Sarah Elliott
- Partner
- Construction
Judicial guidance on defect claims and leaseholder protections under the Building Safety Act 2022
In Almacantar Centre Point Nominee No.1 Ltd & Ors v Penelope de Valk & Ors, on appeal to the Upper Tribunal (UT) from the First Tier Tribunal (FTT), the UT has held that:
- Proving the existence of a “relevant defect” as defined under the Building Safety Act 2022 (BSA) is not required to engage the leaseholder protections contained in the BSA which protect “qualifying leaseholders” from paying service charge for fixing unsafe cladding.
- The meaning of “unsafe cladding” goes beyond combustible products affixed to the outside of a building.
- The limitation period of 30 years prior to the coming into force of the BSA does not apply to leaseholder protections in the BSA in respect of unsafe cladding remediation.
The UT’s decision may expose landlords to greater risks of paying for remediation of residential buildings that are deemed unsafe.
Background
This case concerns the recovery of service charge by Almacantar, the landlord, from the leaseholders of dwellings at Centre Point House.
Centre Point House is a relevant building for the purposes of the BSA, and was built in the 1960s. Its façade had deteriorated over time and was assessed as being in poor condition. Due to its original design, the FTT declared it to be “inherently defective from the date it was completed“.
Almacantar put forward a scheme to remediate the defects. The work would cost around £7,000,000; around £240,000 per flat. The case centred on whether Almacantar could recoup this sum from the leaseholders via the service charge.
The FTT found that while the proposed scheme fell within Almacantar’s repair obligations under the leases (and therefore service charge could otherwise be recoverable from the leaseholders), leaseholders with “qualifying” leases could rely on the leaseholder protections contained in the BSA, and were exempted from paying service charge related to “cladding remediation“. Almacantar appealed to the UT.
Protections for Qualifying Leaseholders
The BSA protects qualifying leaseholders from paying certain service charges for remedying “relevant defects” and all service charges for “cladding remediation“.
Such protections are only available to leaseholders owning a “qualifying lease“. Ascertaining whether a lease is a ‘qualifying’ lease is complex and landlords and leaseholders should seek detailed advice on this.
For information on qualifying leases, click here: Building Safety Act 2022, a landlord’s guide to leaseholder protections – Wedlake Bell.
In the instant case, there were 13 qualifying leaseholders with interests in 18 of the 36 flats at Centre Point House.
Relevant Defect Required?
Paragraph 8 of Schedule 8 of the BSA provides: “no service charge is payable under a qualifying lease in respect of cladding remediation“. In its appeal, Almacantar argued that in order for that leaseholder protection to apply, that cladding remediation must also include “relevant defects“.
The definition of a “relevant defect” under the BSA is also a complex area of law and beyond the scope of this article. However, the key point for the purposes of this case is that “relevant defects” must arise from works which took place within the 30 years prior to the BSA coming into force. Therefore, the original works at Centre Point House, which were carried out between 1966 and 1969, could not have caused relevant defects.
While the wording in Paragraph 8 of Schedule 8 of the BSA appears unequivocal, Almacantar put forward numerous arguments regarding interpretation of the BSA wording, including that:
- Other related sections of the BSA expressly provide that Schedule 8 applies to the remediation of relevant defects only; therefore, that requirement must be satisfied to engage the cladding remediation
- Previous case law provides that Schedules to an Act are subsidiary to the operative provisions contained in the Act itself.
- The drafting of the Explanatory Notes of BSA indicate that Schedule 8 relates to relevant defects only.
However, the UT decided that the wording in Paragraph 8 of Schedule 8 should be read at face value. In reaching its decision, the UT considered the underlying aims of the BSA and the intentions of the government. In particular, the UT referred to a ministerial statement that “no leaseholder living in their own flat ‘would have to pay a penny to fix dangerous cladding’”. The UT noted that Paragraph 8 of Schedule 8 provided a ‘fallback position’ for leaseholders whose buildings had unsafe cladding that was installed before the 30-year cutoff date for relevant defects.
Proving the existence of relevant defects was therefore not required to engage the protection from service charges to pay for cladding remediation, and it was not relevant that the defects at Centre Point House arose from works which took place more than 30 years before the BSA came into force.
“Cladding”
Next, the UT turned to the definition of “cladding remediation” in the BSA, which is “removal or replacement of any part of a cladding system that (a) forms the outer wall of an external wall system, and (b) is unsafe“.
Almacantar had argued that the external wall components at Centre Point House were not “cladding” forming part of a “cladding system” since they were built into the external wall itself, rather than being a product affixed to the external wall (such as the cladding used at Grenfell Tower).
The UT noted that “cladding” is not defined in the BSA. It considered definitions from the Oxford English Dictionary and RICS Guidance, but ultimately did not introduce any new definition. The UT decided that the FTT’s decision that the exterior of Centre Point House did constitute cladding should stand. The FTT had considered evidence over 5 days (including technical evidence from experts) and was therefore entitled to come to its conclusion.
“Unsafe”
Turning to the interpretation of the word “unsafe“, Almacantar argued that the BSA covered cladding which was “inherently unsafe” and “posed a fire safety risk” but that this did not extend to general degradation or structural decay over time. However, the UT decided not to limit the ambit of Paragraph 8 purely to inherent fire safety concerns. It decided the word “unsafe” should be read with its ordinary and natural meaning.
In its decision, the FTT had already found that “unsafe” means more than simply “out of repair” and encompasses a range of threats to the building, its residents or the public, thus setting a high threshold. Considering the FTT’s finding that the cladding at Centre Point House posed a risk of fatality to passers-by, the UT agreed with the FTT’s decision that the cladding was unsafe.
Almacantar’s appeal was therefore dismissed. The qualifying leaseholders were exempt from paying for the cladding remediation at Centre Point House, meaning that those costs fell to be borne by Almacantar.
Key Take-Aways
The FTT and UT have:
- Broadly interpreted the meaning of “unsafe cladding“.
- Confirmed that the 30-year limitation period does not apply to the leaseholder protections in respect of cladding remediation.
The UT has potentially opened the door to claims against landlords from leaseholders for past service charge contributions to fix historic defects on exteriors of buildings constructed pre-1992. Looking forward, landlords could be at risk of greater liability for remediating buildings with ageing out-of-repair exteriors.
The UT acknowledged Almacantar’s argument that this apparent expansion in scope of the leaseholder protections could impact landlords extraordinarily. However, it considered that this accords with the policy of the BSA, and as it observed its decision in Adriatic Land 5 Limited v Leaseholders at Hippersley Point, “what might be seen as unfair results are…simply a reflection of life in the new world of the (BSA)”.
The decision is subject to a further appeal by Almacantar is due to be heard in 2026.
This article is for general information purposes only and does not constitute legal advice or a comprehensive statement of the law. Specific legal advice should always be sought in relation to individual circumstances.
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Alex Hurley
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