Landlord and tenant – Service charges – Right to buy – Preliminary issue arising on interpretation of terms in standard “right to buy” long leases – Works of repair carried out to structure and exterior of building – Local authority landlord appealing against decision of First-tier Tribunal on interpretation of service charge provisions in long leases created under right to buy provisions in Housing Act 1980 and Housing Act 1985 – Whether cost of works “amounting to the making good of structural defects” chargeable as service charge if carried out for purpose of repairing structure and exterior – Appeal allowed in part
The respondent lessees held long leases of flats in Great Arthur House, London EC1. The building comprised 120 flats but the leases, which were created pursuant to the right to buy provisions of the Housing Acts 1980 and 1985, were in substantially identical terms. The respondents covenanted that they would pay the appellant a reasonable part of the costs of carrying out “specified repairs”, defined as “repairs carried out in order (i) to keep in repair the structure and exterior of the premises … not amounting to the making good of structural defects; and (ii) to make good any structural defect of whose existence the [landlord] had notified the tenant …”.
A dispute arose between the appellant landlord and the respondents in respect of the costs of carrying out substantial work to the structure and exterior of the building. That comprised works to the curtain walls on the west and east facades of the building, the roof and concrete walls. The total cost was in excess of £8 million. The appellant claimed that the cost of the works was chargeable to the respondents as service charge under the leases (amounting to about £72,000 per flat). The respondents applied to the FTT for a determination under section 27A of the Landlord and Tenant Act 1985 about recovery of service charges.
The FTT determined as preliminary issues that: work carried out to remedy structural defects, even if that work happened to remedy disrepair, fell outside the definition of “specified repairs” for the purposes of charging a lessee for works, as long as either the lessee was not notified of the structural defects when the lease was granted or the appellant did not become aware of the structural defect earlier than the end of the initial period of either 10 or five years after the grant. The definition of “specified repairs” in the lease meant that works of repair were not specified repairs if their effect was to make good a structural defect. The appellant appealed.
Held: The appeal was allowed in part.
(1) The purpose of the relevant provisions of the statutory code was to protect former council tenants from exposure to very substantial and unexpected service charges upon their acquiring long leases of their flats. That protection was tempered by reference to time. Works to repair the structure and exterior would be chargeable to the lessees, but not the more substantial costs associated with remedying structural defects, unless either the lessee had bought on notice of the likelihood of such works or the defect was first discovered a number of years into the term of the lease. That objective was more likely to be achieved if the cost of unforeseen works that had the effect of remedying a structural defect (which were likely to be more expensive than works of simple repair) was excluded from the service charge rather than included. Given that the words starting “not amounting to ….” Were an exception or proviso to what had gone before, one would expect the language of the exception to define what was excluded, i.e. repairs that amounted to the making good of structural defects. The words “amounting to” seemed to be used in the sense of what the works in substance did or achieved. If the works were works of repair then, objectively, they were likely to have been carried out wholly or partly for the purposes of repairing the building. That would have the effect of enabling a landlord to charge for all works except those that, objectively, were carried out for the sole purpose of making good a structural defect but incidentally achieved a repair. That would have the result of permitting the local authority to charge for all but a small class of works and would allow the costs of expensive structural works to be charged in many if not most cases. That sat uncomfortably with the evident purpose of the statutory provisions from which the terms of the lease were derived. Too much weight was being given by the appellant to the general words “in order to” that introduced the various paragraphs of the definition.
(2) Works of repair of the structure and exterior of the building did not fall within para (i) of the definition of “specified repairs” if the effect of the works was to make good a structural defect. The costs of works that did have the effect of making good a structural defect were only recoverable if they fell within para (ii). Thus, if works had the effect of making good a structural defect, it made no difference that the works also remedied deterioration that had occurred over the time that the defect existed. A structural defect was not confined to a so-called inherent defect but had to be something that arose from the design or construction (or possibly modification) of the structure of the building. It was to be contrasted with damage or deterioration that had occurred over time, or as a result of some supervening event, where what was being remedied was the damage or deterioration. That was repair and was not in the nature of work to remedy a structural defect, even if it was a part of the structure that had deteriorated. Whether repairs were works that had the effect of making good structural defects was necessarily a fact-sensitive assessment. In practice, a contract for extensive works might include works that fell into both categories. There was no reason of principle why a package of works could not be analysed to see whether there were separate constituent parts, some of which were in the nature only of repairs to remedy disrepair of the building and others of which were works to make good a structural defect.
Timothy Straker QC and Jonathan Manning (instructed by the City of London Corporation Comptroller and City Solicitor) appeared for the appellant; Christopher Baker (instructed by DAC Beachcroft) appeared for the respondents.
Eileen O’Grady, barrister
