Can tenants be made to pay part of residential building alterations?

Can tenants be made to pay part of residential building alterations?

The recent case of Christopher Moran Holdings Limited v Carrara Cagni demonstrates that long leaseholders are at risk of having to pay service charges for repairs or alterations to residential buildings in breach of covenant.

This case also highlights and reiterates the case of Arnold v Britton that a Court or Tribunal should not re-write the clear and practical language of the leases. 

The background

Christopher Moran Holdings Limited (CMHL) were the long leasehold owners of a block of flats leased for a term of 99 years.

They granted 25 underleases for a term of 25 years. One of the underleases was granted to Ms Carrara Cagni.

The property contained commercial premises on the ground and first two floors with seven floors of residential accommodation above, and the top floor consisting of a penthouse flat.

In the early 1970s two conservatories were constructed forming parts of living accommodation to the penthouse flat. 

There was no evidence as to whether freehold consent was obtained for the construction. The First Tier Tribunal described it as “an integral part of the flat”. 

In June 2012, CHML undertook major repair works to the property at a cost of around £1.3million. 

The work included the replacement of windows and patio doors for every flat in the building and the conservatories were demolished and rebuilt at a cost of £91,334.00. 

CMHL sought payment of the costs incurred by way of service charge from the underlessees who all agreed, the conservatories needed replacing.

But Ms Carrara Cagni took issue with the demand to contribute towards the costs of doing so and applied to the First Tier Tribunal for a Section 27A determination. 

The First Tier Tribunal held that the costs of the works to the conservatories were not recoverable from the underlessees as it was not the intention of the parties that the underlessees should be liable to contribute towards the costs of repair and replacement of conservatories that had been built in breach of covenant. 

CMHL were only entitled to charge £31,000.00, which were the costs of replacing the original windows and patio doors in the building.

CMHL appealed. 

The decision

The Judge focused on the principles summarised in the earlier case of Arnold v Britton.

He stated that when interpreting a written contract, the Court needs to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which should have been available to the parties would have understood them to be by using the language in the contract to mean." 

He then focused on the meaning of the relevant words of each of the 25 underleases.

Under the underleases, the landlord was obliged to keep the building and all additions thereto in repair and the leaseholders were to pay as a service charge their proportion of the costs incurred by the landlord in doing so.

It was held that if the conservatories had been added after the underleases were granted, they would be “additions”. Or if the conservatories had been added to the penthouse before the underleases were granted, that part of the property was reserved by the landlord because it was either part of the main building structure or part of the roof and was not included in the flat. 

The underleases didn't distinguish between lawful and unlawful additions. If CMHL were liable to do the works, the underlessees were liable to pay the service charge for the works carried out by CMHL.

It was decided that in this case there was no reason for the historic lawfulness of the addition to the building to make any difference to the analysis and the continuing rights and obligations of the different parties. 

It was held that it was wrong for the Tribunal to rewrite the clear and factual language of the underleases. 

The appeal was allowed and Ms Carrara Cagni, as well as the other underlessees, were held liable for the service charges of the replacement and repairs to the conservatories. 

What this means for you

If you're a tenant...

It seems rather bizarre that a lessee or tenant should contribute through service charges towards the repair of an item or building which may have been added to the building in breach of covenant. 

It raises the question if a tenant is faced with a poorly constructed conservatory or addition to the property whether the landlord could recover the costs of putting it in to repair from the lessees pretty much straight off the mark. 

Care needs to be taken to ensure that there is provision for where alterations are carried out that they should not be carried out in such a way as to oblige the tenant to bear the costs of effectively completing these works through service charges. 

If you're a landlord...

In light of this case, you may be able to demand payment from tenants for works in respect of any additions or alterations that have been carried out in breach of covenant.

It's advisable to check the wording of the lease to the property even if the additions or alterations were in disrepair when the tenant took the lease.

Need advice? We can help you

Need advice on the service charge provisions within your lease and what you are liable to pay for?

Or are you a landlord wondering what you can potentially invoice for?

Please call Rachel Garton now on 01482 324252 for a no-obligation chat.

Or email rlg@gosschalks.co.uk.

You can find out more about how we can help you here.

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