Defects in design, installation or construction can lead to significant and costly problems for landlords and leaseholders later on, particularly when it comes to the question of liability for the cost of remedial works.

The starting point, as always, is the terms of the lease, which set out what works the landlord is obliged to carry out and what costs the leaseholder is obliged to contribute towards. Generally speaking, the landlord is to repair its building and the leaseholder is to contribute towards the costs of repair by way of the service charge. In the absence of a more onerous covenant, an obligation to repair does not generally carry with it an obligation to remedy poor design or any other structural defect that has not caused damage to the building. Where there is no such disrepair, remedying such a defect would be an improvement rather than a repair (see here our August 2019 Legal Update on Improvements).

However, where inherent defects do cause damage to the building, in most cases, the repairing obligation will bite and trigger the leaseholder’s liability to pay for such works.

City of London Corporation -v- Various Leaseholders of Great Arthur House (2019) UKUT 341 (LC)

The Upper Tribunal recently considered the leaseholders’ liability to contribute towards the costs of remedying structural defects in this recent case between the City of London Corporation (“the Corporation”) and a number of leaseholders of Great Arthur House, a Grade II listed building in the Golden Lane Estate (“the Building”). The leases of the flats in the Building (comprising 120 flats) were created under the Right to Buy provisions of the Housing Acts 1980 and 1985.

Between 2016 and 2018 the Corporation carried out substantial works to the structure and exterior of the Building. The total cost was in excess of £8million. The cost to the leaseholders amount to around £72,000 per flat. The Corporation claimed, and the leaseholders disputed, that the costs of the works were chargeable to the leaseholders as a service charge under the leases.

The terms of the leases

The leases mirrored the Right to Buy provisions under the Housing Act/s when it came to the repairs which the Corporation was required to undertake (and the leaseholders were required to pay).

The leaseholders were required to contribute towards the costs of “specified repairs”, which in summary meant works in order to :-

1. keep the structure and exterior of the Building in repair, not amounting to the making good of structural defects;

2. make good any structural defects which the Corporation had given prior notice to the leaseholder or which only came to light 10 years after the grant of the lease; and

3. keep in repair any other property over which the leaseholder had any other rights.

The leaseholders argued that the works would not be “specified repairs” if the effect of the works is to make good a structural defect, unless the works fell within para (ii) above. The Corporation argued that works to make good structural defects would be “specified repairs” if, notwithstanding the exclusion in the lease, they are repairs and the purpose of the works was to remedy the disrepair.

The Upper Tribunal’s decision

The Upper Tribunal accepted the leaseholder’s position, albeit on different grounds than the original Tribunal.

The Upper Tribunal reiterated the basic position that a covenant to repair is not triggered if the building is not in disrepair. It was relevant that the purpose of the statutory code set out in the Housing Act/s (mirrored by the leases) was to protect former Council tenants from exposure to very substantial and unexpected service charges upon acquiring long leases of their flats. That protection was tempered by reference to time. Works to repair the structure and exterior would be chargeable to the leaseholders, but not the more substantial costs associated with remedying structural defects, unless the leaseholder had bought the flat on notice of the likelihood of such works or the defects were only discovered a number of years into the term of the lease.

The Upper Tribunal gave the terms of the lease their natural reading and held that para 1 above meant any works, which in law might properly be characterised as repairs, but amounted to the making good of a structural defect. Para 1 was clearly intended to exclude certain works of repair being charged.

The Upper Tribunal emphasised that whether repairs are works that had the effect of making good structural defects would necessarily be a fact-sensitive assessment and acknowledged that, in practice, works may be carried out that fall into both categories. In such circumstances, the Upper Tribunal held, there is no reason in principle why a package of works cannot be analysed to see whether there are separate constituent parts, some of which are in the nature of repairs only to remedy disrepair and others which are works to make good a structural defect.

Conclusion

Whilst the Upper Tribunal’s decision needs to be considered in the context of the very specific wording of these leases and in the context of the Right to Buy statutory code, the decision is clearly of wider application and reiterates the need to consider carefully what the terms of the lease enable the landlord to re-charge to its leaseholders in any given case.

Should you have any questions in relation to the above, then please do not hesitate to contact Kevin Lever on Kevin.Lever@kdllaw.com or 01435 897 297.

Disclaimer

This legal update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole. 

If you have received this update in error or wish to unsubscribe from future updates then please email us at info@kdllaw.com.