First-tier Tribunal rules on service charges for major works

OUTCOME: Allowed

© CROWN COPYRIGHT

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/00AK/LSC/2024/0119 Property :

20 [NAME], 4 [ADDRESS] [POSTCODE]

Applicant : [redacted] (2) [COUNSEL] : [COUNSEL] [NAME] Respondent : [redacted] Representative : Ms [COUNSEL], Counsel Type of [NAME] : For the determination of the liability to pay service charges under section 27A of the Landlord and Tenant Act 1985 Tribunal members : Mr [APPELLANT] Mr [APPELLANT] /Date : 9 [ADDRESS] [POSTCODE] Date of decision : 18 March 2025

DECISION

2 Decisions of the Tribunal (1) The Tribunal makes the determinations as set out under the various headings in this Decision. (2) The Tribunal makes an order under section 20C of the Landlord and Tenant Act 1985 so that none of the landlord’s costs of the Tribunal proceedings may be passed to the lessee through any service charge. (3) The Tribunal orders under Paragraph 5A Sch 11 of the Commonhold and Leasehold Reform Act 2002 that the respondent may not recover litigation costs against the applicant via an administration charge under the lease. The [NAME]

1. The Applicant seeks a determination pursuant to s.27A of the Landlord and Tenant Act 1985 (“the 1985 Act”) as to the amount of service charges payable by the Applicant in respect of the service charge year 2024 in relation to major works. The applicant also seeks orders under section 20C of the 1985 Act and Para 5A of the Commonhold and Leasehold Reform Act 2002 (“the 2002 Act”). The amount in dispute is £30,635.60 being 2.01% of £1,450,298.44.

The hearing 2. The Second Applicant appeared in person for herself and the First Applicant. The respondent was represented by Ms [COUNSEL], Counsel. The background 3. The property which is the subject of this [NAME] is a flat within a seven-storey block of 45 flats with three entrances dating from the early 1970s. The block is owned by Enfield Council and the flats are let under mixed tenures.

4. Neither party requested an inspection, and the Tribunal did not consider that one was necessary.

5. The Applicant holds a long lease of the property which requires the landlord to provide services and the tenant to contribute towards their costs by way of a variable service charge. The specific provisions of the lease and will be referred to below, where appropriate.

6. Directions were issued on 11 April and 20 August 2024. The latter summarised the Applicants’ case as follows:

3 “i. An allegation that the cost of the works was unreasonably incurred given the high cost to individual leaseholders and the leaseholders’ limited means. It appears therefore that the Tribunal will need to consider the guidance set out in London Borough of [NAME] v [NAME] [2017] EWCA Civ 45. ii. An argument that the terms of their lease only make them liable to pay for major works if those works increase the value of their flat. iii. Specific challenges to various heads of costs within the major works” The issues 7. The relevant issues for determination as follows: (i) The payability and/or reasonableness of service charges for major works to the property (ii) Whether costs can only be charged if they increase the value of the applicants flat (iii) Whether the respondent needed to ascertain the applicants’ financial circumstances when deciding whether to carry out works. (iv) Whether the applicants were disturbed during the construction of the works and if so whether they are entitled to an equitable set off of damages against service charges payable. The Applicants’ Case 8. This may be summarised as follows. In 2019 the respondent consulted in relation estate renovation. The applicants objected but to no avail. The applicants’ flat only benefitted by changing the front door, fitting an intercom, balcony decorations and replacement electrical mains. During the works the applicants, who work night shifts, were disturbed and had no access to the balcony, nor could they open windows. Lifts were used by contractors and consequently were out of order. There was an increase in annual lift costs. The works took longer than needed. The Applicants produced a Scott Schedule, as directed.

9. The building had three entirely separate entrances. Works done to the other entrances will not benefit the applicants. Under the lease, service charges can only be sought where works increase the value of the

4 applicants’ flat. The Respondent failed to consider whether the Applicants were capable financially of meeting the costs. The Applicants’ right of enjoyment were substantially interfered with during construction.

10. Ms [NAME] gave evidence having provided a witness statement verified by a statement of truth. This supported the above points. Ms [NAME] also stated that she and her husband were poor, and that [ADDRESS] is a poor neighbourhood. The cost of £30,635 was an overwhelming amount for them to pay. They are both minimum wage earners with a mortgage. Ms [NAME] also alleged that she was verbally abused by contractors working for [NAME] and provided supportive emails to that effect. The new security door for entrance B is constantly broken and the self-closing mechanism is not working. During construction, drains were blocked by debris causing water to accumulate in the lower ground floor leading to additional service charges. In her witness statement she raised questions about the increase from of charges for scaffolding from the estimate of £83,389 to £209,850, and the incurring of a scaffolding hire cost of £82,332. She also commented briefly on the roofing works stating that the applicants could not control its cost. In relation to communal windows, Ms [NAME] stated that entrance B did not have any communal windows. She directly challenged renewal of balcony panels and decoration, questioning whether these works were necessary. In relation to external works, mechanical services, [COMPANY] her argument was this covered the whole building, and she did not benefit. Ms [NAME] then identified changes between the final account and invoice sent.

11. On 24 May 2024 the applicants inspected the accounts. These only detail costs for the whole building, apart from an estimate for works to their flat of £4,746. The final scaffolding cost of £209,850.97 was far higher than estimated of £83,389. Ms [NAME] questioned the necessity for replacing balcony panels and decoration. The applicants had refused to allow the integrated reception system to be installed in their flat. The Respondent’s Case 12. Miss [RESPONDENT] called Ms [RESPONDENT], who had provided a witness statement verified by a statement of truth. Ms [NAME] is the Manager Major Works Rents & Service Charges Housing Regeneration and Development at the Respondent. Her evidence may be summarised as follows.

13. Statutory Consultation under section 20 of the Landlord and Tenant Act 1985 was carried out and due regard had to Mr & Mrs [NAME] observations within the statutory timescales. Ms [NAME] stated: “These works included the following: scaffold erection, roof replacement, concrete/brickwork repairs, window replacement, front entrance door replacement, external and communal decorations, electrical upgrades, door entry installation and IRS (digital aerial) system upgrades. While the scaffolding was erected for health & safety reasons this did not block

5 the use of your balcony, block the opening of your windows nor stop residents from drying clothes in the communal area.” The nature of the work did create noise and dust, but the respondent took reasonable steps to minimise the disruption and disturbance. The Respondent could find no complaints/concerns raised by residents or their visitors to the behaviour of the contractors. They had no records of any issues being reported regarding the door entry, no issues were reported during the defects period or when the end of defect letters were issued by the contractor. The respondent took reasonable steps to minimise the disruption and disturbance caused by the works, such as limiting the working hours to the council’s statutory noise nuisance regulations.

14. Ms [NAME] exhibited consultation documents and stated that the respondent had due regard to observations received from the applicant. These included a Notice of Estimates dated 22 October 2020. The tenderer selected was the second lowest at £7.121m. This covered a group of buildings owned by the respondent. The Tribunal was told that the estimated block cost of £1.356m was provided by the contractor.

15. In cross examination, Ms [RESPONDENT] accepted that the respondent had not considered the ability of the applicants to pay for the works. The Respondent exhibited the breakdown of the final account. It also responded to the Scott Schedule. In closing submissions, Ms [NAME] distinguished between repairs and improvements on the final account breakdown of works. The Lease 16. The lease is dated 30 June 2003 for a term expiring on 31 March 2113. The Flat and Block are defined on page 1 of the lease. The Block means the block of flats of which the Flat forms part. By clause 3 (B) the lessee covenants to pay the service charge in accordance with the Fifth Schedule and in respect of services provided under the Fourth Schedule. The Fourth Schedule is headed “Common repairs and services to the block and the Estate but excluding any [RESPONDENT]residential part thereof…” The Schedule entitles the landlord to recover the costs of repair, maintenance, decoration, repair of structural defects of any parts of the building not let (amongst other rights). Under clause 3 (G) the lessee covenants to pay a fair proportion of the costs of alterations additions or improvements to the block or the estate, if such works add value to the Flat. (emphasis added)

17. A memorandum concerning apportionment based on rateable values has been supplied, with the applicant’s proportion being 2.01%. This is not in dispute.

6 Discussion 18. The Tribunal noted at the hearing that no survey evidence of any kind, oral or written was included in its case, so as to explain or justify the need for these major works. Ms [NAME] could not herself give evidence as to why works were required. The Tribunal was very concerned about this gap in evidence. However, it reminded itself that the respondent was only required to address issues in dispute. In the applicant’s consultation response of 1 June 2019, they stated “although my wife and I agree that the work and repairs need to be carried out as presented in your letter…[there were affordability issues].” However, this was not made in the context of litigation, and the applicants were entitled to change their mind about that in when challenging future service charge demands.

19. In the Scott Schedule entries, the challenge to payability was based on (1) certain costs being exorbitant, (ii) works said to relate to the block generally other than section B of the building or the subject flat and hence irrecoverable and (iii) works that did not increase the value of the flat and were hence irrecoverable. In Ms [NAME] witness statement, there were also specific challenges to the cost of scaffolding, redecoration and balcony panels.

20. To these points must be added the issue identified by the Tribunal, arising from [NAME] v [NAME] issue. The Case Digest from Westlaw Edge UK is appended. In summary, the Court of Appeal dismissed an appeal against the Upper Tribunal which held that the Tribunal should consider improvements differently to repair works. This is because the decision to carry out improvements is discretionary. The landlord must therefore consider the financial consequences for the tenants in [NAME] such decisions.

21. The Tribunal finds, with reference to the Agreed Final Account (annexed) that the following were improvement works: door entry and security doors, new video door entry and access control system, and new IRS system. It finds that no consideration was given to the financial effect of the improvement works on the Applicants. [NAME], it therefore disallows recovery of those elements of the cost from the applicants.

22. As the Tribunal explained at the hearing, it finds that the applicants’ submission that all costs that do not add to value to the flat are irrecoverable, is incorrect. In the main, the contribution to repairs and maintenance are recoverable under the Fourth Schedule, where the qualification of adding value do not arise. The Tribunal rejects the submission that costs are only recoverable if they relate directly to the subject flat or alternatively to Block B. This is clear from the wording of the Fourth Schedule where express reference is made to the block and the estate (see above).

7 23. However, no evidence has been adduced by the lessor to show that the improvements identified by the Tribunal above add value to the Flat. Therefore, it finds such costs irrecoverable.

24. The Tribunal also finds that no evidence was presented to answer the specific challenges raised by the applicant in relation to (i) the large increase in scaffolding costs (ii) the need for redecoration and (iii) the need to replace balcony panels. Therefore, it finds that these costs1 are irrevocable, as the lessor has not proved that they were reasonably incurred.

25. The Tribunal has set out its findings on the spreadsheet supplied by the respondent and the Scott Schedule and these are annexed. Taking these determinations into account it finds that £20,143.64 is payable by the applicants.

26. The Tribunal makes clear that this determination is based on the specific evidence in this case and should not be regarded as a general precedent for other properties affected by the works. Claim in Relation to Noise Disturbance 27. Both the applicants are night shift workers. The Tribunal recognises the great difficulty they would have experienced sleeping during the day during these major works. However, the Tribunal considers that unfortunately, disruption was inevitable. It does not find that this gives rise to an equitable set off for breach of covenant against the respondent. That claim is therefore dismissed. Claim in Relation to Verbal Abuse by Contractors 28. The tribunal finds that an incident of verbal abuse did occur from a contractor and considers this to be unacceptable. It notes that the contractor management agreed to address the issue. However, the Tribunal does not consider that a single incident of this nature gives rise to a claim for equitable set off. [NAME] under s.20C of the 1985 Act and Para 5A Sch 11 of the 2002 Act.

29. In the [NAME] form the Applicant applied for orders under section 20C of the 1985 Act. Taking into account the determinations above, the Tribunal determines and the conduct of the parties the Tribunal determines that it is just and equitable for an order to be made under section 20C of the 1985 Act, so that the Respondent may not pass any of its costs incurred in connection with the proceedings before the Tribunal

1 Or increased costs in the case of scaffolding

8 through the service charge. For the same reasons the Tribunal orders under Para 5A Sch 11 of the 2002 Act that the respondent may not recover any of its litigation costs by way of an administration charge under the lease. Name: [NAME]: 18 March 2025

Rights of appeal By rule 36(2) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013, the tribunal is required to notify the parties about any right of appeal they may have. If a party wishes to appeal this decision to the Upper Tribunal (Lands Chamber), then a written [NAME] for permission must be made to the First- tier Tribunal at the regional office which has been dealing with the case. The [NAME] for permission to appeal must arrive at the regional office within 28 days after the tribunal sends written reasons for the decision to the [NAME]. If the [NAME] is not made within the 28-day time limit, such [NAME] must include a request for an extension of time and the reason for not complying with the 28-day time limit; the tribunal will then look at such reason(s) and decide whether to allow the [NAME] for permission to appeal to proceed, despite not being within the time limit. The [NAME] for permission to appeal must identify the decision of the tribunal to which it relates (i.e. give the date, the property and the case number), state the grounds of appeal and state the result the party [NAME] the [NAME] is seeking. If the tribunal refuses to grant permission to appeal, a further [NAME] for permission may be made to the Upper Tribunal (Lands Chamber).

9 SCOTT SCHEDULE

DISPUTED SERVICE CHARGES S/C YEAR ENDED 2024

Case Reference: Premises: 20 LON/00AK/LSC/2024/0119 [NAME], 4 [ADDRESS], [POSTCODE] ITEM COST TENANT 'S COMMEN TS

LANDLORD'S COMMENTS

FOR THE TRIBUNAL Scaffolding 209,850.9 7 exorbitant The scaffolding was necessary to facilitate the repairs and decorations to the block. This also included general concept and surveys. Full disclosure of the costs incurred was provided to [NAME]. [NAME] on 20th May 2024 as part of the final accounts. Their apportionment is £4,212.34. There is no clear explanation as to why the scaffolding costs increased from the estimate of £83,000. The Tribunal is not satisfied that these costs were reasonably incurred and limits the amount to the estimate. Roofing 199,444- 44 exorbitant The full scope of this work was provided as part of section 20 consultation and within the final account. Their apportionment is £4,003.45 The difference between estimate and final account is less than £10,000 and as the works were tendered accepts the respondents case Communal windows 11,125.1 2

Entry B- no communal windows. EA4 The definition of this block is outlined on page 21 of the Lease in the First Schedule ‘Description of the Flat’ the block is defined as 1-45 [NAME] outlined in red in the lease ‘Plan B’ page 25. Their apportionment is £223.31 The Tribunal accepts the respondent’s case. See decision. Renewal of glazed screen 259,821.2 5 Do not increase the value of our flat The works carried out were not improvements, they were necessary maintenance and repairs to the block 1-45 [NAME]. We acknowledge these works may not directly increase the value of their demise; however, they are crucial for maintaining the block for all its residents. Their apportionment is £5,215.39 The Tribunal accepts the respondents case. See decision.

10 Repairs to external elevations 101,893.3 2 Amount covers whole building The definition of this block is outlined on page 21 of the Lease in the First Schedule ‘Description of the Flat’ the block is defined as 1-45 [NAME] outlined in red in the lease ‘Plan B’ page 25. Their apportionment is £2,045.30 The Tribunal accepts the respondents case. See decision. Balcony /balustrades 96.856.53 Amount covers 45 flats and three entrances The definition of this block is outlined on page 21 of the Lease in the First Schedule ‘Description of the Flat’ the block is defined as 1-45 [NAME] outlined in red in the lease ‘Plan B’ page 25. Their apportionment £1,944.20 The Tribunal finds in favor of the Applicant. See decision. Decorations 72,423.33 Amount covers The definition of this block is outlined on page 21 of the Lease in the First Schedule ‘Description of the Flat’ the block is defined as 1-45 [NAME] outlined in red in the lease ‘Plan B’ page 25. Their apportionment is £1,453.75 The Tribunal finds in favor of the Applicant. See decision. i whole bldg. Door entry & new security doors 96.419.33 Amoun t covers 45 flats The definition of this block is outlined on page 21 of the Lease in the First Schedule ‘Description of the Flat’ the block is defined as 1-45 [NAME] outlined in red in the lease ‘Plan B’ page 25. Their apportionment is £1,935.42 The Tribunal finds in favor of the Applicant. See decision. Integrated reception system 19,355.09 Amount covers 45 flats The definition of this block is outlined on page 21 of the Lease in the First Schedule ‘Description of the Flat’ the block is defined as 1-45 [NAME] outlined in red in the lease ‘Plan B’ page 25. Their apportionment is £388.51 The Tribunal finds in favor of the Applicant. See decision. [COMPANY] 358,050.8 6 Amount covers serv carried out to 45 flats The definition of this block is outlined on page 21 of the Lease in the First Schedule ‘Description of the Flat’ the block is defined as 1-45 The Tribunal accepts the respondents case. However, this is based on final account costs of £301,534 less

11 [NAME] outlined in red in the lease ‘Plan B’ page 25. Their apportionment is £7,187.15 new video door and IRS items. See decision.

12

Address: 1-45 [NAME]: 1-45 [NAME]: UPPER EDMONTON Agreed Final Account Tibunal Finding £ £ VALUE OF WORK ASSOCIATED WITH BLOCK (RECHARGEABLE) PRELIMINARIES 115,320.56

136,817.63 92588.96 E.1 GENERAL CONCEPT & E2 SCAFFOLD 83,389.10

176,727.23 83,389.10

E3 ASBESTOS 31,280.00

E4 Groundworks E5 Groundworks below ground drainage E6 PRIVATE SATELLITE REMOVAL / TEMP INSTALLATION 1,625.00

2,899.16 2,899.16 E7 - E20 ROOFING WORKS 159,396.04

167,963.31 167,963.31 E21 - WINDOWS £108,709.00 9,369.09 9,369.09 E22 NEW FLAT ENTRANCE DOORS AND FRAME SETS (as NBS Specification Sections L15) E.23 RENEWAL OF GLAZED SCREEN TO COMMUNAL AREAS 189,095.56

218,810.00 nil E28 - ASPHALT RENEWALS TO COMMUNAL WALKWAYS E.28A - COVERINGS TO WALKWAYS, BALCONIES AND CANOPIES 23,637.00

120.00 120.00 E.29 WORK TO EXISTING RAINWATER GOODS E.30 - SOFFIT REPLACEMENT TO COMMUNAL WALKWAYS E31 COMMUNAL STAIRCASE REFLECTIVE EDGING/NOSING E32 HANDRAIL CAPPING TO EXISTING STAIRCASES E34 CONCRETE REPAIRS TO EXTERNAL ELEVATIONS 64,726.47

74,920.06 74,920.06 E36 NEW ENTRANCE LOBBIES -

E36 - CONCRETE REPAIR AND PROTECTIVE COATINGS E37 - BRICKWORK REPAIRS TO EXTERNAL ELEVATIONS 24,405.90

10,890.00 10,890.00 E38 - BRICKWORK REPAIRS 17,120.85 17,120.85 E40 - GENERAL BRICKWORK REPAIRS 1,293.29 1,293.29 E41 - STRUCTURAL INVESTIGATIONS E41A - [NAME] E42 - [NAME] / WALKWAY BALUSTRADES 6,837.20

81,568.30 81,568.30 E42A - GAS METER ENCLOSURES E42B - CLADDING ABOVE/BELOW WINDOWS (as NBS Specification, Section H20: RIGID SHEET CLADDING) E43 - EXTERNAL & INTERNAL DECORATIONS 111,411.77

60,991.73 60,991.73 E44 - REPLACEMENT OF EXISTING FENCING E.44A PATHS AND PAVING 8,531.95

E.45 DOOR ENTRY AND NEW SECURITY DOORS 81,200.11

81,200.11 E.46 INTEGRATED RECEPTION SYSTEM 16,300.00

16,300.00 16,300.00 E.47 EXTERNAL LIGHTING AND LIGHTNING PROTECTION TO COMMUNAL AREAS 7,883.00

7,883.00 7,883.00 E.48 - FIRE SIGNAGE 3,980.52 3,980.52 E.49 - [NAME] 5,979.00

5,286.00 5,286.00 E.50 - SURFACING WORKS 5,106.16

E.51 COMPLETION -

Mechanical Services 2,500.00

3,280.74 3,280.74 Roof space debris removal & redundant plumbing removal Asbestos containing item removal Plumbing site survey 7 day pressure Logger Existing tank removal New CWST Installation and plumbing adaptions Chlorination & Flushing Sampling ACoP L8 (4th edition) [COMPANY] 301,534.64 301,534.64 New Tenants Sub main cabling including containment - using surface mounted powder coated white rectangular metal trunking. 23,191.70

Asbestos Survey - To be included on Schedule of Rates table New Tenants Sub main cabling including containment New DNO arrangement and enclosure including builder's works and management/ liaison with the local Electrical Utility Company EXC Contractor to include for new changeover to every flat as part of the new DNO arrangement, including all wiring and SMART meters 27,310.78

New main isolator, Ryefiled board and tenants sub main cabling including containment - using surface mounted powder coated white rectangular metal trunking. inc New landlords distribution board, new SMART meter and landlords small power installation 3,456.36

New landlords distribution board, metering and landlords small power installation. Landlords power to include 18-[ADDRESS] Video Door Entry and Access Control System 4,651.65

4,651.65 - New IRS system (digital terrestrial TV, FM/AM, DAB and satellite system) 4,651.65

4,651.65 - New lighting installation and controls including emergency lighting 89,537.74

Allow to provide lighting to bin store New earthing and bonding 4,498.50

General MEP Items -

Builders Work in Connection (BWIC) 4,533.18

4,533.18 4,533.18 Testing and commissioning inc O&M Manuals -

Provisional Sums 58,600.00

Sub Total: 1,267,765.37

1,383,488.83 936,608.61 Framework Levy 2.00% 25,355.31

27,669.78 18,732.17 Professional Fees 5.00% 63,388.27

69,174.44 46,830.43 VALUE OF WORK ASSOCIATED WITH PROPERTY 1,356,508.95

(A) 1,480,333.05 1,002,171.22 LEASEHOLDER CONSULTATION ADVICE Contractor 01

13

[NAME] v [NAME] known as: [NAME] v [NAME]/[ADDRESS] of Appeal (Civil Division)

Judgment Date 2 February 2017

Where Reported [2017] EWCA Civ 45 [2017] 1 W.L.R. 2817 [2017] 2 WLUK 88 [2017] H.L.R. 16 [2017] 1 P. & C.R. 15 [2017] L. & T.R. 19 [2017] C.L.Y. 1470 Judgment

Subject Landlord and tenant

Other related subjects Local government

Keywords Improvements; Local authorities’ powers and duties; Reasonableness; Repairs; Service charges

Judge Patten LJ; Lewison LJ; Burnett LJ

Counsel For the appellant: [redacted] For the respondent: [redacted]

Solicitor For the appellant: [redacted]

Case Digest Summary The court considered the correct approach to determining whether costs had been “reasonably incurred” when determining the amount of a service charge which was payable under the Landlord and Tenant Act 1985 s.19(1)(a). The same legal test applied to all categories of work falling within the definition of

14 “service charge”. However, there was a real difference between repairs and improvements, and different considerations came into the assessment of reasonableness in varying factual situations.

Abstract A local authority landlord appealed against a decision of the Upper Tribunal that the replacement of the windows and cladding of the respondent tenant’s property did not give rise to a recoverable service charge.

The tenant was a long lessee of a flat owned by the local authority. Under the terms of her lease, the tenant was obliged to pay a service charge in respect of the costs of repairing the property, and was also obliged to pay a proportion of any improvements carried out by the local authority. The local authority served a notice of intention to replace a flat roof with a pitched roof and to replace wooden-framed windows with new metal-framed units. The replacement windows would, in turn, require the replacement of external cladding and the removal of asbestos. The UT concluded that the roof replacement gave rise to a recoverable service charge, but not the works to the windows. It held that the local authority had an obligation to carry out repairs, as opposed to a discretion to undertake improvements. Because it found that the replacement of the windows and cladding was an improvement, it concluded that the local authority should have taken particular account of the extent of the lessees’ interests, their views on the proposals, and the financial impact of the work.

The issue was whether the costs of the works to the windows were “reasonably incurred” for the purposes of the Landlord and Tenant Act 1985 s.19(1)(a).

The local authority submitted that (1) the focus of the inquiry had to be on the landlord’s decision-[NAME] process and whether he had acted reasonably in deciding to undertake the works; (2) the UT had wrongly applied a different test to improvements and repairs.

Held Appeal dismissed.

(1) Where a contract empowered one party to make discretionary decisions which affected both parties’ rights, that gave rise to a potential conflict of interest, particularly where the decision imposed a financial liability on one party. In those circumstances, the law restricted the exercise of the discretion to what was rational, Braganza v BP [COMPANY] [2015] UKSC 17, [2015] 1 W.L.R. 1661, [2015] 3 WLUK 513 followed. In the instant case, the rationality test applied both to a choice between different methods of repair and to a decision about whether to carry out optional improvements. However, in considering whether costs were reasonably incurred within the meaning of s.19, merely applying a rationality test would not give effect to the purpose of the legislation. The statutory test was whether the cost of the work was reasonably incurred, by reference to an objective standard of reasonableness. Rationality was a lower standard than that. Part of the context for deciding whether costs had been reasonably incurred was the fact that, in principle, the

15 cost of the work was to be borne by the lessees. The local authority was wrong in its contention that the focus of the inquiry had to be on the landlord’s decision-[NAME] process and whether he had acted reasonably in reaching his decision to carry out the works. What mattered was the outcome. The question of whether the landlord had acted reasonably was an objective one and the interests of the tenants had to be taken into account, [NAME] v Griffin [2000] 2 E.G.L.R. 105, [2000] 3 WLUK 783 and [COMPANY] v Sweetman [2001] 2 E.G.L.R. 173, [2001] 5 WLUK 197 considered. Under the Service Charges (Consultation Requirements) (England) Regulations 2003, the landlord had to conscientiously consider the lessees’ observations on the proposed works. In light of that, it was impossible to say that the tenant’s views were ever immaterial. That said, it always had to be borne in mind that where a landlord had a choice between different methods of dealing with a problem in the physical fabric of a building there might be many outcomes, each of which was reasonable. The tribunal should not simply impose its own decision. If the landlord had chosen a course of action which led to a reasonable outcome, the costs of pursuing that course would have been reasonably incurred, even if there was another cheaper outcome which was also reasonable (see paras 20-25, 28-34, 36-39 of judgment).

(2) The same legal test applied to all categories of work falling within the definition of “service charge” in s.18. However, that did not mean that the legal and factual context applicable to different categories of work could be ignored. There was a real difference between works which the landlord was obliged to undertake and optional improvements. When a lessee entered into an obligation to pay for the cost of keeping a building in repair it was possible to anticipate what kind of works would be involved and the likely scale of cost. However, the scale and extent of discretionary improvements was unknowable. The UT had not decided that a different legal test was applicable in respect of repairs and improvements. It had correctly addressed whether different considerations came into the assessment of reasonableness in different factual situations (paras 42, 45).

(3) It would be unwise for the instant court to attempt to give guidance for the future. The open-textured nature of a test of reasonableness made it dangerous even to attempt to be prescriptive. Factual situations were almost infinitely variable and different considerations would come into play in different circumstances. Parliament had deliberately chosen an open-ended and flexible test (para.46).