A recent judgment (11 July 2024) of the Upper Tier Tribunal has clarified when a landlord can rely on the 'sweeper clause' in a lease to recover the costs of works needed to the freehold.
Background
London Borough of Tower Hamlets ("the Local Authority") owns the Barleymow Estate in East London which consists of two blocks of flats, owned by long leaseholders (leases of at least 21 years). The blocks were originally constructed using a 'large panel system' ("LPS") whereby mass-produced concrete slabs were bolted together to form the walls and floors of the building. The Local Authority needed to remedy structural defects caused by the LPS. The costs of these works were estimated at £8,066,944.38. The Local Authority sought to recover the costs of these works from the leaseholders.
The leaseholders applied to the First Tier Tribunal for a determination as to whether the costs were recoverable as service charge under the lease. The case (London Borough of Tower Hamlets v Lessees of Brewster House and Malting House) was originally heard by the First Tier Tribunal who confirmed that the charges were not payable under the lease. The Local Authority appealed this decision and the Upper Tribunal handed down their judgment on 11 July 2024.
The relevant clauses of the lease
The leases for the blocks required the landlord to keep in good and substantial repair and condition the main structure of the buildings ("the Specific Clause"). There was a further non-specific clause requiring the landlord to "... to do or cause to be done all such works installations acts matters and things as in the absolute discretion of the lessors may be considered necessary or advisable for the proper management maintenance safety amenity or administration of the building" ("the Sweeper Clause"). The Local Authority argued that the costs were recoverable under the Specific Clause, and, in the alternative, the Sweeper Clause.
It is a well-established principle that 'maintain' means something different to 'repair', and that neither a covenant to maintain nor repair extended to a covenant to remedy a structural defect. This meant the Local Authority could not rely on the Specific Clause.
The Tribunal then considered whether the Local authority could rely on the Sweeper Clause. The Tribunal held that:-
- Although the cost of works is not generally relevant when considering the construction of a lease clause, the fact that the clause was attempting to be used to recover a cost from each leaseholder of around £80,000, then construction was relevant.
- A lease needs an express provision to include huge litigation costs where a landlord had gone far beyond that which was required of it. Further, "for the proper management maintenance safety amenity or administration of the building" did not require it to remedy structural defects.
- The definition of total expenditure did not enable the landlord to charge for the work, the covenants were what the tenant signed up to and those terms excluded the remedying of structural defects.
It held that the Local Authority could not rely on the Sweeper Clause either.
This judgment is not to say that a landlord does not have an obligation to make a building safe under specific statutory regimes or even alternative leasehold provisions, but it indicates clearly that express provisions are required for the recovery of the cost of structural works and that a sweeper clause cannot be relied upon to cover absolutely everything which does not fit within a more specific clause.
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.