Tenants not liable for Brewster’s millions

The Upper Tribunal in The London Borough of Tower Hamlets v Lessees of Brewster House & Malting House [2024] determined that the landlord could not recover from the tenants, through the service charge, the costs of remedying structural defects in two residential tower blocks constructed in the 1960s using the “Large Panel System” which had been found to be flawed.

WolfBite - the key takeaways:

• Tenants can apply to the Tribunal even before any costs have been incurred for a determination under section 27A of the Landlord and Tenant Act 1985 as to whether a service charge will be payable and, if so, the amount.

• When interpreting service charge provisions in a lease, the Tribunal will apply ordinary contractual principles.

• An obligation to “repair” will usually only bite if the premises are first in disrepair.

• An obligation to “maintain” may only require a party to preserve premises in their original state, rather than making something new.

• In this case, the Upper Tribunal found that it could not have been intended that a “sweeper clause” (designed to cater for future items of works and expenditure that could not be specifically foreseen at the date of the lease) would include an obligation to remedy a major structural defect. An express provision would be needed to do that.

• The landlord was accordingly unable to recover the costs of the proposed major works under any of the service charge provisions in the leases.

The decision does not mean that the landlord does not have to carry out the works. It does, and it will. It is just that the leases in this instance do not enable the landlord to pass the costs of those works on to the tenants.

It was not relevant in this case, but there are provisions in the Building Safety Act 2022 that might provide additional protection for certain tenants in other situations where there is a risk of full or partial collapse. These should be checked, in particular when dealing with buildings constructed or converted for residential use in the period from 28 June 1992 to 28 June 2022.

What were the structural defects at Brewster and Malting House?

The case concerned two 14-storey residential tower blocks in London constructed in the 1960s called Brewster House and Malting House.

The blocks were constructed using the “Large Panel System” (LPS), which was a common construction method at the time.

The LPS relies on wall panels made of precast concrete to bear the weight of the building, rather than a steel frame or columns.

The problem is that this system is vulnerable to a risk of disproportionate collapse if excess pressure is applied, for example from an impact, fire, high winds or explosion.

The flaw in the LPS was tragically exposed in 1968 when part of the Ronan Point tower block in East London collapsed following a gas explosion, killing four people and injuring 17 others.

The government recommended remedial works to LPS tower blocks shortly after the Ronan Point tragedy. Following these recommendations, steel angles were added to strengthen Brewster and Malting House and the decision was also taken to remove gas pipework before residents took up occupation.

Further investigations were carried out in 1988 to assess the impact of the construction of the nearby Limehouse Link tunnel. This resulted in the demolition of a third block and additional strengthening works to Brewster and Malting House.

Investigations and testing in 2018 and 2020 found that certain areas in the blocks required yet more strengthening to prevent damage in the event of a non-piped gas explosion. The landlord concluded that major works were required to implement those recommendations.

The proposed works are extensive. They will include the installation of an external steel frame, reinforcement of cross walls, and installing internal steel frames to bedrooms and lobby cupboards.

Essentially, a steel frame is to be retrofitted to each tower block where none existed before.

The cost of the proposed works is enormous, totalling more than £8 million split between the two blocks.

The landlord indicated that it intended to pass these costs on to the tenants.

The landlord calculated that the liability for those owning one-bedroom apartments would be £61,971 each, rising to £82,136 for three-bedroom flats.

Faced with having to pay these potentially ruinous sums, a number of the tenants applied to the Tribunal for a determination as to whether the costs of the major works were payable under the service charge provisions in their leases.

Service charge determinations under section 27A

It is open to either tenants or landlords under long residential leases to apply to the Tribunal under section 27A of the Landlord and Tenant Act 1985 for a determination as to whether a service charge is, or would be, payable.

If the Tribunal determines that a service charge is or would be payable, it can go on to determine the amount that is payable and who should pay it, to whom, and by what date.

Such an application can be made either once the service charge has already been demanded, or where the costs have yet to be incurred.

There are certain situations in which section 27A applications cannot be made, such as where the tenant has agreed or admitted that a service charge is payable, or where the Court has previously made its own determination.

It is quite common for tenants to apply for a determination under section 27A on the grounds that the wording of the lease does not allow the landlord to recover the costs of particular services through the service charge.

Other grounds include where the landlord has failed to comply with a statutory consultation process, where legislation specifically prevents recovery or where delays on the landlord’s part caused or contributed to the need to carry out the works in question.

The main focus for the Tribunal and Upper Tribunal in Brewster and Malting House concerned the wording of the leases.

How are service charge clauses interpreted?

A lease is a contract.

The same principles apply when it comes to interpreting the meaning of a service charge clause in a lease as to any other type of contract.

The job of the Court or Tribunal is to ascertain what a reasonable person, having all the background knowledge (including legal, regulatory and factual information) reasonably available to both parties when the contract was made, would have understood the language in the contract to mean.

The repairing obligations in Brewster and Malting House

The main clauses the Tribunal and Upper Tribunal had to consider in this case concerned the landlord’s obligations to:

• Keep the main structure of the building in good and substantial repair and condition.

• Maintain the main structure of the building.

• Do all such works as may be considered necessary or advisable for the proper management, maintenance, safety, amenity or administration of the building.

If the proposed structural works came within one or more of the above clauses, the landlord would be entitled to recover the associated costs from the tenants through the service charge.

What did the Tribunal and Upper Tribunal decide?

Both the Tribunal and the Upper Tribunal determined that the landlord was not entitled to recover the costs of the proposed works through the service charge.

Repair

The parties had already agreed that the proposed works did not involve works of “repair”, so this was not in issue.

It is well established that obligations to “repair” are aimed at remedying some kind of deterioration from a previous physical condition.

There therefore needs to be some disrepair before the party with the repairing obligation is required to carry out works.

In this case, the structure of the building had not changed. There was therefore no deterioration. It was simply that the building had been constructed with a defect that had only become known later on.

Maintain the structure

The Upper Tribunal agreed with the lower Tribunal that a covenant to “maintain” was not a covenant to remedy major structural defects

Maintenance connoted preserving premises in their original state and condition. It did not mean making something new.

Nor did the term “maintain” extend to making safe a building that was not safe when it was built.

Safety

The landlord argued that, if the proposed works did not amount to maintenance, they were nevertheless being done for the “safety” of the buildings and therefore came within the third clause.

The third clause had been described by the Tribunal as a “sweeper clause” although made it clear that giving it this label did not define its meaning.

The Upper Tribunal described it as a non-specific clause that came at the end of a list, being a common and sensible way for a lease to pick up items that could not be specifically foreseen when the lease was granted.

The question was whether this clause had been intended to encompass an obligation to remedy structural defects.

In looking at the proper interpretation of the clause, the Upper Tribunal considered that it could take account of the fact that remedying structural defects generally tends to be very expensive.

The fact that the costs of such works might be impossibly expensive for some tenants was therefore part of the facts and circumstances that would have been known to the parties when they entered into the leases, and was also a matter of commercial common sense.

It was also relevant that this was a sweeper clause. The express provisions that preceded it could be taken as the best indication of the types of matters that the sweeper clause was intended to cover.

Taking all of this into account, the Upper Tribunal did not consider that a clause requiring the landlord to do ‘everything necessary or advisable for the proper management, maintenance, safety, amenity or administration of the building’, required it to remedy structural defects that went far beyond the scope of the express repair and maintenance clauses that preceded it.

A tenant that signed up to a lease knowing that the Courts had held that obligations to “repair” and “maintain” generally did not include an obligation to remedy a structural defect, would not intend that such an obligation could still be tucked into the general words of a future-proofing sweeper clause.

The Upper Tribunal therefore agreed with the lower Tribunal that the extensive structural works the landlord was proposing did not come within the ambit of the repair, maintenance, sweeper or any of the other clauses in these leases.

The landlord’s appeal was accordingly dismissed.

The charges the landlord sought to impose on the tenants for the major works programme of structural strengthening to the two blocks were not payable.