The Oxford Conference: Confusion, and the Law on Putting Things Right

Being a Leaseholder and Getting Lost (a leaseholder – whom we’ll call Jo to preserve anonymity – of a flat in South London)

Jo had not realised that the building they lived in might suffer from issues with combustible materials until a couple of months before the Conference. Post-Grenfell, the necessary checks had been carried out to the building to ensure that it did not have ACM, which it did not. Nothing else came of this. But when Jo recently looked to re-mortgage the flat, the mortgage company wanted a report which Jo had never come across. This report showed that while A2 Euro cladding had been fitted, there was also Kingspan K15 insulation. As this is classified as class C in respect of its reaction to fire (combustible), further investigation was required.

This information appeared very suddenly and was a shock. Some people were concerned that they had spent their life savings, and their flat was now worth nothing. Some wanted to re-mortgage. Others had been about to move when the news broke. The freeholder is suggesting they will not pay, and the leaseholders will have to pay everything. Further, referring to the Government’s Guidance in Advice Note 14, the freeholder is pushing for full replacement of cladding/insulation without running tests to know whether this level of remediation is necessary. The residents’ association is now trying to figure out what it all means and get some information to work out what to do. In the meantime, insurance has doubled for an asset that is now haemorrhaging money.

Can Property Law Help? (Robert Bowker, Tanfield Chambers)

Robert Bowker gave a qualified ‘yes’. In doing so, he shows how complex the law is, a law not designed to cover this type of situation. Indeed, in the authors’ view the fire safety problems – and wider, serious, defects that are emerging – are simply ‘outside the box’ of what it has been imagined leasehold law needs to do.

His talk was based on a worked problem question, as shown in the slides, which represented a very particular (but plausible) set of assumptions. This example assumed: a building constructed in 1990 with ACM cladding eligible for remediation funding; a landlord obligation (1) to keep the building in good repair, and (2) to comply with statutes; and a tenant covenant to pay service charges for the cost of the landlord repairs, but not the cost of complying with statutes. It was further assumed that the fire authority had served an enforcement notice on the freeholder, requiring it to remove the cladding (to date, the post authors are not aware of this having happened, although prohibition orders have been served).

In this context, will the remediation fund that the government has made available help these leaseholders? The Full Fund Application Guidance states that, “(t)he fund will be available for the benefit of leaseholders … who would otherwise have an obligation to meet the cost of cladding remediation by virtue of provisions in their leases”. The question therefore depends on whether the cost of the replacement cladding is within the landlord’s repairing obligation; if yes, it is recoverable from the tenants as a service charge. However, although the cladding system was obviously unsafe, it would not be considered as out of ‘repair’ in law, and so is not a service charge item under the assumed lease.

This might sound good for the tenants – they don’t have to pay – but nor can a claim be made under the fund. The landlord is still required to remove the cladding, but may have no assets and so cannot pay for the work. The tenants will therefore have to consider their position against the landlord carefully: can they apply for specific performance? Right to manage? Enfranchisement? Hence the answer to the question of whether property law can help is a qualified yes.

Possible Types of Claim. (Chris Haan, Leigh Day)

The biggest problem many leaseholders face is that most of them cannot bring any case as they have missed the relevant time limit (see post here). There are a number of possible heads of claim, and some key questions:

• Is there new build warranty insurance cover?​
• What types of loss do you want to claim?​
• When was each flat completed?​
• Who is potentially liable? Landlord, developer, building contractors/professionals, building control?​
• Are any of the potential defendants good for the money?

The National House-Building Council (‘NHBC’) is the best-known provider of building warranties. Building warranty insurance typically provides only 10 years’ cover for defects, and is likely to require present or imminent danger to health and safety (see also David Pryce, Panel 4). Not all types of losses are covered by such warranties. Generally, the costs of remedial works and moving out are recoverable, but the NHBC policy excludes other losses, such as property values going down, lost rent, distress and inconvenience, or the cost of the waking watch.

A leaseholder may wish to sue other parties for uninsured losses. The first buyer may be able to sue for breach of contract if the contract contains terms such as ‘good and workmanlike manner with good quality materials’. The limitation period is six years from completion. A subsequent buyer, however, will have no such claim.

The Defective Premises Act 1972 was intended to address some of the problems of contract claims. Section 1 imposes a statutory duty to see that the work is done in a workmanlike or, as the case may be, in a professional manner, with proper materials and that the dwelling is fit for habitation. Builders, developers, architects and others owe this duty [but not approved inspectors]. This section is only engaged by more serious defects, not by snagging issues. Again, there is a six-year limitation period from completion.

Professional negligence provides for a more generous limitation period: three years from the date of knowledge, subject to a fifteen-year longstop from the date of the negligent act or omission. Generally, however, developers and builders do not owe duty of care as to build quality independently of contract, only a duty not to cause personal injury or damage to other buildings negligently.

When it comes to reform, the biggest problem is the six-year limitation period passing before the defects are discovered, and the problem of insolvent defendants. One solution would be to make the limitation period for claims under section 1 of the Defective Premises Act 1972 the same as for negligence, namely six years, or three years from date of knowledge, subject to a fifteen-year longstop.

The Limits of Bringing a Claim (Professor Ewan McKendrick, University of Oxford)

The problem with a claim for breach of contract is that it only binds the parties to it. There are some exceptions, such as the Contracts (Rights of Third Parties) Act 1999. A sophisticated market player will seek to get a collateral warranty, but leaseholders will not have done so.

If there is a contract, it is then necessary to establish a breach. This will depend on the terms of the contract. There is a big difference between a dangerous car and a dangerous building. In the case of a dangerous car, a claimant has a straightforward claim under the Sale of Goods Act 1979, because in 1893 its predecessor enactment replaced caveat emptor (buyer beware). We do not necessarily find this in real property.

Once a party has established breach, it must then show it has suffered loss, which could be loss in value or the cost of repair. A claim must be brought within six years of the date of breach, whether or not the consequences of breach were apparent at that time.

When it comes to the law of tort, we are dealing, principally, with negligence. It is very difficult to recover if something is simply defective, rather than there being (already) personal injury or property damage. This narrow approach is seen in cases such as Murphy v Brentwood. Ewan McKendrick admits that it is absurd that with a dangerous defect you should wait until the damage arises before you have a claim. You want the money now, to cure the problem. He hinted that with the right set of facts it may be possible to get the Supreme Court to reconsider this, and this would not open the floodgates, but litigating the point would be risky.

__________

How to cite this blog post (Harvard style) 

Bright, S. and Sawtell, D. (2019). The Oxford Conference: Confusion, and the Law on Putting Things Right. Available at: https://www.law.ox.ac.uk/housing-after-grenfell/blog/2019/10/oxford-conference-confusion (Accessed [date])