The Impact of Affordability on Major Works

This could have far reaching consequences. What would the ‘affordability criteria’ consist of? How would managing agents cope with increased scrutiny of budgets? Would the process of obtaining landlords consent to assign become more rigorous so as to pre-empt affordability arguments?

On closer inspection of the Frognal case, this may not be so.

Section 19 of the Landlord & Tenant Act 1985 (as amended) provides that relevant costs must be reasonably incurred and be reasonable in amount. The Frognal case approved the view that the expression “reasonable” must be given a broad, common sense meaning.

It is important to highlight that, in the Frognal case, it was held that one factor in assessing reasonableness could be the financial impact that major works would have on tenants. It was not the only consideration.

Further, it was made clear that financial inability to pay service charges was not a ground excusing tenants from liability. The obligations under the Lease continue to apply.

The Frognal case might be better viewed as establishing a general principle that, demanding large sums from tenants over a short time period might be unreasonable, and that timescales should be taken into account when deciding reasonableness.

Some practical points to consider:

Reserve/sinking funds

Check whether Leases contain provision for a reserve/sinking fund because not all do. If a landlord has built up a pot of money from which the service charges can be taken, then objections from tenants on grounds of financial hardship should not arise. If Leases are silent on this, they may be amended with the agreement of all tenants.

Seek advice

2. Consider obtaining advice from a surveyor as to the urgency of works. Perhaps plan expenditure over a 5-10 year period.

Buildings insurance

The insurance policy may require the building to be kept in good repair and condition, failing which, claims under the policy might fail. Ask a surveyor to advise on repair works, taking into account the policy terms.

Evidence of hardship

Landlords/ managing agents might want to consider notifying tenants, particularly when serving Section 20 Notices, that they will be required to produce supporting evidence should they wish to plead poverty. Tenants might be reluctant to disclose their financial status!

Allegations of hardship

(i) Compare the number of tenants who object to payment as against the total number of tenants in the building.

(ii) Look at the tenants’ financial position: a tenant who has no significant income might never be able to pay service charges over any period and an argument based on hardship would be unlikely to succeed.

We await the decision of the LVT with interest but for now, we are satisfied that landlords/managing agents need not panic!

Caroline Anstis is an Associate Solicitor and David Wadsworth a Senior Associate Solicitor at Piper Smith Watton LLP