Radcliffe Investment Properties Ltd v Meeson & Ors (LANDLORD AND TENANT – SERVICE CHARGES) (2023) UKUT 209 (LC)

This is a very interesting appeal to the Upper Tribunal on the issue of a freeholder recovering waking watch costs through the leaseholder’s service charge. The freeholder was given permission to appeal an FTT decision that only the first 7 days worth of costs (of almost 4 months worth) was recoverable.

The building, Park Rise, In Manchester had been converted from an office block to residential flats in 2018 by Mandale Homes. The current freeholder took over in August 2018, after many of the leases had been sold.

In January 2018, before all works were completed, a fire risk assessment had been carried out for the developer.

The assessment was a detailed document of 27 pages with a schedule of photographs attached. At section 5 it was recorded that the building was not occupied at the time of the survey and was due to be handed over. At paragraph 17.4 it was noted that one means of escape in the event of fire was a route across the roof of the building between the two stair heads, and area which was due to be filled with additional flats.

At page 23, after reviewing the fire protection and procedural arrangements observed by the assessor at the time of his inspection, the assessor recorded that the likelihood of fire at the premises was “medium” and that there was a risk of “moderate harm” in the event of a fire. That rating was explained as meaning that an outbreak of fire could foreseeably result in injury (including serious injury) of one or more occupants but was unlikely to result in multiple fatalities. It was therefore considered that the risk to life and fire at the premises was “moderate” and it was said to be “essential that efforts are made to reduce the risk”.

On the front of the document it was suggested that the risk assessment should be reviewed by a competent person by January 2019 or earlier if there had been significant changes. A more detailed explanatory text on page 3 informed the reader that the assessment should be reviewed at regular intervals, usually not exceeding 12 months, and must be reviewed when material alterations were made to the structure or the layout of the building, or when there were changes in the use of the building, or significant changes to the occupancy type or numbers or changes to the management of the organisation to whom the document was addressed.

There was no evidence that the freeholder or its agents had reviewed the assessment or commissioned a further fire risk assessment after taking over in August 2018. This was despite Article 9(3) of the Regulatory Reform (Fire Safety) Order 2005 requiring FRAs to be reviewed and updated if any significant changes have occurred.

There was also the 18 December 2018 advice from MHCLG that “building owners or their appointed competent professional advisers should check that the external wall systems on their buildings are safe.” This was not done.

On 30 May 2019 there was a leak that damaged the fire alarm control panel to the building, causing it to malfunction. This alerted the fire service who inspected straight away. The officer

expressed concern over a number of features of the building. He observed multiple failings of fire compartmentation including holes above ceiling tiles; he formed the view that neither of the lifts was adequately protected from fire given the height of the building; he was concerned that the cladding on the exterior of the building was of unknown material which appeared to him to be an aluminium composite; and he observed a high level of short-term occupancy within the building. His advice (backed by a threat of a prohibition order if it was not complied with) was that a waking watch be implemented with immediate effect. By 3 June that advice had been followed and a two-person waking watch had been introduced. The waking watch was reduced after 7 days when repairs were made to the fire alarm panel.

On 7 June the fire officer served an enforcement notice informing the appellant that, in the opinion of the fire authority, it had failed to comply with the requirements of the Fire Safety Order in the following respect:
“The fire risk assessment for the premises is not suitable and sufficient and does not identify the general fire precautions required to ensure the premises are safe specifically in relation to the spread of fire on the premises.”

The breach was identified as being of article 9 of the Fire Safety Order and the following explanation was given:

“The fire risk assessment for the premises pre-dates the occupation of the premises and is not suitable and sufficient. There is a risk of internal fire spread because of breaches in compartmentation and these have not been identified or addressed as part of the fire risk assessment. The fire risk assessment does not identify the materials used as part of the external wall system and whether the external wall system poses a risk of external fire spread.”

Eventually, by September 2019, after it had been identified that the panelling was painted glass and so not flammable, and the compartmentation works had been approved as carried out, the waking watch was discontinued.

The total cost of the waking watch was some £57,894. On the leaseholders application to the FTT, the first 7 days (about £5000) were allowed as recoverable, but the rest was not on the basis that the freeholder had failed to carry out an adequate fire risk assessment.

On appeal, the freeholder argued that if it had carried out a timely FRA, the result would have been the same.

This did not impress the Upper Tribunal

there was no evidence of the view which the fire officer would have taken if a proper fire risk assessment had been available on 30 May 2019. Such an assessment would have confirmed that the exterior of the building did not comprise a combustible material and would have eliminated one of the concerns which prompted the instigation of the waking watch. Nor was it suggested that the appellant would have been under any obligation to notify the fire officer of the result of a fire risk assessment undertaken in January 2019, even if it had revealed the inadequate fire protection of the lift and the breaches in compartmentation. If a proper fire risk assessment had been undertaken after the building had become fully occupied there is no reason to think that the same remediation measures as were eventually commissioned on 9 August and completed on 20 September 2019 would not have been capable of being undertaken within a similar time.

The freeholder’s main argument was that the FTT had applied the wrong test on whether the costs were reasonable, citing this passage from Continental Property Ventures Ltd v White (2007) L&TR 4

“The question of what the cost of repair is does not depend upon whether the repairs ought to have been allowed to accrue. The reasonableness of incurring costs for their remedy cannot, as a matter of natural meaning, depend upon how the need for remedy arose.”

Thus, the landlord said, it was irrelevant that the costs might have been avoided if there had been an earlier FRA that had identified the works needed, rather it was a question of whether it was reasonable for the landlord to incur those costs in the situation as it was.

The Upper Tribunal did not accept this. It noted that in Continental Properties v White, repair costs that had been increased by an unrepeaired leakk where reduced by way of a set off against the leaseholder’s claim for damages for failure to repair and observed

In considering questions of reasonableness, it is rarely appropriate to begin with an inflexible rule. In Avon Ground Rents Ltd v Cowley (2019) EWCA Civ 1827, to which Mr Morris also referred, Nicola Davies LJ approved, at (31), this Tribunal’s conclusion in the same case that “whether an amount is reasonable as a payment in advance is not generally to be determined by the application of rigid rules but must be assessed in the light of the specific facts of the case”. That was said in the context of a payment of service charges in advance, which is regulated by section 19(2), 1985 Act, but it is equally applicable to a determination under section 19(1) whether a cost was reasonably incurred, or under a determination of the same question under the provisions of a contract.

Here, the landlord was in breach of its regulatory duty to have a suitable and sufficient FRA by January 2019, and that breach continued up to the point in May 2019 when the waking watch cost was imposed. That breach was a criminal offence under article 32 of the 2005 Fire Safety Order. Had the landlord complied with the law, the relevant defects would have been identified and remedied before the leak damaged the alarm panel.

In my judgment the FTT was entitled to conclude that the costs of the waking watch were not payable by the leaseholders. This was not a case in which many years elapsed between the omission or breach of duty and the incurring of the cost made necessary by it. The waking watch was one part of the cost of making the building safe. The cost of the necessary remedial work to put right the fire safety defects was increased by the cost of the waking watch, but that increase was wholly avoidable. If the landlord had been aware of the need to put right the defects in compartmentation and the inadequate fire protection for the lift, as it would have been if it had commissioned an up-to-date fire risk assessment when it should have done, the cost of the necessary works would not have been increased by the cost of the waking watch. The FTT considered that the cost was “unreasonable”. That was an assessment which it was open to the FTT to make. As a result, the disputed cost was not payable under the Lease and the section 19(1) cap did not take effect. The appeal is therefore dismissed.

(The FTT’s finding of payment of seven days of waking watch occasioned by the damaged alarm panel were left in place).

Comment

As a variant on the ‘historic neglect’ argument, this is interesting. A landlord’s failure to comply with its statutory obligations, where it occasions increased costs down the line can also be arguable as making the cost not reasonable, in whole or in part. Given the historically cavalier approach to fire risk assessments by many agents and landlords, this could well be of use to other leaseholders faced with waking watch costs in respect of defects that should reasonably have been identified and remedied some time before if an adequate FRA had been done.