(NB photo is of an entirely unrelated building.)

A constant issue in disrepair (at least until the Homes (Fitness for Human Habitation) Act 2018 for tenancies) and in leasehold major works charges matters has been the difficulties of liability for inherent defects and where and how it overlaps with repairs. Now the Upper Tribunal (Lands Chamber) has had a go, and it is very interesting*.

City Of London v Various Leaseholders Of Great Arthur House (LANDLORD AND TENANT – SERVICE CHARGES ) (2019) UKUT 341 (LC)

This matter arises out a dispute between leaseholders and City of London in respect of the costs of major works to the structure and exterior of Great Arthur House. The cost to leaseholders was put by City of London at an eye watering £72,000 per leaseholder.

A preliminary issue of lease interpretation was determined by the First Tier Tribunal, at the request of the parties, and that issue was then taken to the Upper Tribunal.

The leases (all RTB) provided that the leaseholders would pay for specified repairs, which:

“… means repairs carried out in order:

(i)      to keep in repair the structure and exterior of the premises and of the Building in which they are situated (including drains gutters and external pipes) not amounting to the making good of structural defects;

(ii)     to make good any structural defect of whose existence the Corporation has notified the tenant in the notice served pursuant to (Housing Act 1980 or 1985 notices) which therein stated the Corporation’s estimate of the amount (at then current prices) which would be payable by the tenant towards the costs of making it good (such defects being listed in the Fourth Schedule hereto) or of which the Corporation does not become aware earlier than ten years after the grant hereof and

(iii)    to keep in repair any other property over or in respect of which the tenant has any deemed rights”.

So, the key issue was whether “to keep in repair the structure and exterior” could extent to remedying structural defects that did not fall under the notice/period requirements at (ii).

The Upper Tribunal notes that the Housing Acts 1980, 1985 and indeed 1986, had statutory distinctions between repairs to structure and structural defects, without defining them.

The Upper Tribunal found that the lease clauses broadly mirrored the statutory provisions.

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 is more likely to be achieved if the cost of unforeseen works that have the effect of remedying a structural defect (which works are likely to be more expensive than works of simple repair) is excluded from the service charge rather than included.

On the effect of the distinction, the Upper Tribunal went on to find:

1. 39. In my judgment, therefore, works of repair of the structure and exterior of the Building do not fall within para (i) of the definition of “specified repairs” if the effect of the works is to make good a structural defect.  The costs of works that do have the effect of making good a structural defect are only recoverable if they fall within para (ii).  Thus, if works have the effect of making good a structural defect, it makes no difference that the works also remedy deterioration that has occurred over the time that the defect existed.
   40. A structural defect is not confined to a so-called inherent defect but must be something that arises from the design or construction (or possibly modification) of the structure of the Building.  It is to be contrasted with damage or deterioration that has occurred over time, or as a result of some supervening event, where what is being remedied is the damage or deterioration. That is repair and is not in the nature of work to remedy a structural defect, even if it is a part of the structure that has deteriorated.  As a simple example, mastic sealant is part of the structure of a modern building.  The replacement of degraded sealant – even with a more modern and better type of sealant – is repair, not the making good of a structural defect; similarly, repointing a flank wall, or replacing spalled brickwork.  These are simple examples.
   41. At the other end of the scale of size and complexity of work, the gradual deterioration over time of substantial components of a building, such as the fenestration or curtain walling, may be a matter of simple repair, even if the only economically defensible way to repair is to replace and upgrade to a modern specification.  On the other hand, if a structural component has deteriorated in condition because of a defect in its design or construction, the work to repair and eradicate the structural defect is likely to amount to work to make good a structural defect.  There is no bright line that can be drawn as a matter of principle.  Whether repairs are works that have the effect of making good structural defects is necessarily a fact-sensitive assessment.
   42. In practice, a contract for extensive works may include works that fall into both categories. There is no reason of principle why a package of works cannot be analysed to see whether there are separate constituent parts, some of which are in the nature only of repairs to remedy disrepair of the Building and others of which are works to make good a structural defect. 

This resulted in City of London’s appeal on the preliminary issue being allowed only to the extent of the UT’s reasoning supplanting the FTTs at first instance.

Comment

These are interesting distinctions, and ones that may require some thought. If a repair is not something that arises from a deterioration due to a defect in design or construction, then that raises questions about a lot of issues that would otherwise (as a ‘deterioration’) fall under section 11 Landlord and Tenant Act 1985 for tenants. (Though this distinction is irrelevant for all tenancies to which s.9A Landlord and Tenant Act 1985 current applies and those to which it will apply from 20 March 2020, so long as the defect is such as to make the property unfit for habitation).

On the other hand, the repair/structural defect distinction may be very significant for leaseholders, depending on their lease terms, with the obvious current example being cladding issues, where there may not be repair issues, but are structural defects. This will all depend on specific lease terms.

Slightly more worrying though is that the Upper Tribunal does not appear to have had much of the fairly extensive case law on inherent or structural defect v repair cited to it. It might be that this decision is effectively per incuriam

(*It is very interesting to me. I accept, albeit with a degree of incredulity, that this may not apply to everyone.)