaseholders by local authorities are reasonable and proportionate to sums that may be recoverable from the leaseholders.
The London Borough of Hounslow v Waaler [2017] EWCA Civ 45
Summary
The case of The London Borough of Hounslow v Waaler [2017] EWCA Civ 45 involves an issue of considerable debate within residential leases over whether charges, particularly in relation to major works, imposed on leaseholders by local authorities are reasonable and proportionate to sums that may be recoverable from the leaseholders. The Court of Appeal's decision is particularly significant to the extent that it lays down relevant principles on the issue of recovery of service charges on leading improvements and essential repairs in local authority residential property.
Facts
Ms. Waaler was a leaseholder of a flat in a restoration owned by the London Borough of Hounslow (the Council). Her lease stated that just like other lessees, Ms. Waaler was to contribute a proportionate part of the charges expended by the Council in respect of reparation, preservation, and enhancement of the restoration. Between 2006 and 2008, the Council undertook extensive works on the fabric of the building encompassing replacement of windows and a new roof, in addition to a new heating system.
The Council claimed service charges to a sum of £55,195.34 from Miss. Waaler, for the said works. Miss. Waaler appealed against the charges as they were absurd and some even covered the unnecessary improvements instead of repairs. According to her point of view, the council didn't take due regard of the holders of leaseholds' financial interests in the matter and also failed to give leaseholders enough time for consultations on the same works.
Issues
The issues cited in the case were :
1. Whether the implications carried out by the council concerning the works were reasonable and thus recoverable according to lease terms.
2. Whether consultation had been carried out effectively by the council on the least holders concern about the works.
3. The degree to which, if at all, the Council had scope to consider the financial consequences that the works were likely to have for leaseholders when exercises its powers to execute improvement works, as opposed to works of repair.
First Instance
In the initial decision, the amount payable by Ms. Waaler was significantly reduced. The First-tier Tribunal (Property Chamber) fell into error that the Council failed to consider that that cost was reasonable and the financial effect it would have on leaseholders. The Tribunal distinguishes between necessary repairs and improvements, holding that not all the works undertaken by the Council were necessary, and some were more in the nature of improvements, which should not have been included in the service charge.
The Council made the appeal to the Upper Tribunal ((Lands Chamber)) which substantially upheld the decision of the First-tier Tribunal but provided for a slightly higher recovery figure than had been determined in the first instance. The emphasis of the Upper Tribunal was on the reasonableness and on the fact that the Council had a duty to consult with leaseholders .
Decision on Appeal
The Council then appealed to the Court of Appeal. The Court of Appeal dismissed the appeals of the lower tribunals, repeating that the costs had to be reasonable and the Council should have taken into consideration the financial impact on the leaseholders.
The Court of Appeal made some very important points on clarification
1. Costs Reasonableness: It means costs have to be reasonable according to the benefit that such works may bring to the leaseholders. There should be a balance between the necessity and benefit of such works and the financial burden on leaseholders.
2. Consultation Requirements: The Council will need to carry out consultation requirements whenever works of improvement are proposed, rather than repairs, to allow ample time for consultation. Consultation should explain the need for the works, what the extent of the works would be, and costs.
3. Distinction Between Repairs and Improvements: The Court made it clear that necessary repairs, which normally may be recoverable under service charges, and improvements are not recoverable unless they are expressly covered in the lease. This distinction is fundamentally important when considering whether the charges re-charged to the leaseholders are reasonable.
Comments
The decision in The London Borough of Hounslow v Waaler is of critical importance both for local authorities and leaseholders in establishing the framework of rules respecting the recovery of service charges in connection with major works. The case elicited several important points:
1. Balancing Interests: Local authorities must balance the need to maintain and improve properties with the effect that such an action would have on the poor financial status of the leaseholders. This case is evidence for the necessity for an assessment of the part of the leaseholders in major works.
2. Consultation and Transparency: Genuine consultation with leaseholders cannot be mere procedural requirement, but it will have to be a substantive one. It is incumbent also on the authorities to make sure that the leaseholders are duly informed and consulted on the necessity, scope as well as the costs that have been proposed for the works.
3. Legal Framework: The case exposes the legal framework of the service charges and puts very big emphasis on reasonableness and proportionality. It further backs up that the lease agreements have to be viewed in a manner where they do not tie the leaseholders up to unattainable and disproportionate financial responsibilities.
4. Precedent for Future Cases: This ruling definitely becomes a precedent in future cases, mainly in regard to disputes over service charges. It also clearly contributes to a judicial approach in relation to the reasonableness of costs and to the adequacy of the consultation processes.
In conclusion, The London Borough of Hounslow v Waaler reinstates the positively fair, humane, and rational approach in the administration of service charges. It puts it clear that local authorities have to carefully look at the financial effect on leaseholders and undertake full consultation prior to embarking on major works, hence safeguarding leaseholders from unreasonable and overpriced charges.
Social
Valuation Services provided by Ringley's Valuation Team
Legal Services provided by Ringley Law
Building Surveying Services
Meet our Expert Property Commentators
The case of The London Borough of Hounslow v Waaler [2017] EWCA Civ 45 involves an issue of considerable debate within residential leases over whether charges, particularly in relation to major works, imposed on leaseholders by local authorities are reasonable and proportionate to sums that may be recoverable from the leaseholders.
The London Borough of Hounslow v Waaler [2017] EWCA Civ 45
Summary
The case of The London Borough of Hounslow v Waaler [2017] EWCA Civ 45 involves an issue of considerable debate within residential leases over whether charges, particularly in relation to major works, imposed on leaseholders by local authorities are reasonable and proportionate to sums that may be recoverable from the leaseholders. The Court of Appeal's decision is particularly significant to the extent that it lays down relevant principles on the issue of recovery of service charges on leading improvements and essential repairs in local authority residential property.
Facts
Ms. Waaler was a leaseholder of a flat in a restoration owned by the London Borough of Hounslow (the Council). Her lease stated that just like other lessees, Ms. Waaler was to contribute a proportionate part of the charges expended by the Council in respect of reparation, preservation, and enhancement of the restoration. Between 2006 and 2008, the Council undertook extensive works on the fabric of the building encompassing replacement of windows and a new roof, in addition to a new heating system.
The Council claimed service charges to a sum of £55,195.34 from Miss. Waaler, for the said works. Miss. Waaler appealed against the charges as they were absurd and some even covered the unnecessary improvements instead of repairs. According to her point of view, the council didn't take due regard of the holders of leaseholds' financial interests in the matter and also failed to give leaseholders enough time for consultations on the same works.
Issues
The issues cited in the case were :
1. Whether the implications carried out by the council concerning the works were reasonable and thus recoverable according to lease terms.
2. Whether consultation had been carried out effectively by the council on the least holders concern about the works.
3. The degree to which, if at all, the Council had scope to consider the financial consequences that the works were likely to have for leaseholders when exercises its powers to execute improvement works, as opposed to works of repair.
First Instance
In the initial decision, the amount payable by Ms. Waaler was significantly reduced. The First-tier Tribunal (Property Chamber) fell into error that the Council failed to consider that that cost was reasonable and the financial effect it would have on leaseholders. The Tribunal distinguishes between necessary repairs and improvements, holding that not all the works undertaken by the Council were necessary, and some were more in the nature of improvements, which should not have been included in the service charge.
The Council made the appeal to the Upper Tribunal ((Lands Chamber)) which substantially upheld the decision of the First-tier Tribunal but provided for a slightly higher recovery figure than had been determined in the first instance. The emphasis of the Upper Tribunal was on the reasonableness and on the fact that the Council had a duty to consult with leaseholders .
Decision on Appeal
The Council then appealed to the Court of Appeal. The Court of Appeal dismissed the appeals of the lower tribunals, repeating that the costs had to be reasonable and the Council should have taken into consideration the financial impact on the leaseholders.
The Court of Appeal made some very important points on clarification
1. Costs Reasonableness: It means costs have to be reasonable according to the benefit that such works may bring to the leaseholders. There should be a balance between the necessity and benefit of such works and the financial burden on leaseholders.
2. Consultation Requirements: The Council will need to carry out consultation requirements whenever works of improvement are proposed, rather than repairs, to allow ample time for consultation. Consultation should explain the need for the works, what the extent of the works would be, and costs.
3. Distinction Between Repairs and Improvements: The Court made it clear that necessary repairs, which normally may be recoverable under service charges, and improvements are not recoverable unless they are expressly covered in the lease. This distinction is fundamentally important when considering whether the charges re-charged to the leaseholders are reasonable.
Comments
The decision in The London Borough of Hounslow v Waaler is of critical importance both for local authorities and leaseholders in establishing the framework of rules respecting the recovery of service charges in connection with major works. The case elicited several important points:
1. Balancing Interests: Local authorities must balance the need to maintain and improve properties with the effect that such an action would have on the poor financial status of the leaseholders. This case is evidence for the necessity for an assessment of the part of the leaseholders in major works.
2. Consultation and Transparency: Genuine consultation with leaseholders cannot be mere procedural requirement, but it will have to be a substantive one. It is incumbent also on the authorities to make sure that the leaseholders are duly informed and consulted on the necessity, scope as well as the costs that have been proposed for the works.
3. Legal Framework: The case exposes the legal framework of the service charges and puts very big emphasis on reasonableness and proportionality. It further backs up that the lease agreements have to be viewed in a manner where they do not tie the leaseholders up to unattainable and disproportionate financial responsibilities.
4. Precedent for Future Cases: This ruling definitely becomes a precedent in future cases, mainly in regard to disputes over service charges. It also clearly contributes to a judicial approach in relation to the reasonableness of costs and to the adequacy of the consultation processes.
In conclusion, The London Borough of Hounslow v Waaler reinstates the positively fair, humane, and rational approach in the administration of service charges. It puts it clear that local authorities have to carefully look at the financial effect on leaseholders and undertake full consultation prior to embarking on major works, hence safeguarding leaseholders from unreasonable and overpriced charges.
Valuation Services provided by The Ringley Group
Social
Meet our Expert Property Commentators
Mary-Anne Bowring FTPI FRICS FARLA FCABE Founder/Head of Asset Management
Strategic partnerships, holistic delivery/ opportunities, growth, value engineering, thought leadership
Ian Barber MD BTR Mobilisation & Leasing
Runs HQ & site lease-up teams. Drives rent pricing, mobilisation, marketing, happy residents!
Jon Curtis MRICS Head of Building Engineering
Chartered Building Surveyor. Lectures on EWS1 & building safety. Runs CapEx programmes.
Kate Robinson MTPI MD Blocks/FM Management (London Region)
Master plan setup, ops and staffing and resident engagement. ISO45001 champion.
Lee Harle Partner Ringley Law
Plot conveyancing. Debt litigation. Group Company Secretary.
Anthony Kingdon MIRPM AssocRICS MD Blocks/FM Management (North Region)
Stakeholder engagement. Mixed tenure specialist. Budget management. Plant audit, PPM compliance.
Chris Georgalis MRICS Head of Commercial Valuation
Chartered Valuer. Rental valuations: retail, leisure. IRR modelling and valuations for secured lending. Compulsory purchase & rent reviews
Nichola Pughe MRICS Head of Residential Valuation
Chartered Valuer. Rental development & mixed use valuations, IRR modelling. Leasehold enfranchisement specialist
Natalie Birmingham Helpdesk Support Manager
Trainer & Helpdesk Manager: people, systems,contractors. ISO45001 supply chain accreditation.
Steve Norman Planning Director
Land due diligence (opportunities & constraints) Has contributed to a number of award winning schemes.
