RICHMOND HOUSING PARTNERSHIP v MISS J UPPAL (1) MRS G JAY (2) MR T REA AND MRS J REA LRX/60/2004

UPPER TRIBUNAL

LANDS CHAMBER

LRX/60/2004

Case No LRX/60/2004

Between

RICHMOND HOUSING PARTNERSHIPApplicant

MISS J UPPAL (1) MRS G JAY (2) MR T REA AND MRS J REARespondent

Before

P R Francis FRICS

Rebecca Cattermole (instructed by Devonshires solicitors of London EC2) for Appellant

Venue Procession House, 110 New Bridge Street, London, EC4V 6JL

Date 18 April 2006

Hearing 17 January 2006

Property: 48–55 Rocks Lane, Barnes, London, SW13 0DA

Catchwords: SERVICE CHARGES – scaffolding erected in connection with cyclical repairs – whether costs reasonably incurred – whether associated agent’s fees reasonable and reasonably incurred - Landlord and Tenant Act 1985 s19 – appeal allowed

[1]This is an appeal by Richmond Housing Partnership (“RHP”), the freehold owner of a block of 8 flats known as 48-55 Rocks Lane, Barnes, London SW13 0DA (“the appeal property”) against a decision of the Leasehold Valuation Tribunal of the London Rent Assessment Panel (“the LVT”) dated 24 June 2004 (ref: LON/00BD/LIC/2004/0012). The respondents (who were the applicants in the LVT appeal) respectively occupy three of the eight flats in the block on long leases. The respondents had applied to the LVT under s.27A of the Landlord and Tenant Act 1985 (“the 1985 Act”) for a determination as to whether or not charges relating to the erection of scaffolding and concrete repairs undertaken in connection with cyclical works made in the 2002 service charge year, and amounting in total to £4097.71 for the 3 flats in question, were reasonable and reasonably incurred. The LVT decided that the total cost of the scaffolding (which, for the whole block, originally amounted to £9,268.40) was not reasonably incurred, and reduced the figure to £2,384.47. It also determined that due to the poor project management of the works contract, the management charges relating to it should be reduced by 50%.

[2]Although the application by RHP to the LVT for permission to appeal that decision was refused, permission was granted by Mr N J Rose FRICS, a member of this Tribunal, on 8 November 2004 in which he said that upon the basis of the reasons given in the application, there appeared to be a real prospect of success and that in view of the potentially wide implications of the LVT’s decision, the appeal should be heard.

[3]Miss Rebecca Cattermole of counsel appeared for the appellants and called Mrs Linda Wallace, Investments and Development Director at RHP, Mr Nigel Evans, an Asset Manager at RHP and Mr Alan Davison, a director of Pelling Ltd, the contract administrators who acted in respect of the cyclical works contract. Miss J Uppal, the long-lessee of flat 55 Rocks Lane appeared for the respondents with permission of the Tribunal. Facts

[4]Richmond Housing Partnership is a Registered Social Landlord under Part 1 of the Housing Act 1996 and owns some 8,500 properties in the area, including the adjacent blocks on the Rocks Lane Estate. About 1,500 of the properties are long-leasehold, the former tenants having exercised their rights to buy, with the remainder let on occupational tenancies. The appeal property, 48-55 Rocks Lane, was transferred to RHP from the London Borough of Richmond in 2000. It comprises a 4 storey block of 8 flats, built of brick under tiled roofs, and each has a projecting balcony to the rear and painted concrete planting boxes beneath the principal windows on the front elevation. The flats are all served by a central, communal entrance and stairwell.

[5]Five of the flats are let by RHP to occupational tenants. The remaining 3 are held by the respondents on long leases (Miss Uppal No.55, Mrs Jay No.50 and Mr and Mrs Rea No.49). Those leases are for a term of 125 years, commencing 26 July 1982 at a ground rent of £10 per 2 annum. Under clause 3(a) of the leases, the lessees covenant to pay a proportionate part of the costs incurred by the landlord in discharging its obligations under the landlord’s repairing and other relevant covenants. The percentage attributable to each flat was based upon the proportion that the (former) rateable value of any individual flat bore to the rateable value of the block as a whole. The block contribution for flat 49 is 10.78% and for flats 50 and 55 it is 13.07%. Each of the flats contribution to the preliminary costs of cyclical works and fees (including fees for managing contracts) is 13.59% of the costs payable by each flat as calculated in accordance with the above percentages.

[6]In about 2001 RHP decided to carry out cyclical repairs, redecoration and works to internal communal areas to all the leasehold properties it had acquired from Richmond LB in 2000. They appointed Pelling Ltd (“Pellings”), architects, planners, project managers, building and quantity surveyors to act as contract administrators. Their role was to carry out initial surveys, prepare specifications of works, undertake a competitive tender process and identify and recommend the appointment of suitable contractors, monitor works on-site (by random inspections), sign off completed works, prepare final accounts and deal with subsequent defects inspections. The contract for all the properties was awarded to Frencon Builders who had provided the lowest tender. They had included for the cost of erecting scaffolding, despite this not being a requirement in the specification of works, on the grounds that works were to be carried out at height, various works to various parts of the building had been specified, and it was, in Health and Safety terms, the safest way of undertaking the project. This was accepted by Pellings/RHP on the basis that the contractor’s chosen means of access would be at a fixed price and for a fixed period, rather than a daily rate to minimise the possibility of cost overruns.

[7]A notice under section 20 of the 1985 Act was served on the lessees on 7 September 2001 and, in respect of the appeal property, included for preparation of site, scaffolding, raking out and repointing of brickwork where necessary (including balcony walls), concrete repairs to window sills and balcony soffits together with redecoration and repairs to internal and external communal areas. The scaffolding was erected on 4 July 2002 and, following the requisite inspection, a safety notice, allowing the use of the scaffolding, was issued on 22 July 2002.

[8]Once the works had commenced, a closer inspection of the appeal property revealed that a number of additional works would be necessary. These included (as relevant to the scaffolding issue) the fact that many of the concrete window boxes were found to be tilting away from the front wall of the building. It was considered that urgent remedial works were needed for safety reasons, together with consideration of longer-term solutions. Also, the paintwork was found to be in worse condition than had previously been thought and rather than simply rubbing down and repainting (as specified in the lease at Schedule 9, para 4(a)(iii)) it would be necessary for the old paint to be chemically removed, primed and re-painted.

[9]Pellings arranged for temporary brackets to be installed, whilst the scaffolding was still in situ, to support the window boxes. The decision was taken, in the light of the problems found with both the window boxes and the paintwork, not to proceed with the planned external redecoration (although the internal repainting and repairs, which are not the subject of this appeal, were finished), and the lessees were informed on 23 August 2002. The repointing works were however carried out, together with hammer testing of the concrete, the quoted for 3 washing down, and clearing out the gutters. The scaffolding was removed on 8 September 2002.

[10]The respondents were charged for the work that had been carried out but, in respect of the scaffolding, the quoted charge applicable to this block was reduced by £705 because the specified alarm had not been fitted, and an additional £1,410 in acknowledgement of the fact that it had lain idle for a period of time, and had not been fully productive. In November 2002, RHP wrote to the lessees advising them that the estimated cost of the external decorations that remained to be carried out would be £4,500 and gave estimates of the cost of the various options for permanent repairs to the window boxes. The lessees were served with an interim invoice for 90% of the costs as had been estimated in the s.20 notice in February 2003, but in October 2003 they were advised that they would be due a credit because their share of the total cost, once the final account had been prepared, was found to be less than the 90% they had already been charged.

[11]In its decision the LVT said that whilst there was no issue as to whether the erection of the scaffolding was to a reasonable standard, and in its view it was not unreasonable for it to have been erected, it was of the opinion that the landlord had failed to take sufficient steps to establish the extent and cost of works that needed to be carried out before committing to the substantial costs associated with it. Although it was accepted that the problem with the window box supports could not reasonably have been discovered prior to the erection of the scaffolding without inspecting them from within individual flats (which was not the company’s policy), a more detailed survey should have been undertaken in respect of the state of the paintwork, including paint testing if appropriate. Had that been done, the additional costs for stripping and preparation would have been known prior to the issue of the initial s.20 notice.

[12]As to what steps the appellant landlord should have taken to mitigate the position once the scaffolding had been erected, and the problems found, the LVT said it considered whether the scaffolding had been removed soon enough and how much of the works could have been undertaken whilst it remained in position. In its judgment, as the scaffolding had been charged as a single item rather than on a daily basis, its remaining in place did not actually cost the tenants any more. Regarding the reduction of £1,410 in the scaffolding charges, the LVT said this appeared to be a goodwill gesture, rather than a contractual basis. It was noted that the original quote for the external decorations was £2,115 including VAT, and the contract contained a provisional sum of £3,500 plus VAT for additional or extra items. The landlord’s argument that it did not use the provisional sum for the paint stripping and additional costs associated with it, because it would not have been enough, but rather applied it to the temporary window box brackets was not accepted by the LVT. In its view, had all the works other than the installation of the permanent replacement brackets been effected whilst the scaffolding was in place, it would have been a case simply of providing temporary scaffold towers to complete the bracket work if, indeed, the temporary ones did need replacement before the next cyclical decoration.

[13]It was therefore determined that the failure of the landlord to carry out due diligence as to the paint quality and type prior to the erection of the scaffolding rendered the costs incurred in relation to the scaffolding at the rear of the block unreasonable, and that whilst part of the works to the façade could not reasonably have been contemplated, there was no justifiable 4 reason for the failure to carry out any decorating works to the façade once the window box problem was discovered. Therefore, the full cost of the scaffolding was not reasonably incurred, and only £2,384.47 including VAT was reasonably incurred and payable by the tenants. In connection with the management charges associated with the works contract, the LVT concluded that performance had been very poor, and determined that there be a reduction of 50% in the charges that had been made. Finally, the LVT determined that the section 20(C) application made by the tenants should be allowed and the landlord was therefore disallowed from adding the costs of the LVT hearing to the service charge. It also determined that the application fee be reimbursed by the landlord. Statutory Provisions

[14]Section 19(1) provides for the limitation of “relevant costs” in a service charge by reference to two tests: whether the costs are “reasonably incurred” and whether the services or works are “of a reasonable standard”. It states:

“19(1) Relevant costs shall be taken into account in determining the amount of a service charge payable for a period – (a) only to the extent that they are reasonably incurred, and (b) 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 and the amount payable shall be limited accordingly.”

[15]Section 20(C) is concerned with the limitation of service charges by reference to the costs of tribunal proceedings and provides:

“(1) A tenant may make an application for an order that all or any of the costs incurred, or to be incurred, by the landlord in connection with proceedings before a court or the leasehold valuation tribunal, or the Lands Tribunal, …, are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by the tenant or any other person or persons specified in the application. (2) The application shall be made – (a) … (b) in the case of proceedings before a leasehold valuation tribunal, to the tribunal before which the proceedings are taking place or, if the application is made after the proceedings are concluded, to any leasehold valuation tribunal; (c) in the case of proceedings before the Lands Tribunal, to the tribunal; (d) … 5 (3) The court or tribunal to which the application is made may make an order on the application as it considers just and equitable in the circumstances.”

Issues

[16]There are potentially 3 issues to be determined in this appeal:

[1]Whether, in all the circumstances, the costs of the scaffolding were reasonably incurred and, in that regard, the following questions need to be considered:(a) should the landlord’s agents have undertaken a more comprehensive survey of the building (possibly to include paint testing) prior to preparing the specification of works and obtaining estimates?

(b) should the external redecoration of the facades have been undertaken whilst the scaffolding was still in place, with the additional costs taken from the provisional sum?

[2]Whether the fees of Pellings in relation to the project management of the works contract were reasonably incurred.

[3]If I find that the LVT was wrong on either or both of(1) and

(2) above, whether its decision in respect of the section 20(C) application should be overturned.

[17]The burden of proof is on the appellant landlord to show that the decision of the LVT was wrong. That decision shall stand unless it is shown to be wrong by the evidence presented at this Tribunal, where it was determined at the outset that the matter will be determined by a rehearing rather than a review of the LVT’s decision. Appellant’s case

[18]In its application for leave to appeal to this Tribunal, the appellant said that the LVT wrongly interpreted or wrongly applied the relevant law, failed to take account of relevant evidence and that the points at issue were of potentially wide implication. Miss Cattermole referred in opening to Veena SA v Cheong

[2003] 1 EGLR 175

, a decision of this Tribunal by Mr P H Clarke FRICS which dealt with the question of burden of proof and the interpretation of “reasonably incurred.” She said that in determining whether the scaffolding costs were reasonably incurred, it was necessary to consider the appellant’s actions and decision-making processes at the time the specification and costings were prepared, rather than in hindsight.

[19]Mrs Wallace produced the witness statement that had been prepared for the LVT hearing and said she first became involved with this matter following Miss Uppal’s complaint to RHP in connection with the cyclical works. She said that Mr Alan Davison’s witness statement set out the chain of events, but she added some comments from the landlord’s point of view. It was important to realise, she said, that the tenants were only charged for those works and necessary investigations that were actually carried out during the relevant period. Those 6 works that were included within the original specification but which could not be undertaken due to the problems encountered with the window boxes were not charged. The fact was that the window box and paintwork defects were not reasonably forseeable (it not being the landlord’s policy to carry out paint tests or to inspect the buildings from within the individual flats when pre-specification of works surveys were being undertaken), and once they had come to light, the landlord had to take steps to resolve the issues within the provisions of the 1985 Act. They were, of course, hamstrung to a certain extent by section 20 and once the various structural reports and revised estimates had been received, they were obliged to serve fresh section 20 notices upon the tenants. In any event, she said, the landlord would not want to proceed with any of the recommended solutions without first consulting with the tenants. The scaffolding was only due to be in place for a limited period and there was not time to effect the necessary consultations and get the work done before it was due to be removed.

[20]Mrs Wallace said in the light of the problems that had occurred, and the decision to abandon the redecoration works whilst investigations of the window box problems were effected, the tenants had received a reduction of £1,410 on the scaffolding costs to reflect the fact that it would be standing idle and not fully productive for some time before it was removed. It had been priced by the contractor as a fixed cost item, and RHP were entitled, in reality, to charge the full cost, but they did not. The scaffolding was, she said, appropriate for the originally anticipated works but it was unforseen circumstances that resulted in it not being used to its full effect. Whilst it was unfortunate that the full extent of the required repairs could not be undertaken as originally anticipated, the actions that the landlord had taken were reasonable in the circumstances, she said.

[21]Mr Nigel Evans was, at the relevant time, a senior surveyor with RHP and had responsibility for overseeing contracts, and consultant surveyors. He said that he produced the final invoices for the works that were undertaken (reduced, as Mrs Wallace had said, in connection with the scaffolding by £1,410) and despite the fact that they had not been sent to the residents until more than 12 months after the works that were done had been completed, no interest had been charged. In his view, the cost of the repairs to the window boxes, the permanent supports for them (which had to be designed and made) and the stripping of the paintwork would have exceeded the amount of the provisional sum. If the landlord had gone ahead on that basis it would, he thought, have come in for serious criticism from the tenants. This was the reason why the contract was halted, and the redecoration and repairs effected at a later stage once a new s.20 procedure had been completed. He produced a copy of the letter that had been sent to the residents association on 28 November 2002 which set out the revised external painting cost (£4,500), various window box repair options and costings, and sought the tenants’ response. The tenants subsequently opted for the removal and repair of the existing window boxes at a cost of £5,000 plus fees and VAT. Mr Evans said that he did not accept that the initial survey was defective in that the window boxes beneath the ground floor windows, which could be inspected from ground level, did not have the same defects as the upper level boxes. The defects that were subsequently found to the supports once the scaffolding had been erected were not recognised problems, in that no such trouble had been experienced on any of the other blocks that were being repaired and redecorated under the same contract. 7

[22]Mr Davison set out what Pellings’ role had been in the administration of the contract and explained that it was not normal policy for pre-contract surveys to be carried out from anywhere other than ground level. Although the tenants had been advised that a survey was to be undertaken, none of them had mentioned suspected window-box problems and, with none having been found on any of the other blocks, he saw no reason why access should have been sought into individual flats. He confirmed that it was only once the scaffolding had been installed that the dangerous state of the window box supports became apparent, it being evident from close inspection that they were tilting away from the main structure. That was why immediate steps were taken to install temporary brackets whilst a longer term, permanent solution was considered. As to the external paintwork, it was only once the contractor had started to rub down the original paint that it became clear that simple rubbing down and repainting would not cure the crazing problem that had been found. Specialists were called in (from paint manufacturers), all of whom confirmed that chemical stripping would be necessary before redecoration could commence.

[23]There was insufficient time for the repairs to be effected to the window boxes (for which a solution had to be found) and the additional costs for the extra work required in redecorating would, he concluded, be more than was available in the provisional costs (especially as these were used up in part on the temporary brackets), hence the decision being taken not to proceed with the rest of the redecoration and other concrete repairs at that time. In any event, he said, it would cost more to do the redecoration in two stages – the rear off the original scaffolding, and the front when the boxes had been repaired. All the other works including washing down, hammer testing of the concrete and clearing of gutters had been effected off the scaffolding whilst it was still in place. Overall, he said, he was of the view that whilst it was unfortunate that the problems had not been foreseen, all reasonable steps had been taken to resolve the matter – by instructing structural engineers and paint specialists and consulting with the residents – and effecting all the works that could be done whilst the scaffolding was still in place. The suggestion that the scaffolding could have remained in place on the front elevation (where the window boxes were) was not an option as it was all tied in together, and, as he had said, there was not time to resolve the problems before it was, in any event, due to be removed in its entirety.

[24]In all the circumstances, Mr Davison said, it was not reasonable for the LVT to have reduced the part of Pellings’ fees that related to the 48-55 Rocks Lane element of the contract as they had carried out their duties in accordance with the terms of their brief.

[25]In closing, Miss Cattermole said that it should be borne in mind that the scaffolding was fixed cost within the contractor’s overall price (which in any event was the lowest tender), and would have been incurred in any event. The decision not to carry on with the works was appropriate as it was evident contractors would have to return to complete not only the concrete repairs and new supports to the window boxes, but also to carry out the chemical stripping of the paintwork on the rear elevation. It was more cost effective to do it this way, and the s.20 procedure had to be gone through again. Regarding the potential wide implications of this decision, Miss Cattermole said that ground of appeal related particularly to the LVT’s reduction of Pellings’ fees. They were appointed in respect of a large number of the landlord’s properties, and the consequences of the LVT’s decision in that regard being upheld could have serious repercussions across the other properties. 8 Respondents’ case

[26]Miss Uppal said that whilst the tenants were eager to benefit from the much needed cyclical repairs, they had been put to significant extra cost due to the ill researched, ill managed and ill executed works. Although they had initially hoped to achieve a more substantial reduction in costs by applying to the LVT, its decision was accepted. She said that the key to the whole matter was the inadequate initial survey. If Pellings had done their job properly, the faults would have been identified at the outset and whilst it was accepted that the additional costs of the repairs and redecoration could not be avoided, the residents would not have been put to the extra expense of a second set of scaffolding. The reasons given by the appellant for not proceeding with the redecoration of the rear of the block were not accepted. There was significantly more paintwork on the rear than there was at the front, and there was no reason why that work could not have been completed at the time. The arbitrary reduction in the cost of the scaffolding as originally constructed was only made by the landlord at the third stage of the tenants complaints procedure.

[27]As to this appeal being of wide implication for the appellant, Miss Uppal said that the respondents believe the focus should remain on the details of this specific case. Conclusions

[28]The need for expensive and extensive repairs to the window boxes was accepted by the LVT as something that could not reasonably have been foreseen in the initial survey – the observations that the problems might have been identified by inspecting them from within individual flats being made with the benefit of hindsight. Any costs relating to those repairs and the provision of permanent replacement brackets (subsequently estimated at £5,000) are not therefore a matter for my consideration in this appeal. However, the temporary brackets that were installed during the contract, as an urgent health and safety requirement, cost £2,400 and were paid for from the provisional sum of £3,500. In my judgment that was a perfectly reasonable course of action to take. It follows that, with these costs to be incurred, there was insufficient money remaining within the provisional sum to pay for the redecoration as well which, on the revised estimate provided to the tenants in November 2002, appears to be over £2,300 more than the original quote. A new consultation process with the tenants was, therefore, required and I accept the appellant’s arguments that that was sufficient reason for abandoning the redecoration whilst the original scaffolding was still in place. It seems to me that in reaching its decision the LVT failed to take into account the essential additional costs incurred in providing and installing the temporary brackets.

[29]The question remains as to whether the initial survey by Pellings was adequate. If it was not, and it was reasonable to expect that it should have revealed the problems with the paintwork, then the question would arise as to whether the tenants should have to pay for the additional scaffolding that was needed when the painting was eventually carried out. I am satisfied that cost of the original scaffolding, included within the contractor’s overall estimate, was reasonably incurred and in so deciding, take into account the fact that an arbitrary reduction was (eventually) made by the landlord to reflect the fact that the scaffolding could not be fully utilised, and that all the works that could be undertaken (washing down, repointing 9 and clearing of gutters) was carried out. As to the survey, I accept the appellant’s evidence that the problems with the paintwork were not reasonably foreseeable and consider the LVT was wrong when it said:

“The Tribunal therefore determine that the failure of [the landlord] to carry out due diligence as to the paint quality and type prior to the erection of the scaffolding rendered the costs incurred of the scaffolding to the rear of the block unreasonable and that while part of the works to the façade could not reasonably have been contemplated there was no properly justifiable reason for the failure to carry out any decorating works to the façade once the window box problem was discovered. The Tribunal determines that the full cost of the scaffolding was not reasonably incurred only £2,384.47 including VAT… is reasonably incurred and payable”

. In my judgement the argument that formal testing of the paintwork should have been undertaken is not sustainable and I accept that such would not be a normal part of the pre- specification survey. Similar problems had not been encountered with any of the other blocks that were the subject of the survey, and in any event, the requirement under the lease is for “rubbing down and repainting”. In my view, it was reasonable for that to have been specified and I consider that the steps taken, once the paint problems had been identified were reasonable. As I have said, to undertake the additional chemical stripping, priming and repainting would have cost more than the provisional sum available, and a new consultation procedure was, therefore, inevitable. I accept also that it would have been impracticable to leave the scaffolding to the front elevation in place – particularly as it took a long time for the precise repairs required to the window boxes to be identified, for the residents to be consulted, and for them to choose which option to take. The appeal is therefore allowed.

[30]As to Pellings fees, whilst I acknowledge that the tenants had some grounds for dissatisfaction with the contract administration (as evidenced in the voluminous correspondence and documentation submitted in the trial bundle), on the point at issue I have to conclude that the LVT was wrong to reduce their fees in respect of this part of the overall contract by 50%. I thus determine that the tenants should pay Pellings’ fees in full.

[31]Finally, as to the application under section 20(C), in the light of my findings above I must overturn the LVT’s decision on this aspect. The appellants are, therefore, permitted to add the costs of the LVT hearing, and the hearing before this Tribunal to the service charge.

[32]This determines the issues in dispute and the decision will become final once the question of costs is resolved. In that regard, if either party wishes to make application for costs within the limit allowed by section 175(6) and (7) of the Commonhold and Leasehold Reform Act 2002 they must make application setting out the conduct upon which they wish to rely within 14 days of the date of this decision. Dated: 24 March 2006 (Signed) P R Francis FRICS 10 ADDENDUM

[33]No application having been made by either party, I make no order as to costs. Dated: 18 April 2006 (Signed) P R Francis FRICS 11