A question of interpretation – repair or structural defect?
This is a closer look at the Court of Appeal decision in Mayor and Commonalty and Citizens of the City of London v Various Leaseholders of Great Arthur House [2021] EWCA Civ 431.
Background
This dispute commenced in the First-Tier Tribunal, before appeal to the Upper Tribunal and further appeal to the Court of Appeal and is principally concerned with the interpretation of the phrase “not amounting to the making good of a structural defect” within the 120 long leases of residential flats at the Grade II listed Great Arthur House (“the Building”). Significantly, all of leases were granted pursuant to the statutory right to buy.
Between 2016-2018, the landlord undertook extensive works costing c.£8m to the Building to address various issues relating to the structure and exterior which, if recoverable via the service charge, would amount to a liability of in excess of £72k per flat.
As part of the service charge, the leases all contained a covenant requiring the leaseholders to pay a reasonable part of the costs of carrying out “specified repairs”. “Specified repairs” were defined as:
“…repairs carried out in order:
- 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;”
- to make good any structural defect of whose existence the Corporation [i.e. the landlord] has notified the tenant in the notice served … or of which the Corporation does not become aware earlier than ten years after the grant hereof.”
The Court of Appeal’s decision
The Court upheld the earlier decision of the Upper Tribunal in favour of the leaseholders limiting their liability to pay and dismissed the landlord’s appeal. Some of the key comments to emerge from those two decisions (albeit in the context of the subject leases) were:
- It was the effect of the works that was important. If they had the effect of making good structural defects, then the cost of those works could only be recovered via the service charge pursuant to part (ii) of the definition.
- The terms of the leases evidently derived from statutory provisions. The leases had been granted in the context of the right to buy legislation pursuant to the Housing Acts 1980 and 1985 (as modified) and this provided context, as it gave right to buy tenants partial protection from liability to contribute to the cost of remedying structural defects.
- A structural defect was not confined to just what are known as “inherent defects,” but was something arising from the design, construction (or possibly modification) of the building. However, a structural defect is distinct from damage or deterioration which has occurred over time. Where what is being remedied is the damage or deterioration, that constitutes repair and is not the remedying of a structural defect, even if it is part of the structure itself that has deteriorated. Fancourt J had previously given an example relating to mastic sealant forming part of the structure of building. The replacement of that degraded sealant would constitute repair and not the making good of a structural defect.
- Whether repairs were works that had the effect of making good structural defects was a question of fact. It should be feasible to analyse a scheme of works to see whether the various components are required to just remedy disrepair or to make good a structural defect. In the event of a dispute, this could always be assessed by the First-Tier Tribunal.
Points to take away
- Whilst the decision hinges on the specific drafting of the leases in question, it is a useful reminder of the courts’ approach to interpretation. The Court considered that because the leases were granted to the statutory right to buy, the related legislation provided an aid to interpreting the lease provisions and the leaseholders’ liability as a result.
- Where major works are proposed to buildings occupied pursuant to existing right to buy leases, it is likely to be worth revisiting the lease provisions to double-check that there are no similar limitations on recovery via the underlying service charge mechanism. This is particularly topical given the recent influx of cases involving cladding and fire safety.
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