The improvement vs repair distinction; Tenant liable for £25,000 replacement heating system

March 13, 2019

Jonathan Pennington Legh discusses the Upper Tribunal (Lands Chamber) case of London Borough of Southwark v Baharier [2019] UKUT 73 (LC) – judgment 5/3/19

Facts

In 2008 Ms Baharier exercised her right to buy her council flat and was as a result the long leasehold tenant of LB Southwark. The building was built in 1968 and was still served by the same 40 year old heating system – two gas fired boilers, which provided both heating and hot water to each flat, were located in a communal boiler house adjacent to the building. The flat was heated by hot water pumped into it. Once in the flat it passed through a single “heat battery” in the main living space, across which a thermostat-controlled fan circulated air to warm the rest of the flat. This meant that all the doors had to be left open to warm the whole flat.

LB Southwark wanted, unsurprisingly, to replace this antiquated system, and investigated various options including installing individual boilers in each flat, which they had to rule out. They eventually settled on a system involving radiators in each room which could be controlled individually. This system also involved communal boilers in the boiler house.

The terms of the lease

Naturally, the relevant terms of the lease were central to the case, and so it is worth setting them out in some detail. As well as the usual covenant to repair the structure and exterior, the landlord covenanted  “To provide the services more particularly hereinbefore set out under the definition of “services” to or for the flat and to ensure so far as practicable that they are maintained at a reasonable level and to keep in repair any installation connected with the provision of those services”.

The definition of services meant “the services provided by the Council to or in respect of the flat and other flats and premises in the building and on the estate and more particularly set out hereunder- (i) Central heating (ii) hot water supply…”

The tenant coventated to pay the service charge contribution set out in the Third Schedule, which included at paragraph 6(1) a fair proportion of the costs and expenses set out in paragraph 7 incurred in the year to which the charge relates. Paragraph 7 included “… the costs and expenses of or incidental to (1) the carrying out of all works required by sub-clause (2) to (4) inclusive of Clause 4 of this lease; (2) Providing the services hereinbefore defined… (6) The maintenance and management of the building…(9) The installation (by way of improvement) of (i) double glazed windows … (ii) an entry phone system… should the Council in its absolute discretion (and without being under any obligation) decide to install the same or either of them”.

At first instance

Neither side was legally represented at first instance (unlike on appeal where both parties had counsel).

The tenant had argued in her statement of case that she did not have to pay for improvements to the heating and hot water system (as well as other points which were not relevant to the appeal). The FTT expressed the preliminary view that the service charge provisions entitled the landlord to charge for repairs to the central heating but not improvements. Both parties accepted that proposition and the landlord then argued that the replacement of the system was one of repair.

This argument was rejected by the FTT in short because the new heating system was “different in kind” – the works were an improvement. The tenant was not liable.

The argument on appeal

Two points were made by the landlord. First, the question of improvement vs repair was not the proper question – this was a covenant to provide services to which the distinction between repair and improvement was not relevant.

Second, even if that first argument was wrong, the design principles of the two systems was identical and the conclusion of the FTT was therefore irrational.

The tenant “realistically acknowledged the force” of the first point but argued that the landlord could not raise it on appeal because it was a fundamentally different point to its case at first instance.

The judgment of the Upper Tribunal – appeal allowed

The Upper Tribunal rejected the submission that the landlord could not run its first argument, saying that the Tribunal “does not encourage a technical approach to the identification of the issues which are properly raised by an appeal. Parties are often permitted to raise new points, provided it can be done without unfairness or inconvenience to other parties or to the Tribunal”.

Further, of course, the first argument was a matter of law. Not only that but it is the point pleaded in the landlord’s statement of case where it referred to its obligation to provide a heating and hot water service. The appeal was brought on factual material presented at the original hearing. Litigants would be discouraged from appearing in person before the FTT if they were bound by their agreement with what the FTT identified as the legal issue in the case.

The Upper Tribunal had no hesitation in finding for the landlord on the first point. A covenant to provide services is wider than one to repair. It is for the landlord to decide how to provide the service (see e.g. Yorkbrook v Batten (1986) 52 P&CR 51 (CA)). The tenant accepted these propositions but attempted to argue that in the particular case of this covenant the tenant only had to pay for repair – this, she said, was because the obligation was in two parts, the second being to keep the installations in connection with the services in repair. The tenant tried to argue that the addition in paragraph 7 (9) cited above to “by way of improvements” was an aid to construction – the fact that it was not mentioned in the material clause meant the landlord intended to restrict it to repair.

These arguments were rejected. It was the service that needed to be maintained, not the installations by which it was provided – if necessary the landlord had to take additional steps if the installations failed. Moreover, the parties had clearly not intended for the building to remain unchanged throughout the term, not least as the hearing system was 40 years old and ineffective. It would also have been unusual if the parties had intended for the landlord to recover only part of the cost of providing a service – at least without spelling that out clearly in the language.

As a result, there was no need to consider the second argument.

The moral?

This case is a good reminder of the flexibility of the court’s approach where it comes to points that can be taken on appeal in the Upper Tribunal. Critically, the factual material was all before the first instance court and the appeal raised a point of law.

While the repair vs improvements distinction is an important one, and the works and their factual context should be scrutinised carefully by tenants and landlords alike (see Waaler v Hounslow LBC [2017] EWCA Civ 45) it has no application where the covenant in question is to provide a service.