Leasehold repair covenants and damages

Hunt & Ors v Optima (Cambridge) Ltd & Ors [2013] EWHC 681 (TCC)

This is a brief note on what was a complex case arising out of what, by any measure, appears to have been a very poor construction and subsequent maintenance of a new build block of flats. As will become clear, I’m rather troubled by some of the Court’s findings

There were numerous defects pleaded by 8 Claimants:

1. The roof on each of the Phases has leaked at one point or another for many years. The roofs are flat and were laid with some (unidentified) flat roofing membrane overlying insulation with the membrane bonded to the decking and insulation and with the membrane dressed up roof openings and penetrations (such as roof lights and pipes).
2. Item 2 relates to the pitched slate mansard roofs which run along much of the perimeter of the building. They contain Velux opening windows and, there is little dispute, there have been a number of leaks either around those windows or through the slates. There is a metal capping detail covering the join between the slates and the flat roof.
3. The guttering at roof level was aluminium. The complaint is now (it having been reduced in scope) that the guttering was set too close to the edge of the slate roof so that there was insufficient room left for the rainwater to “fall” into the gutter with the result that it spills over the gutter on to the slates and to the ground below.
4. Item 4 relates to the perimeter soffit boards which are located under the protruding roof eaves. It is said that the cover trim is loose and often hanging from the soffit boards. The boards themselves are loose together with the blocks off which they are supported.
5. Item 5 together with Item 6 comprise the two most substantial (alleged) defects. Item 5 relates to apparently significant deflection and bounciness of the floors of the flats above the ground floor, which is particularly noticeable when one walks over the floors. The larger the floor, the greater it seems the deflection is. There are issues as whether there is only bad workmanship or whether there is a design deficiency.
6. The major complaint relates to the noise levels and the alleged inadequacy of soundproofing between the apartments and the problems relate to the alleged incapacity of the horizontal elements to attenuate sound effectively.
7. The riser ducts in which various types of pipework ran vertically through the Building and individual flats have not been provided with any or any effective fire rated enclosure.
8. Flues from boilers in flats are in places said not to have been installed at the correct gradient and access to one boiler is alleged not to be in accordance with the relevant manufacturer’s requirements.
9. Cross smells (no longer pursued).
10. Electrical sockets where opened up have been found to lack any fire resistant material to the rear.
11. Water leaks have occurred in the Claimants’ flats on many occasions and from 2004 onwards. This is said to be attributable to poor plumbing work.
12. The Boiler to Flat 17 has a flue which runs over 9m with no or insufficient gradient.
13. This item relates only to Ms Ransome’s conservatory which was built on different and less effective foundations than the main building’s. The experts are agreed that the foundations were inadequate and the conservatory has not only subsided relative to the main building but it has also tilted away.
14. The car park is said to have settled due to inadequate base or sub base materials being provided. It does appear however that there are two main areas where there is some ponding and undulation.
15. At the edge of the car park in places there is a slot drain. At the foot of the gradient facing the entrance to Phase I, this has been crushed, apparently because it was insufficiently supported either by concrete haunching or with a suitable edge kerb.
16. The external surface water drainage runs between manholes, two of which are said to have been constructed the wrong way round and two sections of the drainage are bellied and water does not effectively drain out of them.
17. External foul drainage exhibit a number of defects including drain runs not being laid to appropriate falls, manholes not being set to the correct height and manholes being undersized.
18. Item 18 relates to the foul drainage laid beneath the building. The experts are all agreed that complete replacement of the foul drainage beneath the building is probably required. The occupants have complained about pervasive and obnoxious drainage smells and such opening up as has been achieved shows that very few of the drainage pipes have been supported so that they have sagged and foul drainage has leaked into the voids.
19. Finally there is some cracked block work (of a non-structural type) within the beam and block floor at ground level.

Aside from claims against the architecture practice which had signed off certificates of completion, the Claimants relied on a clause in the sale agreement for each flat, which stated that Optima, the developer and freeholder:

“shall cause the Premises to be completed in a good and workmanlike manner and with suitable materials pursuant to any Planning Permissions granted in respect of the Building so that the Premises shall be fit for occupation on completion and the Building will comply with all Planning Permissions and Building Regulations as soon as may be reasonably practicable…”

The Claimants also relied on the repairing covenants in each lease:

4.6.1 To maintain repair decorate renew amend clean repoint paint varnish whiten and colour
(a) the main structure of the Building and in particular but without prejudice to the generality thereof the roofs (which expression shall include any roof insulation materials or the like) and foundations external and internal walls (but not the interior faces of such parts of external and internal walls as bound the apartment or the rooms therein nor the doors exclusively serving the Premises in such internal or external walls) and timbers (including the timber joints and beams of the floors and ceilings thereof) external window frames main entrance doors chimney stacks drains gutters and external pipes thereof the passageways stairways and all Common parts of the building
(b) the sewers drains channels watercourses gas and water pipes electrical cables and wires supply lines in under and upon the Building
(c) the internal load bearing walls roof and floor joists of the Premises (but not including plaster or other surface material applied to interior faces of any load bearing walls whether internal or external or floor boards or ceilings)…”

To cut to the chase, both Optima and the architects lost. We won’t dwell on the architects. This was a relatively straightforward professional negligence issue, though with complicating facts and arguments. The measure of loss was capital diminution as at date of purchase.

The remainder of items (apart from the smell) were found for the Claimants either under the sale agreement (SA) (with limitation being found to run from completion of the building, not the individual flats) or the lease repair clause LR).

So:
1.Roofs: Liable under both SA and LR
2. Pitched roof: Liable under both SA and LR
3. Guttering: Liable for build under SA and for botched repairs under LR
4. Soffit boards to overhanging roof: Poor workmanship on installation – SA. Ongoing maintenance issues – LR
5. Deflecting floors/excessive bounce: Bad design and initial work – SA. More complexly, ‘repair, renew, amend’ in LR would cover joists to floors with deflection problems
6. Acoustic problems: sound insulation was unsatisfactory and inadequate, breach of Building Reg Schedule E2. Liable under SA. Not a breach of LR as not ‘structural’., but involving adding extra material for soundproofing to correct.
7. Riser Ducts: Constructed in breach of Building Regs. Liable under SA
8. Boiler flues: Liability on lack of fire stopping around flues under SA
9. Socket outlets: Lacked fireproof backing in contravention of Building Regs. Liability for architects as should have been picked up. Not addressed under SA or LR
10. Water leaks. Poor quality control on installation, poor fitting, poor specification. Liability under both SA and LR (for ongoing issues).
11. Boiler in Flat 17. Inadequate fall to outside wall on flue to boiler. Liability under SA
12. Conservatory. Was built for flat 1.On the evidence foundations done by Optima as precursor and part of sale agreement. Inadequate foundations leading to sinking and detaching from body of building. Liability under SA. No finding under LR.
13 Car park. Constructed badly in part, areas of settlement, but outside specifically demised parking spaces. No liability under SA or LR. (Also no liability for architects as not shown this should have been picked up).
14. Slot drain to demised part of car park. Badly constructed. Liability under SA.
15. Surface water drainage. Poor workmanship, inadequate gradients in drainage due to later ground settling. Breach of SA and also LR in not addressing gradient issue despite expert reports.
16. External foul water drainage. Inadequate falls, inadequate manholes. Liability under SA and also under LR for not replacing.
17. Foul drainage under the building. Gaps in pipes, poor ‘Heath Robinson’ supports, inadequate gradients and joints. Liability under SA and LR
18. Cracks to ground floor non-structural blockwork. No liability under SA, not yet established as maintenance issue as “not convinced to the requisite standard of proof that these “Premises” were thereby rendered unfit for occupation or that the Building overall as a result did not comply with the Building Regulations”, no liability under LR.

Damages under the SA and LR were primarily assessed on cost of works required, in lieu of specific performance. The leaseholders had formed a RMC and “Optima has proved over the years to be unreliable and unwilling to do or authorise little more than superficial and largely ineffective remedial works”. In addition, there was further investigation before a suitably specific order for specific performance could be drawn up, even if Optima could be relied upon to carry out the works, which it couldn’t.

There were the ‘loss of capital value’ damages against the architects, as mentioned above.

Then there were general damages for the leaseholders for inconvenience. I quote this at length for reasons I’ll come back to.

There are claims by each Claimant for general damages for inconvenience and discomfort. Each Claimant gave some evidence as to how it has been or each of the over the last 10 years. In Eiles v London Borough of Southwark [2006] EWHC 1411 (TCC), Mr Justice Ramsey confirmed in a tree root case that “modest but not generous” damages could be awarded for physical inconvenience and discomfort and mental suffering directly related to the matters complained of. He allowed £200 a year for the first five years of there being problems and £625 for the next two years where there was substantial disruption.
Most of the inconvenience and distress occurring here arose not only as the problems emerged but mostly out of the perceived inactivity of Optima. I find it difficult to see on the evidence that any inconvenience or distress has been or will be caused by the breaches of duty of S&P. The damage caused by S&P is the reduced capital value of the flats occurring by reason of defects which should have been picked up by S&P. S&P can not be criticised for failing to remedy any of the problems. The damages allowable against S&P are not as such for the cost of repairs which, when they will be carried out, will cause upheaval and inconvenience. I therefore propose to allow nothing for general damages against S&P.
In relation to Optima, the position is different. The results of their breaches of Clause 3.1 are that, first, the relevant Claimants suffered for a period of up to 9-10 years having to live in uncomfortable conditions, leaks being a regular and frequent problem, noise being an ever present problem, smells from sewage and deflecting floors, and, secondly, there will be serious inconvenience when the remedial works are carried out. Mr Bedwell has not lived in the premises since June 2007, Mr and Mrs Sahi since September 2010, Ms Ransome since October 2007 and Ms Wyatt has only lived at her flat between October 2003 to July 2004 and April 2008 to October 2009, their flats being rented out or occupied by others. The inconvenience and distress in their cases are mitigated by not actually living there for much of the time. The rents received have not been substantially less than the market rates. The position has been worsened by Optima’s failure to carry out the necessary work under its “repairing” covenants within a reasonable period.
Fair and modest allowances for general damages are as follows;

(a) Ms Ransome; 4 years occupation at £100 a year. One should add also an additional £150 for the inconvenience and aggravation of the remedial works being carried out and the time that will have to be taken by Ms Ransome in standing down tenants and in preparing her flat for the renewal works. Total £550.
(b) Ms Wyatt: a total of 27 months occupation at the rate of £100 per year. Like for Ms Ransome, I add another £150 relating to the impact of remedial works. Total £375.
(c) Mr Bedwell: a total of 32 months occupation at the rate of £100 per year. Like for Ms Ransome, I add another £150 relating to the impact of remedial works Total £427.
(d) Mr and Mrs Sahi: they have no claim for breach of Clause 3.1 and so their only entitlement to general damages relates to the failure by Optima to put right defects during their period of occupation. They lived there for 32 months. General damages at the rate of £40 each per year whilst they occupied is appropriate. Total £213.
(e) Mr and Mrs Peace: Similar considerations apply to Mr and Mrs Peace who have occupied their flat since February 2006. As for the Sahis, one must disregard the noise problem because it is not covered by the “repairing” covenant. An appropriate allowance is £40 each per year until the date of this judgment, 86 months. Total £573.
(f) Mr Hunt: he has lived at the flat since April 2004 and has particularly suffered from water penetration through the roof. There will have been nine years of occupation at the rate of £100 a year. In addition, he will have the inconvenience of the remedial works when they are done and an additional sum of £200 should compensate him for that. Total £1,100.

There were also some damages for prospective loss of sub-tenant’s rent, removal of furniture etc. when works were done.

Totals – with a set off against damages from Optima for the damages secured from the Architects, S&P.

Claimant Against Optima Against S&P
Mr Hunt (1st) £84,822.83 £1,100 £2,000 £53,460
Mr Bedwell (2nd) £60,023.14 £427 £1,850 £30,800
Mr and Mrs Sahi (3rd/4th) £213 £51,650
Ms Ransome (5th) £80,137.08. £550 £1,850 £52,390
Ms Wyatt (6th) £108,141.51 £375 £1,850 £28,450
Mr and |Mrs Peace (7th/ 8th) £573 £43,300

“In addition there is judgment for all the Claimants against Optima for £225,142.51 in relation to the “common parts” defects.”

Comment

There are elements of interest in this case for anyone pursuing disrepair claims, whether leasehold or not. The manner in which liability is separated between the Sale agreement and the lease repairing covenant is worth considering, as absent the new build and initial sale agreement, a number of items would have attracted no liability against the lessor/freeholder.

Bu there is a more concerning aspect. While on the face of it, this looks like a broadly successful claim against freeholder/developer and architects by the leaseholders of a particularly poor development, I have some concerns around the approach to general damages for leasehold disrepair.

The TCC has adopted the approach to general damages for inconvenience, discomfort and distress set out in Eiles v London Borough of Southwark [2006] EWHC 1411 (TCC). But Eiles is effectively a case in tort, being a damage from tree root case, relying on breach of duty and foreseeability. The claim for general damages in this case, at least under the Sale Agreement and the repairing Covenant, is effectively contractual, not tortious, being a claim in breach of obligation under the lease.

Moreover, the damages awarded are minimal – £35 to £100 per year – for what in some instances was quite considerable inconvenience and discomfort, including repeated leaking, fallen ceilings etc..

The Court of Appeal set out the method by which damages should be assessed for breach of repairing covenant by a lessor in Earle v Charalambous [2006] EWCA Civ 1090. From para 32 of Earle.

I do not think that a direct analogy can be drawn with awards in relation to protected periodic tenancies, still less with the “modest” awards thought appropriate in other areas of the law (see e.g. Watts v Morrow [1991] 1 WLR 1421, 1439G). A long-lease of a residential property is not only a home, but is also a valuable property asset. Distress and inconvenience caused by disrepair are not free-standing heads of claim, but are symptomatic of interference with the lessee’s enjoyment of that asset. If the lessor’s breach of covenant has the effect of depriving the lessee of that enjoyment, wholly or partially, for a significant period, a notional judgment of the resulting reduction in rental value is likely to be the most appropriate starting point for assessment of damages. Generally, this reduction will not be capable of precise estimation; as Morritt LJ said in Wallace, it will be a matter for the judgment for the court, rather than for expert valuation evidence.

So, not only is the appropriate measure of damages a notional reduction in market rental value, this is expressly set against ‘the modest awards’ in other areas of law (vide the ‘modest but not generous’ awards in Eiles).

Where a leased flat is then sublet, as with some of the claimants in this case, any award of general damages is likely to be minimal, admittedly, but then the measure is in special damages of an actual reduction in market rent achieved.

The TCC appears, then, to have chosen the wrong measure of general damages for discomfort, distress and inconvenience. Earle v Charalambous is Court of Appeal authority. Quite why this should have happened can’t be discerned from the Judgment. Certainly there is no discussion of Earle v Charalambous, rather it simply seems to be assumed that Eiles was the appropriate guide. It may be that Earle v Charalambous was not raised, making this decision per incuriam on that issue, or it may be that the Court didn’t deal with the issue put before it. In any event, an award of general damages on an Earle v Charamlabous assessment would surely have been very significantly higher that the ‘modest’ awards made here.

Indeed, perhaps the question should be whether an Earle v Charalambous assessment should be applied in tortious or nuisance cases such as Eiles. After all, the ‘interference with the lessor’s enjoyment of the asset’ could be very similar, even if it is not through breach of a direct contractual obligation.

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Posted in Disrepair, FLW case note, Housing law - All, Leasehold and shared ownership and tagged .

About Giles Peaker

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts, and still is Nearly Legal on Google +

5 Comments

  1. Has there been a decision made by the judicial review on 15th may on the bedroom tax it seems to be taking an awfully long time and i cant find any info save it should have been first half of june we are passed that now

  2. I’ve always thought Earle v Charalambous was overly generous. The purpose of damages is to compensate for loss. If you have to move out or can’t rent the place out then fine; the loss is easily quantifiable and I have no problem with the rack rent basis.

    But I’ve never understood why if you (or your sub-tenants) live there why you should get more than damages for inconvenience. The use of rack rent in those circumstances just appears to be an arbitrary and lazy way of working out the damages without actually grappling with the actual loss. I’ve always thought – in all these cases (long or periodic)- Calabar was rightly decided. You should look at the loss and assess damages in that way.

    • If you can’t rent the place out, the basis is the rent otherwise obtainable, but effectively as special damages, rather than general. As would be having to give sub-tenants a rent reduction, or reduce rent demanded.

      If sub tenants live there, you don’t get damages for inconvenience, you’ve lost me there. But given relation to tenancy disrepair and English Churches, what should be measure of discomfort, distress and inconvenience if not notional market rent?

      • That does beg the question I agree, but in every other area of law which deals with loss for inconvenience it manages to equate loss with a monetary sum.

        The issue I have is that the level of damages tends to turn on the level of the rent rather than the actual loss, i.e. the actual inconvenience. I just don’t think it is a good way of assessing damages; it penalises tenants who have low rents and penalises landlords who let at higher rents.

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