The Mayor and Commonality and Citizens of the City of London v Various Leaseholders of Great Arthur House  UKUT 341 (LC)
2nd April 2020
The Upper Tribunal determined, by reference to the interpretation of the specific terms of various “Right to Buy” leases, whether the leaseholders were liable to contribute to the landlord’s costs of repairing structural defects.
The lessees occupied their flats under leases granted pursuant to the “Right to Buy” statutory scheme. The leases permitted the landlord to recover the costs of repairs to the structure and exterior of the building “not amounting to the making good of structural defects”.
The landlord had incurred costs of c.£8,000,000 in carrying out works to the walls of the building. The works were necessary to fix a structural defect in the walls. The landlord sought to recover the costs of the works through the service charge in the sum of c.£72,000 per lessee.
The First Tier Tribunal held that the works were not recoverable through the service charge, although the Tribunal’s reasons for finding for the tenants were not particularly clear.
Decision [on appeal]
The Upper Tribunal examined the leases in their statutory context. The terms of the leases were derived from and mirrored the “Right to Buy” legislation. That legislation, although amended on a number of occasions, plainly intended to protect former council tenants from liability for substantial service charges after they acquired their properties where the service charge costs were associated with remedying structural defects of which the tenant was not aware. That purpose was achieved by removing the cost of works that had the effect of remedying a structural defect from the service charge.
That being the case, the landlord’s contention that one had to look at the purpose for which the repairs were carried out could not stand. If the works were repair works, they would likely have been carried out for the primary purpose of repairing the building. The landlord’s proposed construction of the lease therefore had the effect of including within the service charge all works, save those that were carried out for the purpose of making good a structural defect but incidentally achieved a repair. That did not sit comfortably with the statutory provisions from which the leases were derived.
Accordingly, the costs of repair works that had the effect of making good a structural defect were not payable by the tenants through the service charge. It made no difference that the works also remedied deterioration that occurred over the time that the defect existed.
Though the landlord technically succeeded on the appeal, the decision of the FTT was broadly upheld by the Upper Tribunal for different reasons and the tenants were therefore the successful parties in reality.
Though the Upper Tribunal was interpreting the specific wording of the leases in question, as the terms derived from widely used legislation, the same or similar wording will be found in many other leases granted under the “Right to Buy” scheme and this decision is therefore of importance in cases concerning such leases.
Expertise: Service Charges
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