Owners, landlords, or managing agents have a legal duty of care towards maintaining the property in a reasonable state of repair and ensuring the safety and well-being of occupants or tenants. Failure to fulfil this duty may result in liability for negligence or breach of statutory obligations. With regard to leasehold properties, the lease agreement typically imposes obligations on both the leaseholder and the landlord or management company. Leaseholders are often responsible for contributing to service charges, while the landlord or management company is responsible for the maintenance and repair of the structure and common areas. The Landlord and Tenant Act (LTA)1985 (and subsequent amendments) sets out legal rights and obligations for those who provide the services and the leaseholders that pay for such services. It addresses matters such as maintenance, repair, and importantly, the reasonableness of service charges.
Section 19(1) of the Landlord & Tenant Act (LTA 1985) imposes a general requirement of reasonableness in relation to service charge expenditure. Relevant costs are to be taken into account in determining the amount of a service charge payable for a period only to the extent that they are reasonably incurred, and where they are incurred on the provision of services or the carrying out of works, only if the services or works are of a reasonable standard.
The question of reasonableness must be considered by reference to the circumstances appertaining when the relevant costs were in fact incurred and not by reference to how the need for such costs arose. Accordingly, the fact that repair works are only necessary because of neglect or a breach of the landlord’s repairing covenant does not prevent the cost of such works from being reasonably incurred. However, the breach may give rise to a claim for damages, and where such breach, consisting of a failure to repair in good time, results in further disrepair and a liability on the tenant to pay service charges, the service charges in question could form part of the damages and possibly give rise to an equitable set-off and therefore a defence to a claim for the recovery of such service charges.
An Historic Problem?
Defects in design, faulty installation or the use of inappropriate or inadequate materials when building a property can lead to significant problems later on.
Disputes over inherent defects in leasehold property frequently focus on the terms of the landlord’s or tenant’s covenant to repair. For liability to arise under that covenant, there must have been some disrepair or damage, which is a falling away or deterioration from the original condition of the item in question. Depending upon construction of the lease and interpretation of the clause, a covenant to repair may not carry with it an obligation to remedy poor design, faulty installation or any other defect that has not caused damage to the property. Where there is no disrepair, remedying such a defect would likely be an improvement rather than a repair.
If there is no disrepair, and if the covenants impose only an obligation to repair, then it is entirely possible for the court to find that neither party is responsible for remedying an inherent defect.
The position differs where the inherent defect does cause damage. There is no escape from liability merely because the need to repair stems from an inherent defect. If the covenant bites, and if it is not reasonably practicable to repair the damage without curing the defect, then the person who is liable to repair may also have to remedy the defect.
Claims, Damages & Set-Offs
A tenant is entitled to set off liquidated claims for damages, at law, and unliquidated claims, in equity, for damages for breach of covenant by the landlord against rent accruing under the lease. In leases this right of set-off and deduction is usually excluded by express words. A key question is whether or not a tenant is entitled to withhold rent or service charge in the event of a landlord’s breach of lease.
There are circumstances when a tenant can set off rent where a tenant undertakes works which were the responsibility of the landlord; for example repair works. In that situation the tenant has the right to deduct that payment from future rents.Pre-1980 leases frequently do not specifically exclude the right of set-off because the commonly used tenant’s covenant to pay the rents without deductions was considered adequate protection of the rent payments. However, it is now established that clear words are needed for set-off to apply—i.e., the words ‘set-off’ must be used within the lease to exclude the tenant’s right.
An allegation of historical neglect does not touch on whether the service charge was reasonable under LTA 1985, s 19(1)(a). The question of what the cost of repair is does not depend on whether the repairs ought to have been allowed to accrue.
The key point to note is that the reasonableness of incurring the cost of remedial work cannot depend on how the need for a remedy arose.
However, where a tenant can show that eventual costs would be reduced or avoided, they will be able to use this ‘historical neglect’ argument as a defence against a claim for service charge and therefore have a claim in damages for breach of covenant. Depending upon the success of such arguments in any particular case, the damages could then be set off against the tenant’s liability to contribute through the service charge.
Summary
In summary, successful claims for historic neglect can potentially present landlords and management companieswith a reduced amount of service charge payable by a lessee. However, such claims and set offs need to be supported by detailed and specific evidence and evaluated in context. There is clear distinction between reasonableness of cost at hand opposed to historic inactivity or further, accrued, deterioration over time. There is also the point of whether setting off the claim via the service charge is permitted under the lease or whether the leases contain explicit wording that denies this as a mechanism for potential reimbursement.
If you have any questions regarding this release, please contact Steve Sherlock, Head of Marketing on 0151 7082250 or email: [email protected]
