Lease covenants to provide services

Landlord not in hot water after all

The background

In Southwark London Borough v Baharier [2019], the landlord covenanted in its long lease with the leaseholder to:

“provide the services more particularly…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”

Landlords will recognise that the terms of the covenant are common. The landlord sought to recover the costs of the replacement of the central heating and hot water system through the service charge. The total costs amounted to £800,000, and the leaseholder was asked to contribute £24,500 as an advance service charge.

The First-Tier Tribunal (Property Chamber) found that the replacement qualified as an ‘improvement’ rather than a ‘repair’ as allowed for in the stated covenant, and was not therefore covered by the lease’s service charge provisions. The landlord appealed.

The decision

The Upper Tribunal reversed the decision of the FTT. Rather than considering whether the replacement of the system was classed as a repair or an improvement, the Court found that the FTT should have considered whether the costs of replacement were costs of – or incidental to – the provision of the service.

A covenant to provide services is wider than simply a covenant to repair, and work required to satisfy the covenant could go beyond what may be classed as a ‘repair’. In this case, the landlord was entitled to determine how it was going to deliver the central heating and hot water services. At the time the lease was entered into, the system was already almost 40 years old and so it could have been reasonably expected that the landlord would undertake significant replacement works during the term.

Considering the wording of the lease and its interpretation, the Court found that the costs in replacing the system were costs of providing the services to the leaseholders, and the landlord was entitled to recover the full sum from the leaseholders through service charge.

Advice and action for landlords

This decision will be welcomed by landlords. The central heating and hot water system at the building in Southwark was already of some age by the time the lease was entered into, and in order for the landlord to satisfactorily meet the terms of its covenant, it was found by the UT to be reasonable for the landlord to replace the system in its entirety.

This case was decided on the basis of the lease wording, and guides parties on the principle that a covenant to ‘provide services’ is wider than a covenant simply to ‘repair’, enabling the covenantor to determine how it will deliver those services.