Time to revisit whether leaseholders have to pay?

This post considers whether the interpretation of the ‘repair’ and ‘sweeper’ clauses discussed in Tower Hamlets LB v Lessees of Brewster House and Malting House has relevance to fire-safety cases. The Upper Tribunal held that the local authority landlord would not be able to recover the costs of remedying structural works caused by the original construction of the building using the Large Panel System.

In long residential leases the leaseholder’s liability to pay typically mirrors the landlord’s obligation to do works. Several caveats must be borne in mind. Construing lease wording is complex and generally requires legal expertise, especially as there is a considerable body of case-law. A decision on the wording in one lease is not decisive in relation to other leases as the language and context will differ. Further, there may be additional clauses that can lead to liability in a fire-safety context, for example, referring to works needed to comply with insurance requirements, or statutory requirements, or orders of any competent authority.  Of course, even if the lease does require leaseholders to pay, some leaseholders will have protection from some costs under Schedule 8 of the Building Safety Act 2022.

Maintain in good condition

The landlord in Brewster House had an obligation ‘to maintain and keep in good and substantial repair and condition…the main structure of the building’ (with a linked service charge liability). Does remedying a structural defect fall within this? Whilst it is clear from authorities that there can be no ‘repair’ in the absence of disrepair, the focus was on ‘maintain’. Counsel for the landlord argued that the aim of the work is to ensure that the buildings do not fall down and are safe for occupation. Therefore, if the work is not done the building will not be ‘maintained’ or in ‘good condition’.

Judge Cooke accepted that ‘maintain’ does mean something different from ‘repair’ and can denote something preventive. However, ‘neither a covenant to repair nor a covenant to maintain is a covenant to remedy structural defects, nor to make safe a building that was not safe when it was built’.   The Upper Tribunal in Assethold Limited v Watts said that to maintain involves preserving, and Judge Cooke says that to ‘preserve is not to make something new, or to make something safe that was not safe.’  The cases discussed, including the Court of Appeal decision in Welsh v Greenwich LBC,  showed that ‘such covenants are engaged only where there is some form of physical deterioration.’

How might this approach apply to cladding cases? In several First Tier Tribunal cases leaseholders have been held liable to pay under a covenant to keep to keep the property in good repair and condition (with variation in the detail of the wording). In Sirocco the FTT said that ‘to keep the building in good condition requires such works to be undertaken’. In Citiscape the FTT did not see how it could be "in good and substantial repair order and condition" whilst the cladding remains a fire risk. In Ingress Park  combustible material on balcony floors ‘would not comply with keeping the property in good and substantial order and condition.’  Even though there had been no deterioration from the original condition of the cladding (or timber balcony in Ingress Park) the FTTs held that leaseholders had to pay.  Several cases involve ‘torrential’ wording which is likely to inform their construction. For example, in St John St remedial work could include improvement and work consequent on inherent or latent defects (although both still hinged around it being repair or remedial). Liability was also found in St John St under a  ‘compliance with statutory requirements’ clause.  Some cases refer to the ‘boot on the other foot argument’, that is, if the issue was that the landlord was refusing to remediate the tenant would then expect the landlord’s obligation to cover fixing the cladding. Sometimes a remark is made that in long leases the expectation is that future costs in relation to the building are to be borne by the leaseholders. In all of these FTT cases the leaseholder has been found liable to pay, but none of Citiscape, Ingress Park or Sirocco refer to the decisions in Welsh v Greenwich LBC or Assethold Limited v Watts. In St John St the FTT mentions Welsh v Greenwich LBC, but fails to note that the Court of Appeal in Welsh had specifically referred to the physical condition of the flat (windows and walls) being affected. 

The approach taken by Judge Cooke is quite different. Although she is addressing structural defects to the Large Panel System rather than defective cladding, she is clear that a covenant to maintain in good condition applies only if there is an element of physical deterioration and does not extend to an obligation to make something safe that was not safe.

Sweeper clauses

Sweeper clauses are common in leases as a form of ‘future proofing’, to ‘pick up items that cannot be specifically foreseen on the date of the lease’, and may require leaseholders to pay for things not specifically mentioned.  In Brewster House two sweeper clauses were discussed. The first was a broadly worded provision that the landlord could do such works etc ‘as in [its] absolute discretion … may be considered necessary or advisable for the proper management maintenance safety amenity or administration of the Building’. The second said that the expenditure for service charge purposes included ‘any other costs and expenses reasonably and properly incurred in connection with the Building’.

Judge Cooke said they should not be read literally as this would mean that the landlord could do absolutely anything. She referred to Holland Park Management Company Ltd v Dell where Lady Justice Falk said that the specific provisions of clauses that precede ‘general words’ ‘provide the best indication of what might be encompassed’ by them [48]. In Brewster House the leaseholders faced substantial bills if found liable. Counsel for the landlord argued that this is not relevant to construction of the lease, only to the reasonableness of the service charge in accordance with section 19 of the Landlord and Tenant Act 1985.  Judge Cooke accepted that the cost of works is not relevant if the particular type of work is clearly within an obligation. But cost is relevant if the clause is unclear and the cost is likely to be very expensive (‘potentially ruinous’). Only express words can generate an obligation that is vastly different in kind and scale from obligations that have been specified. In Brewster House the sweeper clauses did not make leaseholders liable for the costs of remedying the structural defects.

Likewise, in Ingress Park the FTT said that if the parties intended ‘for significant costs to be recoverable they would have mentioned it expressly rather than leaving it to be caught by the sweeping up clause’. Although cladding cases have referred to sweeper clauses, and they have been said to cover the costs of engineers (Scirocco) and waking watch costs (Citiscape; St John St), they do not appear to have been used to say that leaseholders are liable for significant costs of remediation works.

Concluding remarks

The first, and influential, cladding case was Citiscape. It was a somewhat unusual lease but the finding that the leaseholders were liable to pay the costs of both waking watch and remediation set the tone for later cases and also the public conversations. There may be strong reasons why judges seek to find landlords under an obligation to remediate, with the consequence that leaseholders pay: what FTT would want to adopt a narrow interpretation of the landlord’s obligation and risk ‘another Grenfell’? But the construction of lease provisions has sat uncomfortably with previous case law. Prior to the fire-safety crisis, the approach has always been that ‘repair and maintain’ is triggered only if there is some element of deterioration, and providing something ‘new’ in the absence of this can only done with particular lease wording, such as permitting improvements. Nor can the construction adopted be justified by reference to the claim that in long leases the parties’ intend leaseholders to bear all the ongoing costs. Although context is relevant to this exercise neither party could have envisaged that leases would need to provide for the replacement of perfectly ‘good’ but unsafe cladding. Construction has to be of the words used. It may be that landlords would not have expected to pay, but neither would leaseholders.  If the concern is about the risk of non-remediation, there is now a statutory duty on ‘accountable persons’ (often the landlord) to manage building safety risks (s 84) in relation to ‘higher-risk buildings’.  In many leases, landlords may still be able to pass on the costs to leaseholders (subject to Schedule 8 protection where relevant), but Brewster House does suggest that a different approach should be adopted to interpreting ‘maintain in good condition’.