Adriatic Land 3 Ltd v Residential Leaseholders of the Waterside Apartments
3 December
In Adriatic Land 3 Ltd v Residential Leaseholders of the Waterside Apartments, the First-tier Tribunal (Property Chamber) (the “FTT”) asked itself a preliminary question:
Can the leaseholder protection provisions in Schedule 8 to the Act restrict a leaseholder’s liability for service charges which were otherwise payable before those provisions came into force?
Reduced to a simpler formulation: are the leaseholder protections retrospective?
In this FTT case, the answer was “No”.
The facts
The landlord, Adriatic Land 3 Ltd, incurred costs of £86,433.37 in 2019 and 2020 in connection with:
the installation of a fire detection system;
remedial works to the automatic and manual opening vents, and
costs in respect of fire marshals.
Service charge demands were made in the same years.
The FTT’s decision
FTT judge Holbrook held that Schedule 8 - the leaseholder protections - did not protect leaseholders on whom demands had already been served, in relation to costs that already been incurred by the time that Schedule 8 came into force on 28 June 2022.
He said:
Now that the provisions in Schedule 8 have been enacted and have come into force, their effect is clearer, and I have no doubt that the interpretation contended for by the Applicant is to be preferred. The provisions were brought into force, without transitional provision, by section 170(3)(a) of the Act itself, and the language of both section 122 are of Schedule 8 is in the present tense: “certain service charge amounts … are not payable” and “No service charge is payable …” etc. This is language which is apt only to affect liability for service charges which would otherwise become payable after the new provisions came into force, and nothing about it suggests that the payability of past (pre- commencement) service charges may be revisited by reference to the new provisions in Schedule 8.
Remediation contribution orders
Conscious perhaps that his decision did not protect even “qualifying leaseholders”, the judge turned his attention to section 124 of the Building Safety Act, which empowers leaseholders to apply to the Tribunal for a remediation contribution order.
He said this:
[A remediation contribution order] is an order requiring a specified person to make payments for the purpose of meeting costs incurred or to be incurred in remedying relevant defects relating to a relevant building. Whilst, obviously, I can make no finding at present as to whether the conditions for making a remediation contribution order would be met in relation to past service charges relating to the Building, it seems to me that the reference in section 124(2) to “costs incurred or to be incurred …” is indicative of the general proposition that such an order may be made in respect of relevant pre-commencement service charges.
NOTE: this is a First-tier Tribunal decision, and therefore not binding. It was made on 27 June 2023.
NOTE 2: in Adriatic Land 5 Ltd v Leaseholders of Hippersley Point [2023] UKUT 271 (LC), on 23 November 2023, the Upper Tribunal considered this case in the context of paragraph 9 of Schedule 8 to the Building Safety Act. It is a long decision, but worth a read, all the more so because Upper Tribunal decisions are binding on the First-tier Tribunal.
In paragraph 165, of Hippersley Point, the President of the Upper Tribunal, Mr Justice Edwin Johnson, said:
… keeping firmly in mind the importance of following the language of Paragraph 9, I find myself drawn to the most obvious interpretation of Paragraph 9(1). It seems to me that the words “No service charge is payable” mean what they say. As from 28th June 2022, when Paragraph 9 was brought into force, no service charge is payable in respect of Qualifying Services. The new regime applies, regardless of when the costs of the Qualifying Service were actually incurred, and regardless of when the relevant service charge became payable.
He continued, at paragraph 168:
My construction does not seem to me to be consistent with the reasoning of Judge Holbrook … in Waterside... To that extent, I find myself in disagreement with the reasoning of Judge Holbrook in Waterside. That said, it seems to me to be significant that Waterside was concerned with service charges which, so it appears, had already been paid before Schedule 8 came into force. The Judge did not therefore have to consider what would have been the more difficult case of service charges becoming payable prior to 28th June 2022, but remaining unpaid as at that date. Bearing this point in mind, the actual decision in Waterside does not seem to me to be inconsistent with my construction of Paragraph 9.