Reasonableness of Service Charges

Under section 19 of the Landlord and Tenant Act 1985, Landlords of long leasehold flats can only recover service charges to the extent that they are “reasonable”.

So when is a service charge “reasonable”?

In the recent case of Waaler v Hounslow LBC, the Court of Appeal provided some clarification.

It held that whether costs had been reasonably incurred was not simply a question of the landlord’s decision-making process: it was also a question of outcome.

When a Tribunal is asked to consider the reasonableness of service charges it should not impose its own decision; if a landlord chooses a course of action which leads to a reasonable outcome, the costs of pursuing that course will have been reasonably incurred even if there was another, cheaper, reasonable outcome.

The Court also held that the same legal test of what is reasonable applies to both repairs and improvements. However, there is a real difference between

  • works such as repairs which the landlord is obliged to carry out and, to some extent, can be anticipated by the tenant; and
  • works which are optional, such as improvements.

Therefore, considerations that may determine that expenditure on repairs is reasonable may not apply when one has to consider whether improvements are reasonable.

Whilst this decision does not provide certainty as to what will be deemed reasonable in every case, landlords will welcome the Court’s view that there is more than one possible reasonable course of action and that it is for the landlord – rather than the Tribunal – to choose which reasonable course to pursue, even if it may not be the cheapest course of action.

If you would like further information on how this decision may affect you please contact Joshua Steinhaus – joshua.steinhaus@dwfmbeckman.com or by telephone: 020 7408 8880.