Service Charge: JB Leitch makes successful application for determination as to reasonableness of service charges

In this latest successful application by JB Leitch on behalf of our landlord client, the First-tier Tribunal has determined that costs incurred in respect of waking watch, automatic opening smoke vents and fire alarm installation are reasonable and payable by leaseholders by way of service charge.

The background

JB Leitch made this recent application to the First-tier Tribunal (“FTT”) on behalf of our landlord client in respect of an apartment block in Lancashire containing 55 residential flats across floors 1-6 of the building. The landlord made its application to establish the reasonableness and payability of costs in respect of:

• Remedial works to automatic opening smoke vents (“AOV”);
• Fire marshal costs for a waking watch; and
• Installation of a multi-facet, hard-wired alarm system which met the requirements of Lancashire Fire and Rescue Service

All standard leases for the residential flats contained provisions which stated that leaseholders were to pay a proportion of service costs which are reasonably and properly incurred by the landlord in its provision of services to the building.

There was a disagreement between the parties as to whether the waking watch and the installation of the fire alarm system fell within the service charge provisions contained within the leases. The landlord argued that these costs were incurred in complying with the Lancashire Fire and Rescue Service’s enforcement notice.

The leaseholders also challenged the waking watch costs on the basis that they were higher than necessary as a result of alleged delays in installation of the alarm system to the point where it was certified operational; the contractor had allowed for a 3-month installation period, but the installation took 16 months to complete. Reasoning for this included the continual review of guidance and policy during this period which resulted in a need to ensure the correct system was ordered and compliant, as well as the need to raise commercial funding and access difficulties to some individual flats.

The leaseholders’ statement of case challenges the view that waking watch charges were recoverable under the lease, or alternatively states that, if charges were recoverable, they were unreasonable. They argued that charges recoverable as service charges must fall within the lease provisions which state that:

“(3) The service costs are all of the costs reasonably and properly incurred or reasonably and properly estimated by the landlord to be incurred of

(i) Providing the Services and

(ii) Complying with all laws in respect of the retained parts (Clause 1).

Retained parts includes the common parts of the building.

(4) The Services include, so far as is relevant to these proceedings:

Any other service or amenity that the landlord (acting in accordance with the principles of good estate management) provides for the benefit of the tenants or occupiers of the building (Specifically clause 1.Services.(i))”

Leaseholders argued that the waking watch is not required by law, and so failure to provide one would not be a breach of the landlord’s obligation to provide services to comply with “all laws relating to the retained parts”. Similar arguments were stated in respect of the fitting of a suitable alarm system; where hard-wired detectors were fitted internally in flats, these do not relate to any failure in respect of the retained parts of the building. Further, fitting the alarm system was not the provision of a service or amenity, but it should be considered a fixture or fitting.

The landlord argued that the charges were reasonably incurred at a reasonable cost, stating that all 3 costs were services needed to comply with all laws relating to the retained parts, in particular the Regulatory Reform (Fire Safety) Order 2005 under which the landlord is classed as the Responsible Person and is required to take precautions to make the property safe, prevent fire and the spread of fire.

The decision

The FTT considered two points:

1. Can the charges stated be regarded as service charges recoverable under the lease?
2. If the charges are recoverable, are they reasonably incurred at a reasonable cost and was work completed to a reasonable standard?

It was determined that the waking watch costs were incurred in complying with “all laws relating to the retained parts”, and the waking watch was a service or amenity provided by the landlord in the interests of good estate management for the benefit of tenants and occupiers of the building. Further, the AOV and alarm system costs also satisfied this requirement by providing fire security in a building which would otherwise be classed as unsafe.

Although the leaseholders could point to a delay in the installation of the fire alarm system, the Tribunal were of the view that they failed to clearly identify reasons sufficient to result in unreasonableness. Securing funding was a genuine reason for a delay, as were the access difficulties to some of the flats. The Tribunal found no evidence that there was any unreasonable delay for which the landlord was responsible.

The FTT found no issue in respect of the quality of the systems or work undertaken.

The Tribunal determined that all costs were reasonable and reasonably incurred.

Advice and action for landlords

JB Leitch is pleased to have secured this successful determination on behalf of our landlord client.

The decision supports the landlord’s argument that essential fire safety works, including waking watch costs and installation of a fire alarm, fall within the landlord’s obligation to deliver services in order to comply with ‘all laws relating to the retained parts’, a common provision in residential leases, and were recoverable where reasonably incurred.

Also worth noting is that the payability of the waking watch, AOV and fire alarm costs was not affected by way of the leaseholder protections within schedule 8 of the Building Safety Act 2022 on the basis that such costs were incurred, demanded and paid prior to the implementation of the Act on 28 June 2022.