Liability to contribute to repairs

What’s the liability of leaseholders to contribute to the cost of repairs carried out to parts of a building added after the original construction?

Most well drafted leases contain an obligation on the part of the landlord to maintain, repair and renew the structure of the building, and an obligation on the part of the leaseholder to contribute towards those costs my means of payment of a service charge.

But what happens if there’s been additions to the original structure?  Are the costs of repairing and maintaining those additions recoverable via the service charge?

The Upper Tribunal considered this predicament in Christopher Moran Holdings Ltd v Carrara-Cagni [2016] UKUT 0152 (LC).

 

Background

Daska House is a 9 storey building, containing both commercial units and 25 residential flats.  The top floor is occupied by a penthouse flat surrounded by a roof terrace.  In August 1972, the freeholder granted a head lease.  Under the terms of that headlease, the landlord is required to keep the premises in repair “including all buildings, structures or erections which now are or may be at any time hereafter erected thereon”.  Each flat is let subject to the terms of a long lease, under which the landlord is required to keep the premises “and all fixtures fittings and furnishings therein and additions thereto in a good and tenantable state of repair”.

At some stage, two conservatories were constructed as part of the penthouse flat, and became “and integral part of the flat”.  It is unknown who constructed the conservatories, or if the landlord consented to their construction.

 

Major works

In June 2012, the landlord commenced a programme of major works to the exterior of the building, which included the installation of new windows and patio doors to the flats.  The penthouse conservatories were demolished and rebuilt.

The leaseholders challenged their liability to contribute towards the costs of those major works, and the question for the Upper Tribunal on appeal was whether the leaseholders were liable to contribute to the costs of repairing the conservatories.

 

Decision of the Upper Tribunal

The landlord argued that the conservatories were part of the main structure of the building which it had covenanted to repair at the expense of the service charge, or, alternatively, that they were additions (which would also fall within the repairing obligation).

The leaseholder argued that the conservatories were not part of the reserved property and the costs associated with their repair should not be borne by the service charge.

The FTT had assumed the conservatories had been constructed in breach of the lease, despite “very flimsy material” in support of this contention.  And focused on the in reaching their decision that the leaseholder was not liable to pay any additional cost arising from the unlawful erection of the conservatories.

The appeal turned entirely on the construction of the terms of the leases.  The Upper Tribunal referred to the recent Supreme Court decision in Arnold v Britton, explaining the contemporary approach to the interpretation of contracts:

 

When interpreting a contract, the court is concerned to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge available to the parties would have understood them to be using the language in the contract to mean”.  It does this by focussing on the meaning of the words in their documentary, factual and commercial context, assessed in light of:

  1. the natural and ordinary meaning of the clause;
  2. any other relevant provisions in the lease;
  3. the overall purpose of the clause and the lease;
  4. the facts and circumstances known or assumed by the parties at the time the document was executed;
  5. commercial common sense; but
  6. disregarding subjective evidence of the party’s intentions.

Of course, service charge clauses are not subject to any special, more restrictive, rule of interpretation.

At the very least, the conservatories were “additions” to the building, which brings them within the express language of the leases, and means that the landlord is obliged to keep them in a good and tenantable state of repair.

Turning then to the (supposed) construction of the conservatories in breach of lease.  The Upper Tribunal found that there was no distinction in the leases between lawful and unlawful additions to the building.  There was simply no reason for the historic lawfulness of the additions to make any difference to the analysis of the continuing rights and obligations of the different parties.

As such, the landlord was obliged to repair the conservatories and recover the cost via the service charge.

 

 

 

31 May 2017

Cassandra Zanelli

Widely recognised for her expertise in the industry, and listed among the 100 most influential people in residential leasehold management, Cass heads the team at PM Legal Services. Passionate about education and sharing knowledge, she's a regular speaker at conferences, events and seminars, having worked with leading organisations in the property management industry.

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