London borough fails in Upper Tribunal appeal over services charges and heating system renovation

The London Borough of Southwark has lost a case in the Upper Tribunal (Lands Chamber) over whether it can impose service charges on leaseholders on an estate where the heating system pipework has been renovated.

Residents Michael Royce and Viviane Nicoue succeeded at the First-Tier Tribunal Property Chamber (Residential Property) (FTT) in arguing that it could not.

The Carlton Grove Estate was constructed in the 1970s. Heating has been provided by a district heating system which also provides heating and hot water to the adjoining older Acorn Estate.

Hot water is pumped to flats via a network of pipes from the Acorn boiler house.

Southwark launched a major works programme to replace the underground pipe work to the Acorn Estate for £2,982,077. 

Lessees on both the Carlton Grove and the Acorn estates were asked to contribute £12,296.44 for each of them. 

The FTT decided the amount payable by each respondents should be reduced to £1,786.09 on the basis that there was insufficient evidence to support an equal apportionment of the costs.

It also said nothing should be payable by the respondents towards the costs of replacing the underground pipe work on the Acorn Estate as it concluded the estates had two separate systems of pipe work and it was not a reasonable interpretation of the leases that Carlton Grove residents should contribute to infrastructure serving Acorn.

The FTT said there had never been a completely integrated system of pipe work because the Carlton Grove Estate was built later than the Acorn Estate, and sections of the pipework could be isolated including the whole of the Carlton Grove Estate.

Southwark argued that the FTT misread the leases, was wrong to find there were two systems - not one - and had been wrong to take into account that Carlton Grove received heating but not hot water from the system.  

But in London Borough Of Southwark v Royce & Anor (LANDLORD AND TENANT - RESIDENTIAL - SERVICE CHARGES) [2019] UKUT 331 the Upper Tribunal found the FTT was entitled to find that there were two separate systems of pipe work, and that it did not fall into error in reading the leases.

“Once the separate nature of the two systems is established, the costs and expenses of replacing the separate heating and hot water system serving only the Acorn Estate cannot sensibly or properly be characterised as a cost or expense ‘incidental to’, still less a cost or expense ‘of’, providing heating to the properties on the Carlton Grove Estate,” it ruled.

The Upper Tribunal concluded: “The costs and expenses of replacing a heating system that does not serve the properties the subject of the relevant leases cannot properly be regarded as being in any way ancillary to, or associated with, or even connected with the provision of heating to those properties. To hold that they were would, in the Tribunal’s judgment, be ‘a case of the tail wagging the dog’.”

Mark Smulian