UK: Q&A: Who Pays For Fire-Safe Cladding?

Co authored by David Peachey (Enterprise Chambers).

I am the tenant of a flat in a block which is around 10 years old. The landlord has informed the tenants that, because of safety concerns following the Grenfell Tower fire, the cladding needs to be replaced and the tenants must pay for this through their service charge. Surely it isn't reasonable or moral for the tenants to pay for these works?

Answer

Whether or not the cost of replacing the cladding is recoverable through the service charge will depend on the construction of the leases. The tribunal will not concern itself with questions of morality.

Explanation

In E&J Ground Rents No 11 LLP v Various leaseholders (First-tier Tribunal (FTT), unreported, 24 January 2018) a landlord provided a "waking watch" service – trained officers patrolling a block of flats – as a means of complying with guidance issued by the Department for Communities and Local Government following the Grenfell Tower fire.

The guidance outlined interim measures to ensure residents' safety pending the removal of cladding and required landlords to provide a reliable fire detection and warning system. The local fire service had also directed the landlord to comply with the Regulatory Reform (Fire Safety) Order 2005 and an agreed action plan.

The leases required the landlord to ensure compliance with the requirements and directions of any competent authority or with all statutory provisions relating to the building and also to insure the block. Failing to provide a waking watch put the landlord at risk of breaching the policy.

The FTT decided the landlord's actions complied with its obligations and the costs of the waking watch were reasonable so the costs were recoverable through the service charge.

In Pemberton Reversions (5) Ltd v Various leaseholders (FTT, unreported, 18 July 2018), the landlord replaced cladding that did not comply with fire safety requirements. It sought to recover through the service charge the cost of the works of around £3m – which equated to £10,000 for each leaseholder – together with the costs of a waking watch charge until the cladding was replaced.

The leaseholders claimed the charges were not recoverable under the leases, were unreasonable, and it would be morally wrong to require them to pay. The leases required the landlord to repair and maintain the structure of the blocks and permitted the recovery of the cost of works necessary for the sake of good estate management and for the general benefit of the blocks.

The FTT determined that, as a matter of contract, the lease provisions permitted recovery of the sums claimed and stated that the moral position was not a matter for the tribunal.

If your lease obligations are similar to those cited, it is likely the leaseholders will be obliged to pay for the works.

Question

I am the freeholder of a block of flats, each let on a long lease. I engage a managing agent to run the flats and am entitled to charge leaseholders for the managing agent's fees under the service charge provisions of the leases. I have an annual rolling contract with the managing agent. Is this a qualifying long-term agreement (QLTA), such that I have to comply with the consultation provisions under section 20 of the Landlord and Tenant Act 1985?

Answer

Whether an agreement is a QLTA depends on whether the minimum commitment of the landlord exceeds 12 months. If so, the agreement is a QLTA and the consultation requirements must be followed.

Explanation

In Corvan (Properties) Ltd v Abdel-Mahmood [2018] EWCA Civ 1102; [2018] PLSCS 88, a management agreement provided: "The contract period will be for a period of one year from the date of signature hereof and will continue thereafter until terminated upon three months' notice by either party."

The Court of Appeal had to decide whether this was a QLTA. McFarlane LJ decided it was a matter of contractual interpretation. Engaging the principles in Arnold v Britton [2015] UKSC 36; [2015] EGLR 53, he said the requirement that the agreement "will continue" after one year meant the minimum term of the contract must be for more than 12 months. Even if three months' notice were given prior to the end of the first year, the earliest it could expire would be after a year and a day. To terminate at exactly 12 months would breach the term which stated that the agreement will continue after one year.

McFarlane J decided it was the minimum, not the maximum, possible commitment of the landlord which was important. In those circumstances, the agreement (being for at least 366 days) was a QLTA. Without dispensation from the QLTA procedure, the maximum annual amount recoverable per leaseholder was capped, by section 20 of the 1985 Act, at £100 per annum.

Just five months after Corvan, the Upper Tribunal (Lands Chamber) provided an example of how slightly different drafting/circumstances could lead to a different result. In Bracken Hill Court at Ackworth Management Company Ltd v Dobson [2018] UKUT 333 (LC); [2018] PLSCS 175, HHJ Huskinson decided an agreement that "shall last no longer than 364 days", which was renewed by telephone on the same date every year, was not an agreement for "more than 12 months". Provided there was no legal commitment to continue beyond 12 months, it was irrelevant that no tender process was ever undertaken and that the contractor expected the arrangement to continue.

So if landlords want to avoid a rolling contract being a QLTA, the minimum commitment must, in substance, never exceed 365 days in a normal year.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.