The general position – leaseholder can be charged
The general position, as set out in the Barnet case. is that 'the receipt by a local authority lessor of a grant in respect of works to a building is not regarded as affecting what the owner of a leasehold flat can properly be charged through the service charge' (§68). This is because of the meaning of the word 'incurred' as it appears in most service charge provisions and in the Landlord and Tenant Act 1985, s19.
The UT held that a cost is incurred when the landlord enters into a contract with a contractor (§62-63, 66). The fact that grants have been paid to cover the work does not ordinarily affect whether those sums have been incurred, they merely address the different issue of how the landlord subsequently defrays those costs.
In the Barnet case the authority received a grant of £7.1m from the London Development Agency in respect of repair and improvement work to three tower blocks that cost of £9.4m. The UT upheld concluded that Barnet did not have to use that grant to reduce any leaseholder costs so long as the grant money was spent on refurbishing the three tower blocks. In other words Barnet's tenants and its Housing Revenue Account were the main beneficiaries of the grant, rather than its leaseholders.
In fact Barnet had used some of that grant to reduce each leaseholder's costs from about £45,000 to £24,000 but if the full amount of grant had been apportioned equally between all residents, as the appellant argued, then each leasehold bill would have fallen to about £14,000.
The Sheffield position – leaseholder cannot be charged
The judge in the Barnet case found the facts in the Sheffield case were distinguishable. In the Sheffield case the authority received grant funds 'specifically intended to meet the cost of works referable to the lessee's flat'. In particular grant was available 'for specific items of work on individual buildings and once such work had been completed the qualifying work to each building was inspected and approved by an independent chartered surveyor' (§54). It was in these circumstances that the UT had concluded that Sheffield 'had not "incurred", within the terms of the lease, the costs of the works which had been funded in this manner'.
Much turns on the basis upon which grants are paid. In the Barnet case the UT concluded that Barnet had a wide discretion as to how to spend the money. The application for and award of grant merely required Barnet to ensure that the money was used to improve the 179 homes in the three tower blocks whereas Sheffield had been given far less discretion to decide how the grant was spent (§54).
Jon Holbrook acted for Barnet and was instructed by Mark Oakley of Judge & Priestley Solicitors.