Building Safety Act 2022: Traps for the Unwary Landlord

This post considers the recent decision of the Upper Tribunal (Lands Chamber) in Lehner v Lant Street Management Co Ltd in relation to the service charge provisions under Schedule 8 of the Building Safety Act 2022 (BSA).

Key takeaways:

• The judgment provides a helpful step-by-step checklist for determining liability for service charges in relation to building safety defects under Schedule 8 (see [45] and the Appendix).
• The Upper Tribunal rejected the First-tier Tribunal’s (FTT’s) narrow view of the scope of the cladding remediation protections.
• Parties and their legal advisors should beware the various deeming provisions that can operate as traps for the unwary landlord that fails to take necessary procedural steps, particularly in relation to certificates.

Facts and decision

Mr Lehner was the leasehold owner of Flat 44 at 4 Sanctuary Street, London SE1. On 8 February 2021, he received a service charge demand for £1,244.85 towards the cost of works to remove and replace combustible insulation and install additional fire-stopping in the external walls of the building.

The FTT held that Mr Lehner was liable, because the insulation was not part of a cladding system and so the qualifying leaseholder protections in relation to cladding remediation (Schedule 8, para 8) did not apply. Further, as none of the leaseholders had adduced evidence that their leases were qualifying leases, the FTT said that the Schedule 8 protections did not apply. Mr Lehner successfully appealed to the Upper Tribunal.

The Upper Tribunal first noted that the service charge demand served on Mr Lehner incorrectly identified the landlord, and so the effect of section 47(2) of the Landlord and Tenant Act 1987 was that the sum was not due. However, since this could be remedied by a subsequent demand, the Tribunal went on to consider the impact of the BSA. The FTT approach to whether leases were qualifying was ‘clearly wrong’ [84] and Mr Lehner was to be treated as a qualifying leaseholder. The Upper Tribunal also held that the works related to ‘cladding remediation’ and so Mr Lehner was not liable for any part of the costs as a result of BSA, Schedule 8, para 8. 

Wide definition of cladding remediation

By Schedule 8, para 8, no service charge is payable under a qualifying lease in respect of ‘cladding remediation’, which means the removal or replacement of ‘any part of a cladding system’ that forms ‘the outer wall of an external wall system’ and which is unsafe.

The FTT had concluded that this provision was not engaged, distinguishing between ‘the cladding system’ on the one hand, and the insulation and cavity barriers behind the external skin on the other.

The Upper Tribunal rejected this narrow definition of a cladding system, holding instead that its ordinary meaning included materials installed behind the external skin. The works therefore related to part of a cladding system. The Upper Tribunal further held that it is the cladding system as a whole, not necessarily the particular part that is to be removed or replaced, that must form part of the outer wall of an external wall system and that must be unsafe.

Deeming provisions

The judgment also provides a useful reminder of the importance of the deeming provisions under Schedule 8, by which particular facts will be assumed to be true unless some condition is satisfied. As the Tribunal explained:

‘Usually the relevant condition requires the landlord to take the initiative in providing relevant information, or in requesting that leaseholders provide relevant information known to them. The presumptions operate where the landlord has failed to take the required step, and generally have the effect that information which has not been supplied or requested is assumed to be favourable to leaseholders… We draw specific attention to this device because these provisions are a trap for unwary parties and decision makers, as this case will illustrate.’[16]

Of course, where the condition has been satisfied, e.g. by the provision of an appropriate certificate, that simply means that the deeming provision will not operate and does not prevent the leaseholder from disputing the facts stated in the certificate.

The Upper Tribunal discussed three deeming provisions and the significance of each is explained below.

(i) Regulation 6 of the Leaseholder Protections Regulations: ‘landlord’s certificate’

Schedule 8, para 2 provides that all leaseholders of premises in a relevant building (not just those with a qualifying lease) have full protection from liability to pay service charges in respect of defects causing a ‘building safety risk’ (section 120) if their landlord or superior landlord on 14 February 2022 was responsible for the relevant defect or associated with a person responsible for it.

Regulation 6 of The Building Safety (Leaseholder Protections) (England) Regulations 2022 (‘the Leaseholder Protections Regulations’) specifies certain circumstances in which a landlord is required to provide a ‘landlord’s certificate’ to a leaseholder. A landlord who fails to do so is taken to be responsible for the defect for the purpose of Schedule 8, para 2, with the result that no service charges will be payable in respect of relevant measures.

In this case, the demand had been served before the Leaseholder Protections Regulations came into force and so the Upper Tribunal concluded, subject to one caveat, that the deeming provision was not engaged. That caveat was that there was a potential argument that, once the Regulations came into force, regulation 6(1)(c) might be said to have then required a landlord’s certificate to be served in respect of any relevant demand served previously. The Upper Tribunal was sceptical of that argument but, as the point had not been argued and was not determinative of the appeal, expressed no concluded view [72].

(ii) Schedule 8, paragraph 13: ‘qualifying lease certificate’

A number of provisions in Schedule 8 apply only to service charges payable under a ‘qualifying lease’, which means a lease that satisfies conditions (a)-(d) in section 119(2). However, by Schedule 8, para 13, a lease that satisfies conditions (a)-(c) is deemed to also satisfy condition (d) unless the landlord has taken all reasonable steps to obtain a ‘qualifying lease certificate’ from the leaseholder and no certificate has been provided.

In this case, the FTT had overlooked this deeming provision and held that the lease was not a ‘qualifying lease’ because Mr Lehner had not adduced evidence that condition (d) was satisfied. That was rejected by the Upper Tribunal. Since the lease satisfied conditions (a)-(c) and the landlord had not taken all reasonable steps to obtain a ‘qualifying lease certificate’ from the leaseholder, the lease was to be treated as a qualifying lease. Further, by the time of the Upper Tribunal hearing it was clear that his lease satisfied all of the s 119 conditions.

(iii) Schedule 8, paragraph 14(1): contribution condition certificate

By Schedule 8, para 3, no service charge is payable under a qualifying lease in respect of a relevant measure relating to a relevant defect if the landlord on 14 February 2022 met the ‘contribution condition’, which relates to their net worth.

The effect of Schedule 8, para 14(1), is that the contribution condition is treated as having been met unless the landlord provides the tenant with a certificate stating that the relevant landlord on 14 February 2022 did not meet the condition. 

The Upper Tribunal once again raised the question of whether this deeming provision was engaged in circumstances where the demand had been served before the Leaseholder Protections Regulations came into force, but preferred to express no concluded view [89-90].

Conclusion

As this case shows, there will often be scope for argument over whether a particular deeming provision applies. However, the best way for landlords and their advisors to protect themselves is to make sure that they are aware of these provisions and take steps to comply with them wherever possible.

More generally, the step-by-step guide to applying the provisions of Schedule 8 set out in the Appendix to the judgment will be a useful checklist for practitioners.

This post has been slightly amended from one first published on the Falcon Chambers website at:

https://www.falcon-chambers.com/publications/articles/building-safety-act-2022-traps-for-the-unwary-landlord).