Judge rules Leasehold Service Charges covered by Consumer Protection Laws

A new case concerning a hot water system disagreement between leaseholder and freeholder in an apartment in the London Borough of Camden, has reached an important conclusion: a ruling that the Unfair Terms in Consumer Contracts Regulations apply to the service charge provisions of long leases. The decision in the present case could be determinative of contribution obligations if similar cases arise elsewhere under similar leases.

In this case, a long lease of a flat within the Brunswick Centre Complex, Camden, was purchased from the council under the Right to Buy scheme. The heating system was sub-standard and, in 2005, the leaseholder replaced it and disconnected from the complex’s heating system.

The local council, the London Borough of Camden, then replaced the heating system for the entire block. Subsequently, the leaseholder adapted their system to once again tap into the hot water supplied by the block-wide system. These works were approved by the Council.

The Council did, however, expect the leaseholder to pay, by way of increased service charge, a portion of the costs of installing the new heating system, amounting to reputedly around £14,000.

The leaseholder in this case believed that it was unfair he should contribute towards the wider heating system, when he had already paid for the installation of his own new heating system.

The leaseholder’s liability to pay service charges was linked to the council’s obligations as freeholder under the long lease. Therefore the question of whether the leaseholder had to contribute towards the costs of replacing the heating would be answered by identifying the extent of the council’s obligations.

Under the terms of the official lease, the council was reputedly required to renew heating apparatus unless it exclusively served a particular flat and did not comprise part of the general heating system for the block. As the leaseholder’s system was, in fact, connected to the block wide system, it did come under the Council’s renewal obligations.

Accordingly, the leaseholder was obligated to pay its contribution to the wider heating system of which it was a part. It would not have had to if it had remained serviced by a completely separate system.

The Consumer Protection Legislation
The lease listed three methods the Council could use to apportion the expenditure to each apartment in the complex. One was the use of rateable values as the basis of apportionment. The other options were more favourable to the leaseholder, but the council did not use them. Each option was expressed as an alternative, with no restriction on the situation in which any of them applied.

The leaseholder argued that under the Unfair Terms in Consumer Contracts Regulations of 1999, the law required the Council to choose the method of apportionment most favourable to him.

The Upper Tribunal decided that, although the regulations did apply, they had not been breached and the leaseholder’s claim in this respect failed. The Upper tribunal apparently stated:

“The Regulations are applicable but I do not consider the provisions for the apportionment of the Service Costs between the tenants is unfair having considered the criteria set out in…Director General of Fair Trading v First National Bank plc [2001] UKHL 52…The provisions are not unfair as they are not “contrary to the requirements of good faith … cause[ing] a significant imbalance in the parties’ rights and obligations to the detriment of the consumer”.

The last issue of the case was whether the service charges were “reasonably incurred” as required by s.19 of the Landlord & Tenant Act 1985.

Despite the fact that the leaseholder had himself replaced the internal pipework and apparatus, and not the council, it was upheld that the charges were reasonable. We understand the Tribunal stated:

“[the leaseholder] purchased the lease of 170 O’Donnell Court with knowledge (actual or imputed) that works to the communal heating system were to be undertaken in the near future by the landlord…The [leaseholders] state that they were not alone in resorting to self-help in providing their own heating system. However, it appears that the other flat owners who did resort to self-help did so by disconnecting themselves from the communal system and by relying on “stand-alone” systems [and were not asked to pay the service charge].”

Thus, by linking back in to the communal system the leaseholder incurred himself an extra £14,000 worth of costs. The most interesting section of this case, from a legal standpoint, is that the Tribunal did rule that the 1999 Unfair Terms Regulations applied to service charges.

It was observed by the Tribunal itself that this case mirrored many other Right to Buy leases in London, meaning that the decision in the present case could be determinative of contribution obligations if similar cases arise elsewhere under similar leases.

29/10/11