JMH/CW/AH/6
				Commissioner’s File:	CIS/15036/1996	

SOCIAL SECURITY ADMINISTRATION ACT 1992

SOCIAL SECURITY CONTRIBUTIONS AND BENEFITS ACT 1992

APPEAL FROM DECISION OF SOCIAL SECURITY APPEAL TRIBUNAL ON A QUESTION OF LAW

DECISION OF THE SOCIAL SECURITY COMMISSIONER

1.	The appeal is dismissed.

2.	This is an appeal with the leave of the Commissioner from the decision of a SSAT dated 21.2.96.  The claimant is the lessee of a flat in a block of flats.  As such, she has to pay a service charge in respect of the maintenance of communal parts, including the boilers and central heating system.  The point at issue is a short but difficult one, namely whether the replacement of the central heating boilers can properly qualify within “service charges” as provided by para 1(f) of Schedule 3 (as then in force) to the Income Support (General) Regulations.  This has to be read in conjunction with para 9.  Sub-para (1) of that para provides that housing costs specified in para 1(c) to (i) are to be met.  That includes service charges (sub para (f)).  However, sub para (2) of para 9 provides for deductions to be made inter alia (i) (sub para 2(b)) where the costs are inclusive of ineligible service charges within the meaning of paragraph 1 of Schedule 1 of the Housing Benefit Regulations; and (ii) (sub para 2(c)) in respect of any amounts for “repairs and improvements” within the meaning of para 8(3).  Para 1 of Schedule 1 to the Housing Benefit Regulations defines “ineligible service charges” (for present purposes) as:-

	“(g)	Charges in respect of any services not specified in sub para (a) to (f) which are not connected with the provision of adequate accommodation.”

It does not appear that it is claimed that the relevant costs in this case are caught by that sub paragraph.  

So far as is relevant to the case, para 8 of Schedule 3 to the General Regulations provides:-

	“(3)	In this paragraph “repairs and improvements” means major repairs necessary to maintain the fabric of the dwelling occupied as the house or where the dwelling forms part of a building any part of the building containing that dwelling and any of the following measures undertaken with a view to improving its fitness for occupation -

		...

		(h)	Provision of heating, including central heating.”

	Under para 8 interest on loans taken out for this purpose is allowable: under para 9 the capital cost involved is not.  This is what all would logically expect.  It is appropriate that Income Support should defray costs of a revenue, but not of a capital, nature. 

3.	What had happened in this case was that the old oil fired boilers had reached the end of their natural life and provision of the sum of £30,000 was made for the purpose of their renewal.  It is not entirely clear whether this was the estimated net cost or whether the sinking fund of £60,000 was also used.)  The managing agents describe the works:-

	(i)	Firstly in a letter dated 21.12.94 (p.25/26) as follows:-

		“The current oil-fired boilers are in need of replacement.  Two boilers are currently out of action and one has been repaired to give sufficient service throughout the winter months.  We are considering replacing the said boilers with a new gas-fired system as per our general report and it is considered this would be very much more cost effective in the long run.  It is currently considered that the monies currently being levied on existing sinking fund provisions together with those monies already in hand should be sufficient to cover the anticipated expenditure but we will be in a better position to advise you in the Spring of 1995 when the Consultant Engineer’s proposals have been drawn up and costed.”

	(ii)	Then in a letter of 1.11.95 (quoted in para 6 of the claimant’s grounds of appeal (43/45):-

		“We have undertaken such works” to the boilers “as the existing part had reached the end of its useful life (and was uneconomic to maintain).  It is impossible to replace the original boilers with the same level of technology as the original specification of boiler is no longer manufactured.  The specification and performance of the new plant and equipment is obviously higher than the original equipment but nevertheless is of the minimal acceptable standard that could be expected to be installed as a replacement of the old boilers.  For example, all boilers now have microchip technology.  Therefore, it is fair to conclude that we have made no additions to the heating system other than the straight replacement of boilers and control equipment which were beyond feasible maintenance and repair.  We would also state that none of these works can be classed as capital improvements to the property and are merely complying with the landlord’s obligation to maintain the services as specified under the terms of lease.”

4.	The questions to be answered are:-

	(i)	Are the works described above “major repairs necessary to maintain the fabric” of a block of flats?

	(ii)	Are the works “provision of heating including central heating” undertaken with a view to improving the fitness of the claimant’s flat for occupation?

5.	The AO fixed the claimant’s level of income support excluding any part of the service charge referable to the replacement of the central heating boilers.  From that, the claimant appealed to the appeal tribunal, who dismissed the appeal and gave their reasons as follows:-

	“2.	Para 8 covers repairs to the fabric of the dwelling and also improvements.  It was suggested to us that repairs to maintain the fabric covers work on walls, roof and floors so that the replacement boiler cannot fall within that limit.  We accept that argument.  However, para 8 goes further to include improvements carried out with a view to improving fitness for occupation.  The notes in Mesher and Wood to para 8 suggest that this limit must be interpreted broadly - CIS/749/91 and CIS/643/93.  We can see no reason for departing from that approach and must therefore consider whether fitness for occupation has increased.  Our conclusion is that a new boiler with the attributes described in correspondence before us is better than the previous one so an improvement.  The appellant herself has told us that her heating was both more effective and more consistent.  They find that the boilers are within para 3(3)(k) so deductible under 9(2).  The appeal is dismissed.”

6.	From the finding that the works did not constitute repair to the fabric of the block, there would not appear to be any dissension and so I would agree.  The answer to the first question I have posed above is therefore, “no”.  I now turn to the second question.  Are the replacement boilers repairs and improvements for the purposes of para 8(3)(h)?  I do not find that any easy question.  The lines of battle between the claimant and the AO have been predictably drawn.  The claimant says that the works are not repairs and improvements:  the AO says that they are.
7.	At this stage, I called for a copy of the claimant’s lease since it seemed to me relevant as to what works the landlord was required to do, in respect of which he could be indemnified by means of the service charges payable by all the lessees.

7.	According to the terms of the claimant’s Lease, she is under covenant to pay a service charge fixed by para 8 of the Second Schedule to the Lease as 0.6875% of expenditure incurred by the lessors in carrying out their obligations set out in clause 5.  (The amount on which the service charge is calculated appears not to be 100% but 102.6875% - p.27).  Under sub clause (7) the lessors are obliged to provide an adequate supply of water and, during a specified period, central heating.  Under sub-clause (8), they are obliged to:

	“Maintain and renew when required the central heating and hot water apparatus and all ancillary equipment thereto other than that contained in the demised premises.”

The claimant is under an obligation therefore to pay 0.6875% of the relevant cost.  It is plain to me that the replacement of the worn out boilers in this case clearly comes within the ambit of this covenant.  It also seems to me that it would, within the dictum of Denning LJ in Morcom v. Campbell-Johnson 1956 1QB 106, constitute, for the purposes of the Lessor’s comment, a repair, and not an improvement.  The relevant part of that judgment has been quoted by the claimant in para 5 of the representative’s observations:-

	“If the work which is done is the provision of something new for the benefit of the occupier, that is, properly speaking an improvement; but if it is only the replacement of something already there and which had become dilapidated or worn out, then, albeit that it is a replacement by its modern equivalent, it comes within the category of repairs not improvement.”

Although the replacement boilers are updated it appears from the agent’s letters from which I have quoted above that for this purpose they are not, at any rate, “improvements”.

8.	But that, however, is by no means the end of the matter.  I pause here to consider the inter-relation between paras 8 and 9 of the Third Schedule in the General Regulations.  Under para 8, interest on loans taken out for the purpose of inter alia “provision of heating including central heating” is allowable: but not the capital cost thereof.  Likewise, under para 9 one would not expect the capital cost of whatever it is to count as a service charge.  As well as asking the question whether the cost of replacement was a repair and improvement for the purposes of regulation 9(2)(c), one can just as well ask the question: “If the claimant had taken out a loan to pay for her share of the cost of the replacement of the boilers would the interest thereon have been allowable under sub para 3(h)?”  If it would, then the replacement is not deductible for the purposes of para 9(2)(c).

9.	I have no doubt that the installation of effective boilers in lieu of old and unreliable ones had the effect of proving the fitness of the claimant’s flat for occupation, but where, as in this case, the landlord is under an obligation to maintain and renew the system, it could just as well be argued that the works were undertaken with a view to fulfilling those obligations as for improving the fitness of the flat.  Further in sub-para 3(h) of para 8 the word “provision” by itself is used whereas in other listed items “improvement or provision” are used.  It may be thus implicit in “provision”, when used in isolation that one is concerned with a facility was being provided when none existed before.  

10.	I do not find this case easy at all, but in relation to the question as to whether the installation of the new boilers was “a repair and improvement” for the purposes of Regulation 9 I have concluded that the relationship of landlord and tenant, should in fact, be ignored.  If, in this case, therefore the claimant’s flat did not have the benefit of a communal central heating system but had its own system and boiler, which had become unreliable and worn out, and which had to be replaced, the question to be asked is, “Would in those circumstances the installation of a new boiler in substitution for the old be “a repair and improvement”?”  It seems to me that in these circumstances it would, and, thus the cost would not therefore be deductible under para 9.  I say this for the following reasons:

	(i)	 The general tenor, as I have pointed out, is that income support is intended to meet only costs of a revenue nature and not of a capital nature.  I would regard the installation of a new boiler, albeit a replacement, as a capital expense, subject to depreciation nevertheless in the ordinary way.  Moreover, if the same was in context of a commercial operation, it seems to me that, as a general principle, the cost of installation would not be deductible for tax purposes, although doubtless qualifying for capital allowances.  This is because the expenditure was of a capital nature.  

	(ii)	I would have thought that, the installation of the new boiler would be undertaken with a view to improving the fitness of the flat for occupation.  On the hypothesis I have postulated, the fact that the landlord may be under an obligation to renew would be immaterial.  The provision of a reliable system which had been worn out is an improvement to the fitness of the flat for occupation.

	(iii) In R(IS)3/91, a tenant’s cost of roof repairs was a service charge but that case was decided before sub-para 2(c) and para 9 was added and, in the commentary in Bonner. (1995 Edition), it is unequivocally stated that the exclusion in sub-para (c) would now apply, with the effect of excluding the roof repairs from the he ambit of “service charges”.  There cannot be any difference in principle for present purposes between the cost of roof repairs and the cost of renewal of the boilers.  

12.	It seems to me therefore that the tribunal came to the correct decision.  The appeal is dismissed.

					(Signed)	J M Henty
							Commissioner

					(Date)	8 April 1998