Gary Lewis considers Grenfell-style cladding leasehold disputes

Post-Grenfell Leasehold Disputes

One year on from the Grenfell tragedy, litigation is becoming increasingly common throughout the country – from Croydon to Manchester – concerning the issue as to who is liable to pay for measures to prevent future tower block fires: management companies or leaseholders?

In short, management companies are seeking to recover by way of service charges the costs of removal and replacement of Grenfell-style cladding from reluctant leaseholders who ultimately face the prospect of losing their homes if they are unable to pay what are not in significant sums.

The fundamental starting point, as always with any leasehold dispute, is of course the express provisions of the lease itself. In the case of Arnold v Britton [2015] UKSC 36 the Supreme Court emphasised the following seven principles when interpreting the provisions of leases: -

  • 1.That the language used in the lease should not be undermined by commercial common sense;
  • 2.That the clearer the meaning of the words used, the less willing the Court will be to depart from that natural meaning, and the Court should not seek out drafting issues simply to justify departing from the natural meaning;
  • 3.Commercial common sense should not be invoked retrospectively to assist when it later transpires that the bargain agreed between the parties has worked out badly for one of them;
  • 4.The Court should be slow to depart from the natural meaning of a term simply because it appears to have been imprudent;
  • 5.Only facts known to both of the parties at the time of the lease should be taken into account;
  • 6.When an unanticipated event occurs, the Court will give effect to the parties' intention if that is clear; and
  • 7.Service charge clauses are not subject to any special rule of interpretation and need not be construed "restrictively".

Those principles were very much at the forefront of the relatively recent First Tier Tribunal decision concerning a development in Croydon, Firstport Property Services Limited v various leaseholders of Citiscape, (LON/00AH/LSC/2017/0435, 9 March 2018). Indeed, they are also likely to be so in the awaited decision concerning more than 300 leaseholders at Vallea Court and Cypress Place in the Green Quarter, Manchester, and their landlord, Pemberstone, following a hearing on the 13th June 2018.

In the Croydon case, a post-Grenfell fire safety test by the London Fire Brigade determined the cladding on two blocks of residential flats to be unsafe such that it required removal and replacement at a cost of approximately £483,000. The landlord sought to recharge the same to its tenants pro-rata by way of service charge. The tenants challenged the charge principally on the basis that it was not within the scope of the service charge provisions of the lease. They argued that the replacement of the cladding could not be considered a ‘repair’ in circumstances where, amongst other things, it was still in the condition in which it was designed and constructed so there had been no deterioration in its condition.

The Tribunal dismissed the tenants’ arguments based on the true interpretation of the provisions of the lease. The landlord was not limited to the costs of repair but also entitled to the cost of "renewing or otherwise treating as necessary" the structure of the buildings. The service charge provisions went further and made reference to "rectifying or making good any inherent structural defects". Therefore, the cost of the works was within the recoverable service charge. Put simply, the Tribunal was not willing to depart from the natural meaning of the words used in the leases simply because they turned out to be a bad bargain for the tenants.

Significantly however, in doing so, the Tribunal commented that tenants in such cases may well, in turn, have claims against a number of third parties: ranging from the manufacturer of the cladding, to the developer who installed the same or indeed the local authority who certified the cladding. That then is perhaps why, in spite of that decision, the developer, Barratt Homes, has since agreed to meet the cost of removing and replacing the cladding to the relief of the leaseholders in that particular case.

It follows that, while the Croydon case is a non-binding authority that does not set any precedent, insofar as there are similar clauses in other leases up and down the country (which, from experience, are not uncommon), it underlines how they are likely to be interpreted by the Tribunal. Perhaps then it is the satellite litigation that will inevitably follow by understandably disgruntled tenants against any number of third parties which will make for the most interesting reading.

Gary Lewis

25th June 2018