Costs contributions from third parties

Do landlords need to account for contributions towards works when billing tenants?

The background

In Oliver v Sheffield City Council [2017], a large scheme of works was undertaken at an estate, the total costs for which amounted to £11,438,801. The landlord needed to recover £615,323.64 from the tenants on the estate. The claimant owned her flat under a long lease, and received an invoice for £9,378.72.

The landlord received funding for some of the works under the Decent Homes Programme and the Community Energy Saving Programme and split the benefit of this evenly between all leaseholders over the estate, rather than apportioning per property according to the grant made.

Had an apportionment per property been made, the claimant would have received a considerably higher contribution, as the grant was made in respect of properties only in her block.

The decision

The Court of Appeal held that the landlord was required to account in full for the third-party funding made in respect of the claimant’s block.

The Court looked at the issue of double-counting; the landlord would have made a double recovery of its costs if it failed to give credit for the grant funding, and this could not be equitable. In its guidance, the Court held that the costs for which a landlord should seek recovery are the costs which leave it ‘out of pocket’.

Advice and action for landlords

Whilst the issues in this case predominantly affect local authority landlords, private landlords may also receive contributions towards works, for example guarantee payments or government grants.

Often, grants or payments may only affect certain properties; the long leaseholders of these properties must receive such contribution in full as a credit against the costs of works to avoid double recovery by a landlord.

When invoicing for costs of works where third party contributions have been made, landlords and managers are advised to calculate on a ‘per property’ basis to ensure accuracy.