Liability for costs of repair (City of London v. Leaseholders of Great Arthur House)

Property Disputes analysis

The court determined that the leaseholders of Great Arthur House were not liable (subject to some exceptions), under the terms of their leases to contribute to substantial works to the structure and exterior of the building which were being carried out by the reversioner, the City of London Corporation. The scope of the landlord’s ability under the leases at Great Arthur House to recover the sums it expended on ‘specified repairs’, did not extend to structural defects, even when works of repair (in the form of remedying damage and deterioration over the time during which the defect has existed) would be carried out at the same time. The case considers the interplay between remedying structural defects and repair and the sometimes overlapping nature of the two concepts. The case is therefore of relevance to anyone advising in the field of Landlord & Tenant law, and will be of interest to many lessees and landlords who wish to understand the scope of their obligations and liabilities under existing leases.

Mayor and Commonalty and Citizens of the City of London v Various Leaseholders of Great Arthur House [2021] EWCA Civ 431

What are the practical implications of this case?

The court rejected the suggestion that there was a clear distinction between works of repair and works amounting to the making good of structural defects, if the works of repair also had the effect of making good the structural defects. This meant in the present case that the repairs which remedied structural defects were outside of the scope of ‘specified repairs’ in the lease. Practitioners advising landlords and tenants should be mindful that repairs may not be repairs (subject to the precise terms of the lease in question) to the extent that they are also remedying structural defects at the same time.

This case reiterates that whether the cost of works can be recovered under a service charge depends on the specific wording used in the leases in question. Practitioners advising landlords or tenants should consider the precise form of words used carefully, as well as any relevant legislative background (as the leases in this case were granted pursuant to the right to buy, the relevant legislation in force at the time Housing Act 1980 was relevant), and consider whether the works proposed are properly ‘repairs’ or a structural defect which may be outside the scope of repairs, and for which the costs may not be recoverable under the lease.

For landlords and those advising them, the case shows the importance of ensuring service charge clauses are widely drafted, so that costs can be recovered from tenants, even if they involve substantial works to remedy structural defects. Such drafting may of course make the leases less attractive to potential purchasers. Thought should also be given as to whether planned works are works of repair, or will also remedy structural defects in the building itself.

What was the background?

Works had been proposed by the freeholder, the Corporation of the City of London (the Corporation), to a large Grade II residential property, Great Arthur House which contained 120 flats let on long leases. The building had suffered from water penetration from a number of years, stemming back to defects in the initial construction. These defects included poor formation of joints in the framework, no allowance being made for thermal movement in the aluminum framework and the contrast between the expansion in it and the concrete frame, a lack of support for vertical members of the aluminum frame and wind deflection of the same.

The Corporation proposed an extensive program of remedial works, costing approximately £8m to address the problems, which included replacing the existing curtain walling, works to the structural frame, new balcony doors and cladding and works to the roof. Had the works been recoverable through the service charge, the estimated cost for each leaseholder was £72,000.

The provisions of the lease provided that the Corporation could recover the costs of ‘specified repairs’ but these (subject to exceptions) did not include the repair of structural defects.

What did the court decide?

The Court of Appeal upheld the decision of the Upper Tribunal (Lands Chamber) (UT) that the lessees were not liable for the works, under the provisions of the lease allowing the landlord to charge the costs of ‘specified repairs’, a definition which excluded structural defects.

The case contains a useful overview of the case law of when a structural defect will be a matter of repair and when it is outside of the repairing covenant’s scope, starting with the decision in Ravenseft Properties Ltd v Davstone Holdings Litd [1980] QB 12. In this decision, Mr Justice Forbes, held that whether works amount to repair was a question of fact and degree and they did not cease to be works of repair merely because they also eradicated an inherent defect which had given rise to the need to repair.

The Court of Appeal rejected a narrow interpretation of what was a structural defect and upheld the decision of the UT that a structural defect was not confined to so-called inherent defects, but included matters which arose from the design or construction of the structure of the building. This was to be contrasted with matters of repair which resulted from damage or deterioration over time, or as a result of a supervening event. If work was as a result of damage or deterioration over time then it would be a repair, whether or not it related to a structural element of a building, but if there was no damage or deterioration it would not caught by a covenant to keep a property in repair (Post Office v Aquarius Properties Ltd (1986) 54 P & CR 61).

The court held that works to the structure and exterior of the building did not fall within the definition of ‘specified repairs’ for purposes of the leases in question, if the effect of the works was to remedy a structural defect. The fact that works would also remedy damage or deterioration which had occurred over time since the defect existed made no difference to this analysis. The leaseholders were therefore not liable to pay the cost of the remedial works under their leases, subject to certain exceptions.

The court noted that the Corporation had the right further to other specific provisions in the subject lease to require the tenants to contribute to the cost of making good structural defects where the landlord did not become aware of structural defects earlier than ten years after the grant of the lease or the landlord had notified the tenant of its existence before the lease was granted.

Case details

• Court: Court of Appeal (Civil Division)
• Judge: Lord Justice Lewison, Lord Justice Bean, Lord Justice Arnold
• Date of judgment: 25 March 2021

This content was first published on the Lexis®PSL on 30 April 2021 and was written by Oliver Park. For more information, please contact Oliver or your usual Charles Russell Speechlys contact.