The Green Quarter decision: leaseholders have to pay

The Manchester Green Quarter decision released on Thursday 26 July 2018, like the earlier Citiscape decision, finds the leaseholders liable to pay for the cost of replacement cladding under the terms of their leases. It also found leaseholders liable to cover the costs of the ‘Waking Watch’ for one of the properties (VC), and it declined to make a section 20C order (a s20C order prevents that landlord from recovering the costs of going to the Tribunal through the service charge). It is important to realise that the Tribunal can only look at the liability of leaseholders to pay in accordance with the lease, and that this will depend upon the particular wording in the lease. The wording of leases is not standard and so it is really important to read leases carefully. The Tribunal’s job is not to ‘do what seems morally right’ but to apply the law as it is, which means interpreting this wording. In both the Citiscape and the Green Quarter case the Tribunal made reference to other possible routes to recover. In Green Quarter the Judge makes this point clearly [para 17.3.1]: it is not for the Tribunal to decide if the cladding materials complied with building regulations, or if it is morally right for the landlord to recover the costs from leaseholders. In Citiscape the judge said ‘it is foreseeable that the tenants may have claims against a number of parties’, such as the cladding manufacturer, the developer, the local authority, and even the government [para 66, and see my recent blogpost].

Unlike in the Citiscape case, no third party has yet stepped up to offer to pay the Green Quarter costs, contrasting with the statement from Barratt shortly after the Citiscape decision that they would cover the costs. Lendlease, the Green Quarter developer, has not agreed to pay.

The Green Quarter case involved two blocks: Vallea Court, 14 residential floors with 130 flats (VC), and Cypress Place, 18 residential floors, with 245 flats (CP). VC was completed in 2008 and CP in 2012. After the blocks were developed by Lendlease, they sold the freehold to the investment firm, Pemberton Reversions (5) Limited, and are now managed by Livingcity. Both blocks were found, following testing, to have ACM3, and a waking watch was implemented in VC but was not necessary in CP since it had a sprinkler system. A section 20 consultation in respect of the replacement cladding was carried out in January 2018 (unless a consultation is conducted, the landlord may be restricted over the amounts recoverable, although Tribunals do have power to dispense with the consultation).

The application to the Tribunal was brought by the landlord, represented by JB Leitch Ltd, solicitors. The leaseholders had no legal representation, but had used crowdfunding at some point to get a letter from a solicitor. Eight leaseholders are said to have actively participated in the proceedings, but the filed response from six of these was said to represent the views of 103 leaseholders (around 26%, and represented at the hearing by one of the leaseholders, Mr H).

It appears that the leaseholders represented by Mr H accepted in principle that both the replacement cladding costs and the waking watch costs were recoverable as service charges. The particular objections made related (for VC) to whether the ongoing waking watch costs were too high (at £7-8000 per month, although one leaseholder refers to the figure as £8-9000), whether it was right for Livingcity to use fire marshals supplied by a related company, and whether (alternatively) a temporary communal fire alarm system should have been installed. These factors may be relevant as to whether the costs were ‘reasonable’ (a relevant legal question under s19 Landlord and Tenant Act 1985). None of the leaseholders had questioned the standard of the waking watch service (as well as costs being ‘reasonably incurred’ under s19, they must also be of a ‘reasonable standard’).

The lawyer for Pemberton explained that a communal fire alarm system had been considered but would not necessarily lead to an appreciable saving and was not seen as a practical alternative to the waking watch. It would require 2 sounders/heat detectors in each flat, would cost £110,500, and might encounter difficulties in obtaining access to flats for installation, especially as VC is 74% sub-let, which would lead to additional costs. If access was refused for any flat, meaning that the installation would be incomplete, it may be that the waking watch would have to be continued in any event. One of the leaseholders said that no access requests had been made and no other communications sent. It appears that it was only at the hearing that the leaseholders, for the first time, heard the explanation for why the fire alarm system had not been installed. This is not a surprise to discover. It is not unusual for there to have been very little (to almost no) engagement between landlords/managing agents and leaseholders at other affected sites. This is unacceptable: leaseholders are living in fear, worry, and uncertainty, and should have a right to be consulted and to know what is happening. Having heard this at the hearing, Mr H accepted that the waking watch costs had been reasonably incurred.

In view of the acceptance in the filed Response that cladding, and waking watch costs, were recoverable, and at the hearing that the waking watch costs were reasonably incurred, the Tribunal said that – for the leaseholders represented by Mr H – these would be taken as admissions for the purposes of section 27(A)(4) of the Landlord and Tenant Act 1985. Therefore, no determination would be made in respect of them.

But the Tribunal still had to rule on recoverability for the other leaseholders. The Tribunal noted that the Applicant had argued that several clauses of the lease would entitle them to recover the costs. Whilst the Tribunal noted that sometimes this was a ‘strain’ of the plain meaning, a common sense interpretation meant that cladding, waking watch, and associated costs were recoverable under 4 different clauses, including: works and/or services for ‘the general benefit of the apartments’, deemed necessary by the landlord in accordance with ‘the principles of good estate management’, and costs incurred in ‘employing such persons as the Landlord may in its absolute discretion consider desirable or necessary to enable them to perform or maintain the . . . services’.

In addition, it found the costs of the waking watch to be reasonably incurred, taking account of benchmarking that had been carried out, the absence of any alternative figures being offered by leaseholders, and the uncertainty over the costs of installing a communal fire alarm system.

The decision to refuse a s20C order has caused especial consternation amongst the leaseholders. It came only a day or so after a Commons debate in which Jim Fitzpatrick MP had said that in the experience of his constituents the tribunal system ‘stinks’. He has since claimed that the Manchester decision confirms that the system is rigged against leaseholders. In deciding whether to make a s20C order, the Tribunal has to decide what is ‘just and equitable in all the circumstances’. The leaseholders had argued that the application would not have been necessary had there been better communication, that they still had no estimate of cladding costs, and that it is not possible to sell flats or remortgage. Whilst the landlord accepted the leaseholders were frustrated with the delays and noted there remains huge uncertainty around replacement cladding costs, it was not so much that information was being withheld but that there was little information to dessminate, although some had been. The Tribunal application had been necessary, it was argued, because of the disparity in leaseholder response – some having not responded at all, some raising specific and different objections. Clarity was needed. The Tribunal gave little reasoning on this, stating that it was not just and reasonable to grant the section 20C application because of the number of leaseholders, the evidence about disparity in responses and engagement levels, and the need for clarity given the scale of the costs involved.

It is unfortunate that in these cases the only way to clarity is to have a Tribunal hearing, adding further costs to what is already a desperate situation. From social media, it is clear that the leaseholders were overwhelmed by the size and complexity of the legal packs. The disparity in response and mixed levels of engagement is also not a surprise; it is really difficult to bring together hundreds of people with busy lives and different levels of understanding of the issues etc. But the fact remains that it is increasingly becoming clear that under most leases the leaseholders end up paying, unless a developer or landlord steps in to ‘do the right thing’. And leaseholders are the one group that the government keeps saying should not have to.

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How to cite this blog post (Harvard style) 

Bright, S. (2018). The Green Quarter decision: leaseholders have to pay. Available at: https://www.law.ox.ac.uk/housing-after-grenfell/blog/2018/07/green-quarter-decision (Accessed [date]).