Elizabeth Dwomoh finds out if the costs of repairs that also cure a structural defect in a building are recoverable under the service charge provisions of a right to buy tenant’s lease.
Key point
- Whether works are or are not works of repair remains a question of fact and degree
The aim of the right to buy scheme was to encourage greater home ownership, by allowing individuals, often of modest means, to purchase their council properties at discounted prices. The statutory scheme incorporated a degree of consumer protection for such leaseholders. Parliament legislated to ensure that tenants occupying under a right to buy lease would be shielded from liability to contribute towards the cost of rectifying structural defects in their building. In City of London Corporation v Various Leaseholders of Great Arthur House [2021] EWCA Civ 431; [2021] PLSCS 60, the Court of Appeal has reaffirmed this legislative aim.
The building
Great Arthur House is a Grade II listed building in London, EC1. The owner of the freehold reversion was the City of London Corporation. The 120 flats in the building were held under long leases originally granted pursuant to the right to buy between 1983 and 2015.
Over the years the building suffered from significant water penetration. Expert reports commissioned by the Corporation and the lessees revealed that the property suffered from inherent structural defects to the exterior and structure of the building.
Between February 2016 and the summer of 2018 the Corporation commenced a scheme of works that remedied the problem. The Corporation sought to recover the costs of the works through the service charge provisions of the tenants’ leases. The cost to each lessee was approximately £72,000.
Contractual terms
Under the terms of the leases, the leaseholders covenanted to pay the Corporation a reasonable part of the costs of carrying out “specified repairs”. The expression “specified repairs” was defined under the terms of the leases as repairs carried out in order “(i) to keep in repair the structure and exterior of the premises and the building in which they are situated… not amounting to the making good of structural defects; (ii) to make good any structural defect of whose existence the Corporation [had notified the lessee in accordance with the statutory requirements]… or of which the Corporation does not become aware earlier than 10 years after the grant hereof.”
When the first leases of Great Arthur House were granted, the right to buy regime was governed by the Housing Act 1980. Paragraphs (i) and (ii) of the definition of “specified repairs” were based on paragraphs 16 and 17 of schedule 2 of the Act.
Fact and degree
Relying on Ravenseft Properties Ltd v Davstone (Holdings) Ltd [1979] 1 EGLR 54, the Corporation argued that whether works were or were not works of repair was a question of fact and degree. Works of repair did not lose that quality merely because such works simultaneously eradicated an inherent defect in the building that had caused damage to or deterioration in the building. If works were repair, properly so called, then they fell within the definition of “specified repairs” in paragraph (i) and were properly chargeable to the lessees.
The lessees contended that, under the contractual provisions of paragraphs (i) and (ii), they were not required to contribute to the costs of the works in so far as they amounted to the making good of a structural defect. The Upper Tribunal (Lands Chamber) agreed.
The UT found that if works of repair to the structure and the exterior of the building had the effect of remedying a structural defect, those works did not fall within paragraph (i) of the definition of “specified repairs”. The costs of works that remedied a structural defect were only recoverable if they fell within paragraph (ii). Thus, it made no difference to the recovery of costs under paragraph (i) if the works of repair remedied deterioration that had occurred during the time the defect existed, if it also remedied the structural defect.
No bright lines
On appeal the Corporation relied on Payne v Barnet London Borough Council [1997] EWCA Civ 1752; [1997] PLSCS 158 during its submissions. It argued that a “bright line” distinction could be drawn between “repair on one hand and works to make good inherent defects on the other”. Works of repair did not cease being so just because they cured an inherent defect in the process.
The Court of Appeal rejected the Corporation’s interpretation of Payne. It found that the court in Payne did not intend to cast doubt on the proposition that works could be works of repair even though their effect was to eradicate an inherent (or structural) defect, provided that the defect had caused damage and the “fact and degree” test was met.
Under the terms of the leases it was possible that works of repair could cure inherent defects, but if they did those costs were not recoverable from leaseholders unless the Corporation had served the requisite statutory notice on each lessee. Such a finding chimed with the legislative purpose behind the right to buy scheme; namely, to make homeownership affordable for those with modest means and to afford them a degree of consumer protection from liability for structural defects they were unlikely to be aware of.
Elizabeth Dwomoh is a barrister at Lamb Chambers
