Who pays for leasehold improvements

When do leaseholders have to pay for improvements? Carrying out major works on a property or development can sometimes create a
disagreement from one or more property owners who have an obligation to contribute to minor/major works.
This can lead to a delay in the works starting due to the dispute itself, or because a property owner
refuses to pay their share of the works.

When do leaseholders have to pay for improvements?

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For the most part, Landlords and management companies are in a strong position when faced with
such disagreements and can rely on the provisions requiring the property owner to contribute to such
works in the relevant agreements (Leases or Transfers). However, what happens if the Landlord is
faced with a dispute by a Leaseholder claiming that the works are improvements and not repairs, and
are therefore not payable? This Legal Update will look at what a Landlord should consider before
imposing charges for major works if an element of improvement is included in the schedule of works.

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When are works improvements?

Whether the proposed works are repairs or improvements will always depend on the specific facts of
the case, considering the repairs, the Lease and building in question. Generally speaking, the term
“repair” should be given its normal meaning and would be defined as “restoration by renewal or
replacement”. One of the key questions when considering if the repairs go further and amount to an
improvement is whether the works proposed would result in something wholly different in character,
substance or nature than before.

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When are the costs for improvements payable?

The first place to start, as should always be the case, is with the Lease itself, which will set out what
works the Leaseholder needs to contribute towards. Usually, a Leaseholder is not expected to
pay for the Landlord to upgrade his building and the Landlord is responsible for the costs of
improvement works unless there is an express provision in the Lease requiring the Leaseholder to
contribute towards improvement works.

Some Leases will include provisions for recovery of the costs for improvement works, but this does
not mean the Landlord can simply charge for improvement works in the same way as repairs.
All in all, Landlords need to be particularly careful when it comes to optional improvements to their
buildings, if they want to recover the costs by way of service charges. Although the Court of Appeal
declined to create specific guidelines on the issue in favour of maintaining the fluidity of the current
test of reasonableness, it is clear that the views, interests and financial impact of the improvements
should be taken into account when the Landlord seeks to recover the costs of such works.

If you have any questions on property or block management, please contact Pelin Martin to book a 30-minute complimentary property consultation on +0208 994 7327 – pm@bluecrystallondon.co.uk