Real Estate - Tip of the Week: Service Improvements

Published 25 March 2019

There is often scope for dispute between landlords and tenants over the extent of costs of repairs that can be recovered through the service charge, particularly over whether the works go beyond a repair and are in fact an improvement. Service charges for the costs of repairs and maintenance will not extend to the costs of undertaking improvements.

However, it is important to look at all of the services for which a landlord may recover costs through the service charge. If the cost of providing a service is one of the heads of service charge then the question of whether or not improvements were made in order to provide that service might not be relevant, so that the full costs can be recovered.

In a recent decision this month of the Upper Tribunal (London Borough of Southwark v Baharier) the landlord appealed against a First-Tier Tribunal ruling that the cost of replacing a central heating and hot water system related to an improvement and was not recoverable. The Upper Tribunal held that this was wrong. The lease required the landlord not only to keep the building and the heating system in repair but also included a separate obligation to provide a heating and hot water supply to the flats. The cost of complying with both of these obligations could be included in the service charge. The costs of complying with the repair obligation would not extend to improvement works, but the cost of providing the heating and hot water supply could do so, because that was the cost incurred in providing that service.

It is important therefore when determining whether the costs of improvements can be recovered to consider not only the express terms of the repair obligations in a lease, but also to see if there are other service charge obligations that would necessitate those costs to be incurred in order to deliver that service.