Charging Leaseholders for Remedying Structural Defects – a recent Upper Tribunal case

The London Borough of Tower Hamlets -v- Lessees of Brewster House and Malting House [2024] UKUT 193 (LC) is a recent Upper Tribunal (UT) decision which considered a landlord’s ability to charge a service charge for works required to remediate inherent structural defects.

Facts

The case relates to two residential blocks constructed in the 1960s, known as Malting House and Brewster House. Following Government guidance in 2018, London Borough of Tower Hamlets (LBTH) commissioned a report which found the reinforcement of the building was insufficient to cope with normal loading. Works had previously been undertaken to assist with abnormal loading. 

After further investigation in 2020, LBTH decided to undertake various structural works to the two blocks (the Works) to remedy the defects. The costs of the Works across the two blocks was  estimated to be £8,066,944.38. LBTH sought to recharge (an apportioned sum of) these costs via the service charge to leaseholders at the blocks relying on various clauses within the leases to do so.  

The cost per leaseholder was significant, at approximately £60,000 for a one-bedroom apartment, £73,000 for a two-bedroom flat and £82,000 for a three-bedroom flat. This led to the leaseholders applying to the First Tier Tribunal (FTT) for a determination as to whether LBTH could pass down the costs via the service charge. The FTT found LBTH could not pass the cost of the Works to the leaseholders via the service charge and this decision was appealed by LBTH to the UT.

Decision

The UT reiterated the FTT’s decision and confirmed that LBTH could not pass down the cost of the Works via the service charge. The UT considered three clauses in the leases that LBTH sought to rely upon. Two are of particular interest:

Maintenance

In the lease LBTH covenants to “maintain and keep in good and substantial repair and condition” the main structure of the building. The UT considered the authorities on a covenant to maintain and confirmed their view that “maintain” means something different from “repair”. However, the UT concluded “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”.

“Sweeper”

LBTH also sought to rely on what is commonly known as a “sweeper” clause. The lease contains a sweep up provision allowing LBTH to undertake “all such works… as in the absolute discretion of the Lessors may be considered necessary or advisable for the proper…safety….of the Building”.

The UT considered the authority of Arnold v Britton [2015] UKSC 36 in relation to the construction of leases. This requires consideration, among other things, of the context of the “sweeper” clause and what precedes it. The UT confirmed the “sweeper” clause here does not require the remediation of structural defects as it “goes too far beyond the scope of anything that precedes it”. It further confirmed a leaseholder would not expect such a significant liability to be tucked away in general wording. 

The UT therefore ruled that neither of the above provisions allowed LBTH to pass down a service charge in respect of the Works. 

Commentary

This is an important UT decision for landlords who are considering whether the cost of significant remediation works can be passed down to leaseholders using the service charge mechanism in the lease. The case takes a narrow interpretation of sweeper provisions in leases. At the time of writing, the decision can still be appealed so legal practitioners, landlords, leaseholders and others in the industry will be eagerly awaiting further updates. 

This case puts the spotlight on the use of sweeper clauses in passing down service charge costs for remediation works. Whilst each set of circumstances is different and each case fact specific landlords should ensure sweeper provisions are scrutinised as to their extent. 

For further information please contact Zoe McLean-Wells.