Historic neglect: a very contemporary issue

In her latest guest blog for Brady Solicitors Amanda Gourlay looks at historic neglect and the evidence required when leaseholders raise it against a demand for payment of service charges. 

In August this year, the Sunday Times’ “Homes” section opined that the era of shabby chic will soon be over.

Shabbiness, tatty paintwork and leaking roofs are however a state of affairs with which lessees find themselves living – in some cases – for years, irrespective of the design fashion du jour.

In the service charge world, that state of affairs is generally known as historic neglect. As a rule, historic neglect is raised by lessees when a landlord seeks payment for major works following a long period – normally years – of failure to comply with the repairing and maintenance covenants imposed by the lease. Understandably, lessees feel aggrieved at being asked to pay for works which have been carried out in order to rectify a landlord’s long running breach of covenant.

In May this year, the Upper Tribunal (Lands Chamber), handed down Daejan Properties Ltd v (1) Griffin (2) Mathew [2014] UKUT 0206 (LC), its first decision on historic neglect in eight years.

This article gives an overview of the facts of the case, extracts the principles of general application from it, and considers the evidence required when raising historic neglect against a demand for payment of service charges.

The Facts

Crown Terrace was a mixed use parade of shops and flats originally constructed in the nineteenth century. The flats above the shops were accessed along a walkway at first floor level. The walkway was supported by steel beams which were encased in brickwork. Without opening up the brickwork, the condition of the beams could not be inspected.

The beams were replaced in two places in the twilight years of the twentieth century. In 2008 part of the parapet wall alongside the walkway cracked and rotated outwards. It threatened to tip into Cricklewood Lane.

It transpired that the steel beams supporting that part of the walkway had failed, and that all of the beams required replacement, at a cost of £300,000 or so.

The works were divided into five phases. Four phases were completed, but before Phase 5 began, the lessees applied to the LVT under section 27A of the Landlord and Tenant Act 1985 Act.

They argued that the works would not have cost as much if they had been carried out earlier as planned maintenance work, as opposed to reactive emergency work, and that the costs which had been occasioned by Daejan’s breach of covenant were therefore to be set off against the amounts demanded by way of service charge.

Daejan suspended the work pending the outcome of the proceedings.

The lessees achieved some reduction in their liability before the LVT. Daejan appealed. On the appeal, the Upper Tribunal held that:

• Daejan had been in breach of its repairing covenant in respect of the beams for nearly thirty years, and
• On the facts of the case – the same amount of work would have needed to be done, irrespective of whether it was carried out in 1988, 1998 or 2008.

In short, on the service charge question, the lessees were liable for the full cost of the works.

Principals of general application

The Upper Tribunal gave the following useful guidance on historic neglect:

“The only route by which an allegation of historic neglect may provide a defence to a claim for service charges is if it can be shown that, but for a failure by the landlord to make good a defect at the time required by its covenant, part of the cost eventually incurred in remedying that defect, or the whole of the cost of remedying consequential defects, would have been avoided.

“In those circumstances the tenant to whom the repairing obligation was owed has a claim in damages for breach of covenant, and that claim may be set off against the same tenant’s liability to contribute through the service charge to the cost of the remedial work.

“The damages which the tenant could claim, and the corresponding set off available in such a case, is comprised of two elements:

• “First, the amount by which the cost of remedial work has increased as a result of the landlord’s failure to carry out the work at the earliest time it was obliged to do so; and,
• “Secondly, any sum which the tenant is entitled to receive in general damages for inconvenience or discomfort if the demised premises themselves were affected by the landlord’s breach of covenant”.

Evidence: making it work

Relevant evidence is key. The preliminary step therefore is to identify the period for which the landlord may be liable.

Date from which damages can be claimed

Damages can only be claimed for the time that the parties have been in a landlord and tenant relationship. For example:

• If the landlord acquired the freehold in 2008, but
• The lessee is the original lessee under a lease granted in 2000,

the lessee can only claim damages from his/her current landlord for the years 2008-present. Any claim relating to disrepair or neglect before the current landlord acquired the freehold must be brought against the landlords who held the freehold at the relevant time.

A lessee assigning his/her lease may assign with it the entitlement to claim damages relating to his/her lease holding.

Does the landlord need to know about the disrepair?

In long residential leases, the lessee is generally liable to repair the property let to him/ her under the lease, and the landlord is liable for the structure and roof of the building, common parts, and communal services such as heating and water pipes.

If the disrepair relates to property retained by the landlord, it is thought that the landlord’s liability arises as soon as that property falls below the standard of repair required by the lease. The point is not however settled, and the lease itself may provide otherwise.

More extensive work

If the work should have been carried out eight years ago, would the scope of those works have been the same? Would that rotten window frame have needed replacing, or just patching?

It is highly likely that an expert – either a surveyor or a structural engineer, depending on the work – will be needed.

Increased cost of the works

Would the works which are now proposed have cost less eight years ago, in the same way that a loaf of bread is more expensive today than it was eight years ago?

This calculation requires the input of a quantity surveyor or an economist, but may only be required in the most extreme cases.

Damage to property and possessions

Disrepair in hard-to-inspect areas such as pitched roofs tends to manifest itself by a leak into a top floor property.

Where that leak causes damage to the flat and/or to the lessee’s possessions, the lessee is entitled to claim damages which, broadly, equate to the value of the items damaged or the cost of having them repaired. For example, if a leak damages paintwork, a claim can be made for the cost of re-painting. If it damages a rug or stains a sofa, the cost of having the rug or sofa cleaned – or the value of the item, if irreparable, can be claimed.

Damages for distress and inconvenience

Damages may also be awarded for the distress and inconvenience experienced whilst the lessee is affected by the disrepair. As a rule of thumb, damages are assessed as a proportion of the notional market letting value of the property, valued on the assumption that the landlord has complied with his/her repairing covenants.

The unusual feature of Daejan v Griffin is that the lessees did not know of the disrepair before it affected them. They therefore suffered no distress and inconvenience suffered before the remedial work began.

What does this mean in practice?

Neglect tends to engender a deterioration, not only in the property neglected, but also in the landlord and tenant relationship.

A landlord may perhaps be prepared to tolerate that deterioration, provided that there is no impact on the recoverability of service charges. Equally, a managing agent may consider that there are few financial consequences to poor service.

It is worth bearing in mind that, when advanced in its proper context and supported by evidence, a claim or set off founded on historic neglect could:

•  reduce the amount of service charge payable by a lessee;
•  result in a claim by the landlord against the managing agent, and
•  ultimately be used by the lessee(s) in an application for the appointment of a manager.