[2023] UKUT 209 (LC)

By the time the application came to be determined by the FTT Mr and Mrs Meeson had been joined as applicants by the leaseholders of 78 other flats in the building.

The FTT recorded that the landlord had applied to adjourn the hearing to enable it to consider the effect of the Building Safety Act 2022, relevant parts of which had come into force three weeks earlier, on 28 June 2022. The FTT refused that request. The leaseholders had not relied on the new statutory provisions, and the FTT did not have evidence enabling it to determine whether the relevant qualifying conditions were satisfied. It is not necessary for me to say anything about the 2022 Act in order to determine this appeal.

The FTT was satisfied that, in principle, the cost of providing a waking watch was capable of being a service charge item. The landlord’s obligation under the leases of the flats was to provide the services identified in Part 1 of Schedule 7 and the leaseholders were obliged to contribute towards “all of the costs reasonably and properly incurred” in providing those services. The services included, at paragraph 1.1.1, maintaining, repairing and replacing the retained parts of the building and remedying any inherent defect, and at paragraph 1.1.14, “any other service or amenity that the Landlord may in its reasonable discretion (acting in accordance with the principles of good estate management) provide for the benefit of the tenants and occupiers of the Building.”

The FTT did not find it necessary to decide whether the landlord had been in breach of the criminal law and did not specifically address the leaseholder’s case that costs which had been incurred as a result of a breach of the criminal law could not be said to have been “reasonably and properly incurred” and so ought not to be treated as relevant costs in calculating the service charge.

The FTT determined that only the cost of the first 7 days of the watch was recoverable. There was no challenge to the quality of the service and the leaseholders accepted that, for that service, the cost incurred was reasonable. Having referred to the January 2018 fire risk assessment and its recommendation that a further assessment should take place within 12 months, the FTT continued at paragraph 50 of its decision as follows:

“(9)

The developer and previous landlord had allowed short term lets to take place which were in breach of the terms of the tenant’s leases and an increase in their number had clearly gone unchecked.

(10)

The tribunal agrees with Mr Meeson that a reasonable fire risk assessment carried out after the completion of the building and certainly by January 2019 would have discovered the defects and action could properly have been taken.

(11)

Given the situation surrounding the completion of the building and the comments in the first fire risk assessment the tribunal is satisfied that the landlord and/or its agents were remiss in not obtaining either a review or further assessment considering the manner in which the building was being occupied.

(12)

On balance the tribunal is satisfied the waking watch costs, after the rectification of the fire alarm defect, are attributable to the acts and omissions of the landlord or its agents in relation to fire risk assessment. In the circumstances those acts and omissions render the costs of the waking watch unreasonable. They should not be paid by the leaseholders.

(13)

In the absence of any clear evidence to the contrary indicating that a waking watch had not have been necessary had the only issue been the defective alarm, the tribunal is not prepared to say that the first 7 days costs have been unreasonably incurred.”

The appellant was granted permission to appeal by the FTT on three grounds.

The first ground was the FTT had taken into account irrelevant matters by referring to the number of short-term lettings in the building in breach of the terms of leases. Mr Morris said nothing about that ground in his oral presentation, and in his skeleton argument he simply referred to his grounds of appeal. There does not seem to me to be anything in the first ground. The fact that there were short term lettings in the building was a matter of concern to the fire officer and was therefore at least capable of being a relevant consideration for the FTT when it asked whether the costs of the waking watch had been reasonably incurred. Whether the lettings were in breach of the terms of the leases was not explored but there was evidence that specific consent had been given by the landlord’s predecessor for short-term letting of at least two floors of the building.

The second ground of appeal was expressed at some length but boiled down to the proposition that even if the appellant had undertaken a timely fire risk assessment the same issues would have been identified and the waking watch would have been necessitated at an earlier time. The FTT’s decision was said to be “tantamount to a conclusion that the landlord cannot recover costs in circumstances where there is an inherent/blatant defect.” Once again, this ground did not feature significantly in Mr Morris’s argument. He acknowledged that there was no evidence of the view which the fire officer would have taken if a proper fire risk assessment had been available on 30 May 2019. Such an assessment would have confirmed that the exterior of the building did not comprise a combustible material and would have eliminated one of the concerns which prompted the instigation of the waking watch. Nor was it suggested that the appellant would have been under any obligation to notify the fire officer of the result of a fire risk assessment undertaken in January 2019, even if it had revealed the inadequate fire protection of the lift and the breaches in compartmentation. If a proper fire risk assessment had been undertaken after the building had become fully occupied there is no reason to think that the same remediation measures as were eventually commissioned on 9 August and completed on 20 September 2019 would not have been capable of being undertaken within a similar time. As it was no part of the leaseholder’s case that it was unreasonable for the landlord to instigate the waking watch in response to the fire officer’s advice, there seems to be nothing left in the second ground of appeal.

The main ground of appeal on which Mr Morris concentrated his submissions was the proposition that the FTT applied the wrong test to determine whether the costs of the waking watch were reasonable. Mr Morris referred to the observations of the Lands Tribunal (Judge Rich QC) in Continental Property Ventures Ltd v White [2007] L&TR 4, at [11]:

“The question of what the cost of repair is does not depend upon whether the repairs ought to have been allowed to accrue. The reasonableness of incurring costs for their remedy cannot, as a matter of natural meaning, depend upon how the need for remedy arose.”

Mr Morris submitted that it was therefore irrelevant to the reasonableness of the costs of the waking watch that they might have been avoided if a fire risk assessment had been carried out earlier. The FTT had erroneously asked itself why the costs of the waking watch needed to be incurred and had not asked whether it was reasonable for the landlord to incur it.

I do not accept Mr Morris’s submission. The paradoxical proposition that the reason why a cost has been incurred is irrelevant to the reasonableness of incurring that cost may be an appropriate analysis in some cases, but it is not a rule of general application. In considering questions of reasonableness, it is rarely appropriate to begin with an inflexible rule. In Avon Ground Rents Ltd v Cowley [2019] EWCA Civ 1827, to which Mr Morris also referred, Nicola Davies LJ approved, at [31], this Tribunal’s conclusion in the same case that “whether an amount is reasonable as a payment in advance is not generally to be determined by the application of rigid rules but must be assessed in the light of the specific facts of the case”. That was said in the context of a payment of service charges in advance, which is regulated by section 19(2), 1985 Act, but it is equally applicable to a determination under section 19(1) whether a cost was reasonably incurred, or under a determination of the same question under the provisions of a contract.

Continental Property Ventures Ltd v White wasconcerned with costs incurred by a landlord in 2002 in damp proofing and redecoration work which had been made necessary because of a leaking pipe. The cost of the work would largely have been avoided if the landlord had carried out repairs between 1994 and 1997 when the need for them first arose. The landlord’s failure to carry out the repairs within a reasonable time was a breach of its repairing covenant. At first instance the LVT held that most of the cost of the work had not been reasonably incurred and that only the cost of repairing the leaking pipe was recoverable; the rest was irrecoverable because it was the cost of remedying the landlord’s historic breaches of covenant. The Lands Tribunal disagreed with the LVT’s reasoning, but agreed that only the lesser sum was recoverable, because the tenants were entitled to set off a claim for damages for breach of covenant to reduce the cost which had been reasonably incurred.

The Tribunal adopted the same approach in Daejan Properties Ltd v Griffin [2014] UKUT 206 (LC) when it held that the fact that the landlord had been under an obligation to carry out remedial works for many years could not be shown to have increased the cost of the works and did not mean that that cost had been unreasonably incurred.

In this case, the landlord was in breach of its duty under article 9 of the Fire Safety Order to commission a suitable and sufficient fire risk assessment by January 2019. That duty was a continuing one and it remained unfulfilled in May 2019 when the waking watch was imposed. The FTT found that, had it done so, the defects would have been discovered. It expressed its conclusion succinctly in paragraph 50(12) of the decision when it said that the waking watch costs were “attributable to the acts and omissions of the landlord or its agents in relation to fire risk assessment. In the circumstances those acts and omissions render the costs of the waking watch unreasonable.”

In order to determine what amount the leaseholders were required to pay (which was the question referred to it under section 27A, 1985 Act) the FTT had to consider two questions. It was first required to determine the contractual question whether the costs of the waking watch were “reasonably and properly incurred” in providing a service to which the leaseholders were required to contribute. It then needed to consider whether that contractual cost was limited by the statutory cap imposed by section 19(1)(a), 1985 Act which restricts the costs which could be included in the service charge to those which were “reasonably incurred”. The FTT did not address these questions separately and may have considered that there was little or no difference between them. If there is a difference, it is that the contractual question includes consideration of whether the costs were “properly” incurred, and not simply whether they were reasonably incurred.

Mr Meeson submitted that the FTT was obviously right to decide that the landlord could not recover costs in circumstances where it or its agent were responsible for those costs being incurred. The case was even stronger where the failure which led to the costs being incurred involved a breach of the criminal law. It is an offence under article 32 of the Fire Safety Order to fail to comply with a requirement imposed by articles 8 to 22 of the order, and the fire officer had been satisfied that the landlord was in breach of article 9 and said so in the enforcement notice he served on 7 June. The landlord had the right to appeal against the enforcement notice but did not do so. Had the landlord complied with the law no waking watch would have been required because the fire safety defects would have been rectified long before the fire alarm panel was disabled by the water leak.

In my judgment the FTT was entitled to conclude that the costs of the waking watch were not payable by the leaseholders. This was not a case in which many years elapsed between the omission or breach of duty and the incurring of the cost made necessary by it. The waking watch was one part of the cost of making the building safe. The cost of the necessary remedial work to put right the fire safety defects was increased by the cost of the waking watch, but that increase was wholly avoidable. If the landlord had been aware of the need to put right the defects in compartmentation and the inadequate fire protection for the lift, as it would have been if it had commissioned an up-to-date fire risk assessment when it should have done, the cost of the necessary works would not have been increased by the cost of the waking watch. The FTT considered that the cost was “unreasonable”. That was an assessment which it was open to the FTT to make. As a result, the disputed cost was not payable under the Lease and the section 19(1) cap did not take effect. The appeal is therefore dismissed.

The leaseholders sought an order under section 20C, 1985 Act that the costs incurred by the landlord in connection with this appeal are not to be taken into account as relevant costs in determining the amount of any service charge payable by them. A similar request was made to the FTT, but I was told it has not yet been determined. If the parties are able to agree that such an order is appropriate it can be made without further submissions. If the landlord does not agree to an order it may make submissions within 14 days of this decision.