City of Westminster v Fleury & Ors

Factual and Procedural Background

The Appellant, a local authority lessor, carried out roof recovering works on two blocks of flats (the Two Blocks) within a larger estate. The Respondents are lessees of flats in these Two Blocks under long leases. The Respondents challenged the reasonableness and liability for the service charges relating to these roof works before the Leasehold Valuation Tribunal (LVT). The LVT decided that the cost of the roof recovering works was not reasonably incurred as required by section 19 of the Landlord and Tenant Act 1985, primarily because the method of repair and the total cost were deemed unreasonable. The Appellant appealed this decision with permission to the Lands Tribunal. Although the dispute was settled between the parties generally, one Respondent did not agree to the settlement, so the appeal proceeded in relation to that party’s obligations.

Legal Issues Presented

1. Whether the cost of the roof recovering works was reasonably incurred within the meaning of section 19 of the Landlord and Tenant Act 1985.
2. Whether the LVT properly applied the legal test regarding the reasonableness of the decision to recover the roofs as opposed to patch repairs.
3. Whether the LVT correctly considered the quantum of costs, including the comparison between a major contract and smaller separate contracts.
4. Whether the LVT gave adequate reasons for discounting certain cost elements and expert evidence.

Arguments of the Parties

Appellant's Arguments

• The LVT erred in law by failing to properly apply the test from Forcelux v Sweetman regarding whether costs were reasonably incurred.
• The LVT accepted that a reasonable surveyor could have recommended roof recovering, so the cost should be considered reasonably incurred subject to quantum.
• The LVT failed to compare like with like when assessing costs, ignoring the Appellant’s procurement process and omitting relevant cost items.
• The LVT unjustifiably rejected expert evidence supporting the major contract approach and failed to properly consider the advantages of that approach over multiple smaller contracts.
• The LVT did not adequately justify disallowing certain fees and overheads connected to the major contract.

Respondents' Arguments

• The roof recovering works were unnecessary and did not fall within the repairing covenants of the leases.
• The LVT’s decision that recovering the roofs was not necessary was correct, thus costs should not be recoverable under repair covenants.
• Respondents did not participate in the appeal to support these arguments.

Table of Precedents Cited

Court's Reasoning and Analysis

The court recognized that the LVT correctly identified the legal test from Forcelux v Sweetman requiring both the decision to incur costs and the amount charged to be reasonable. The court rejected the Appellant’s submission that any decision within the range of reasonable surveyor opinions automatically satisfies the test, emphasizing that the reasonableness must be assessed in all circumstances.

The LVT was entitled to place greater weight on the Respondents' expert evidence, who had inspected the roofs before works and considered patch repairs feasible and more reasonable than full recovery. The Appellant’s expert had not inspected the roofs prior to works, relying instead on a company involved in the waterproofing system, which undermined the independence of that evidence.

However, the court found that the LVT erred in comparing the cost of the roof recovery works with historic patch repair costs without sufficient evidence of future repair costs. The LVT also failed to properly consider the Appellant’s procurement approach of a major contract covering multiple blocks, instead focusing only on separate contracts for the Two Blocks, which led to an inappropriate comparison of costs.

The LVT’s rejection of expert evidence supporting the major contract approach lacked adequate reasoning, especially regarding the independence of the experts. Furthermore, the LVT failed to allow certain costs such as overheads, insurance, and contingency fees linked to the major contract, based on its flawed rejection of that approach.

On the question of whether building regulations mandated full roof recovery, the court agreed with the LVT that less than 25% of the roof required recovery, so the regulations did not compel full recovery works.

Given these errors, the court concluded that the LVT’s determination that the costs were not reasonably incurred was flawed and warranted reconsideration.

Holding and Implications

The court allowed the appeal in part and remitted the matter back to the Leasehold Valuation Tribunal for rehearing on whether the cost of the roof works was reasonably incurred, including both the reasonableness of the decision to recover the roofs and the reasonableness of the overall costs.

The direct effect of the decision is that the LVT must reassess the service charge liability of the Respondents in light of the clarified legal principles and evidential considerations. No new precedent was established beyond the application and clarification of existing authority.