The costly effect of failure by a landlord to comply with the regulations relating to provisions of the landlord's certificate under the Building Safety Act 2022 - Lehner v Lant Street Management Co Ltd [2024] UKUT 135 (LC)
2nd October 2024
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2nd October 2024
There has been significant commentary from various respected sources of late following the Upper Tribunal (“UT”) decision in Lehner v Lant St Management Co Ltd [2024] UKUT 135 (LC) and so it seems timely to add to our earlier report on this case from June of this year - see here Compliant Service Charge demands and the protections of the Building Safety Act 2022.
In this Legal Update we discuss how the landlord’s actions can be problematic if he fails to follow the requirements relating to the provision of, and taking reasonable steps to obtain from leaseholders, the certificates provided for in the Building Safety Act 2022 (“BSA”).
Background and the BSA in relation to certificates
The case was an appeal against a First-tier Tribunal (“FTT”) decision relating to whether the leaseholder protections provided by Schedule 8 of the Building Safety Act 2022 (“BSA”) provided a means for Mr Lehner to avoid liability for all or part of fire remediation works costs at his building and in turn pass that liability on to his landlord.
The BSA provides strict requirements relating to:-
material and information that must be provided by the landlord;
when that must be supplied; and
what triggers the need to provide it.
There are similarly tight requirements about taking reasonable steps to obtain from leaseholders the certification that they must supply to ascertain if they are qualifying leaseholders under the provisions - whether or not the leaseholder is subject to the protections under the BSA or exempt from them.
A failure by the landlord to properly deal with the above provisions will place the burden of costs for relevant defects under the BSA upon the Landlord with no ability to pass that cost or part of it to the leaseholders whether they qualify for protection or not.
The facts
Mr Lehner was the leaseholder of a flat in a five storey block (more than 11 meters in height) and which was in need of cladding remediation works (removing and replacing combustible insulation and installing additional fire stopping in the cavities between the interior and exterior walls) and related professional fees. Mr Lehner disputed that he was liable to pay service charges demanded for that work contending that he was absolved from contributing as a result of the protections afforded to leaseholders by Section 122 and Schedule 8 of the 2022 BSA.
The FTT had found that Mr Lehner, and a number of other leaseholders, were liable for service charges demanded and so Mr Lehner appealed to the UT.
The Appeal
Mr Lehner appealed in part on a number of points but specifically (for this Legal Update) on the basis that the landlord had failed to provide the Landlord’s Certificate required under the BSA at the relevant time and that the landlord had not taken steps to ascertain if Mr Lehner satisfied the conditions of Section 119 (2) and thus that he was a qualifying leaseholder covered by the protections of the BSA.
Provision of certificates
As explained above the BSA provides that both Landlord and Leaseholder must, upon relevant triggers or on request, provide certificates as to their qualification under the BSA and so whether or not the protections apply to either of them. One of those triggers is the service of a demand for relevant works under the BSA. However, in this case, and as a result of the timing of the demand/start of the works, there was some debate as to whether the landlord was obliged to serve a certificate as would usually be required. The UT did not deal with this point but such a failure would usually provide a rebuttable factual presumption that the landlord was responsible to fund the cost of the defects with no recourse to qualifying leaseholders.
The next issue for the UT to decipher was whether Mr Lehner held a qualifying lease and thus could avoid liability for the costs.
What is a qualifying lease?
Section 119(2) BSA sets out that a lease is qualifying if:
(a) It is a long lease (more than 21 years in length) of a single dwelling within a building of above 11 metres or at least five storeys;
(b) The tenant under the lease is liable to pay service charge;
(c) The lease was granted before the 14 February 2022;
(d) On 14 February 2022:-
the dwelling was your only or main home, meaning it was the home where you spent most of your time;
the tenant did not own more than 2 dwellings in the United Kingdom in total.
The Decision of the Upper Tribunal
The UT concluded that Mr Lehner’s lease was a qualifying lease as the conditions in section 119(2)((a), (b) and (c) had been met.
The UT also found that the landlord had not taken all reasonable the steps to establish whether Mr Lehner qualified for protection under s.119 BSA as above. Failure to do so therefore resulted in the lease being treated as qualifying and so Mr Lehner was exempt from liability.
Amongst other reasons for denying the landlord the ability to recover from the leaseholder the costs of the cladding works (see our earlier Legal Update here) the UT upheld the leaseholder’s appeal.
The Tribunal sets out in its Appendix to the ruling a step by step guide for those considering whether costs of BSA related works can be a service charge expense and we have reproduced that below for your ease of reference.
Conclusion
The critical point for Landlords and Managing agents is to ensure that you/your client has provided the relevant information (certificates) and taken the required reasonable steps to obtain information from the leaseholders (certificates) at the relevant time (triggered by an event or upon request). In default of either the landlord is placing itself at severe risk of liability for the costs of the works where otherwise it might not have been.
Guidance steps for assessing liability for the cost of BSA related remedial works
Step 1 – Preliminary Conditions
Is the building a relevant building (section 117)?
Does the disputed service charge relate to a relevant defect (section 120)?
Is the disputed service charge a charge in respect of a relevant measure relating to the relevant defect (paragraph 1(1), Schedule 8)?
Step 2 – Paragraph 2 Protection
Did the disputed service charge become payable after 20 July 2022?
If so, did any of the circumstances listed in regulation 6(1), Leaseholder Protections Regulations occur between 20 July 2022 and the date the disputed service charge became payable?
If so, did the current landlord provide a landlord’s certificate which complied with regulation 6? If not, regulation 6(7) applies, the paragraph 2(2) condition is taken to be satisfied and the service charge is not payable.
If the current landlord provided a landlord’s certificate, or if the disputed service charge became payable before 20 July 2022, was the landlord or any superior landlord on 14 February 2022 responsible for the relevant defect, or associated with a person responsible for the relevant defect? If so, the paragraph 2(2) condition is satisfied, and the service charge is not payable. If the landlord or any superior landlord or an associate was not responsible for the defect, the paragraph 2 protection does not apply.
Step 3 – Qualifying Lease
Does the lease satisfy the conditions in section 119(2)(a) to (c)?
If so, has the landlord taken all reasonable to obtain a qualifying lease certificate from the tenant for the purpose of paragraph 13 of Schedule 8? If not, the lease is to be treated as a qualifying lease and the protections in paragraphs 3 to 9 of Schedule 8 may apply.
If the landlord has taken all reasonable steps to obtain a qualifying lease certificate, and either no certificate has been provided, or the leaseholder has certified that the conditions in section 119(2)(d) were met, were those conditions in fact met? If so, the lease is a qualifying lease and the protections in paragraphs 3 to 9 may apply. If not, none of those protections apply.
Step 4 – Paragraph 3 Protection – The contribution condition
Has the landlord provided a certificate to the leaseholder that the person who was the landlord on 14 February 2022 (the relevant landlord) did not meet the contribution condition? If not, the contribution condition is taken to be satisfied and no service charge is payable (paragraph 14(2) and regulation 6(7)).
If the landlord did provide such a certificate, did the relevant landlord in fact meet the contribution condition on 14 February 2022? If so, no service charge is payable (paragraph 3(1)).
Step 5 – Paragraph 4 Protection - Low value leases
On 14 February 2022 was the value of the qualifying lease less than £325,000 (Greater London) or less than £175,000 (elsewhere)? If so, no service charge is payable.
Step 6 – paragraph 8 protection – Cladding remediation
Do the relevant measures in respect of which the service charge is claimed comprise the removal or replacement of any part of a cladding system?
If so, (a) does the cladding system form the outer wall of an external wall system, and (b) was the cladding system unsafe? If so the paragraph 8 protection applies, and no service charge is payable in respect of the removal or replacement works.
Step 7 – Paragraphs 5, 6 and 7 – Other protections
If after considering the previous steps the FTT is satisfied that a service charge is payable in respect of relevant measures, is that sum capped because it exceeds the maximum payable under a qualifying lease permitted by paragraph 5 and 6 of Schedule 8, or the annual limit permitted by paragraph 7?
Disclaimer
This Legal Update describes the position in law as at the date of this article and care should be taken to note any subsequent amendments to the position as set out above. The 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.
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