London Borough of Tower Hamlets v Lessees of Brewster House and Malting House [2024] UKUT 193 (LC)

23 December 2024

By the date of this appeal to the Upper Tribunal, there were only two of the original three buildings standing on the Barleymow Estate.

Those two were Brewster House and Malting House.

A short history

Brewster and Malting Houses were constructed using the Large Panel System, a popular building technique in the 1960s whereby concrete slabs were bolted together to form the walls and floors of a building.

The weight of the building was carried by those concrete slab walls.

The buildings were reinforced between 1990 and 1994, but in 2018, a survey reported that the building could not cope with “normal loading”.

The landlord arranged for more investigations, and, in March 2020 decided that the following works should be done:

• Installation of an external steel frame.

• Application of external reinforcement to cross walls.

• Installation of internal bedroom steel frames.

• Installation of lobby cupboard steel frames.

• “Associated works”.

The estimated costs

The estimated total cost for the two buildings was originally £8,066,944.38, to be split 50/50 between them.

On an individual level, that meant that the leaseholders of flats would be asked to pay a service charge of:

• £60,971 for a one-bedroom apartment,

• £73,066 for a two-bedroomed flat

• £82,136, for a three- bedroomed flat

By the time that the proceedings reached the Upper Tribunal, those costs were expected to be higher.

The leaseholders applied to the FTT for a determination:

• whether those service charges were payable under the terms of their leases, and

• whether the costs were or were going to be reasonably incurred under section 19 of the 1985 Act.

They argued not only that the cost was excessive but also that the proposed works would not remedy the inherent structural defects in the buildings.

The leases

The leases were granted under the right to buy scheme between 1989 and 2005. They contained the following covenant on the part of the landlord local authority (with my emphasis):

(5) Subject to and conditional upon payment being made by the Lessee of the Interim Charge and the Service Charge at the times and in the manner hereinbefore provided:-

(a) To maintain and keep in good and substantial repair and condition:

(i) The main structure of the Building including the principal internal timbers and the exterior walls and the foundations and the roof thereof with its main water tanks main drains gutters and rain water pipes (other than those included in this demise or in the demise of any other flat in the Building)

…

(j)

(ii) To employ direct or enter into contracts with all such surveyors builders architects engineers tradesmen accountants or other professional persons as may be necessary or desirable for the proper maintenance safety and administration of the Building…

(o) Without prejudice to the foregoing 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 FTT’s decision

The FTT decided that no service charge was payable by the leaseholders by way of contribution to the cost of remedying the structural defects that had arisen as a consequence of the Large Panel System.

That decision was based on the FTT’s interpretation of the leases.

The landlord appealed.

The appeal

Covenants to maintain and to repair

In the Upper Tribunal, Judge Elizabeth Cooke considered the meaning of “to maintain” and “to repair”.

Those two verbs bore different meanings: neither encompassed the remedying structural defects in a building:

The consistent approach of the authorities is that whilst “maintain” does mean something different from “repair” – it is not otiose and can denote something preventive rather than remedial – neither a covenant to repair nor a covenant to maintain is a covenant to remedy structural defects, nor to make safe a building that was not safe when it was built.

There are a variety of authorities on the various verbs used in leases to cover works to buildings. Judge Cooke worked her way through them:

Assethold Limited v Watts [2014] UKUT 537 (LC)

Welsh v London Borough of Greenwich [2000] 3 EGLR 41

Fluor Daniel Properties Ltd and ors v Shortlands Investments Ltd [2001] 2 EGLR 103

Mason v Totalfinaelf UK Limited [2003] EWHC 1604 (Ch)

Westbury Estates Ltd v The Royal Bank of Scotland Plc [2006] CSOH 177 (the Outer House of the Scottish Court of Session)

Alker v Collingwood Housing Association Ltd [2007] EWCA Civ 343.

Things necessary or advisable for … safety

Clause 5(5)(o) is what is known as a “sweeper clause”, designed to cover things that the draftsperson may have omitted, forgotten or been unable to foresee.

In Judge Cooke’s words:

Sweeper clauses are a form of future-proofing such as is commonly and sensibly provided for in a lease that is supposed to last for many decades.

In a question that plainly flagged the answer, Judge Cooke asked herself:

Was clause 5(5)(o) intended to encompass anything so far-reaching as an obligation to remedy structural defects?

This was her answer:

This clause is, necessarily, unclear; … it is relevant to its construction that the remedying of structural defects generally tends to be very expensive, … a commitment to bear the cost of such work is obviously a commitment to something “potentially ruinous”, as I put it in Dell v 89 Holland Park Management Company Limited [2022] UKUT 169 (LC).

In Dell, the Court of Appeal considered that the fact that this was a “sweeper” clause was relevant; as Falk J explained … the specific provisions that precede it are “the best indication” of what it might include. Such a clause might include the incurring of costs in a dispute over the repair of the building, but could not be extended to the extraordinary litigation costs the landlord had incurred. Only an express provision could go that far.

The words “Without prejudice to the foregoing” at the start of the clause do not mean that in construing it one cannot look at the items earlier in the list.

The effect of those words is to set the context for this clause and indicate its purpose and effect.

It is intended to provide for items not yet thought of, but only express words will generate an obligation that is vastly different in kind and in likely scale from the obligations already specified. In particular, in my judgment a tenant who signs up to pay for the landlord’s compliance with a covenant to “repair” and to “maintain” has to be taken to know that the courts have specifically held that neither of those terms includes an obligation to remedy a structural defect. Such a tenant would not intend that the obligation to do just that could be tucked in to the general words of a future-proofing clause like clause 5(5)(o).

This ground of appeal was dismissed.

Could a definition clause save the day?

The landlord advanced a second argument, based on the definitions contained in the Fifth Schedule, which set out the mechanics of the service charge.

The paragraphs relied on where these:

In this Schedule the following expressions have the following meanings respectively:-

1.“Total Expenditure” means the total expenditure incurred by the Lessors in any Accounting Period in carrying out their obligations under Clause 5(5) of this Lease less sums expended from the monies set aside under Clause 5(5)(p) of this Lease and any other costs and expenses reasonably and properly incurred in connection with the Building …

2.“the Service Charge” means such reasonable proportion of Total Expenditure as is attributable to the Demised Premises …”

The landlord could not claim the cost of the structural works under clause 5(5) - that was the clause that required it to maintain and repair, and which entitled it to recover costs necessary or advisable for the safety of the building.

It could however - or so went the landlord’s argument - recover the costs as “any other costs and expenses reasonably and properly incurred in connection with the Building …”

Not so, said Judge Cooke. That phrase could not be read as literally:

… including absolutely anything that the landlord might reasonably and properly do in connection with the building…

She reminded herself of the factors listed by Lord Neuberger in Arnold v Britton, and particularly the need to look “at the context of the clause, which here includes its function, which is a definition”.

Whilst that definition may expand the scope of the costs that the landlord was entitled to charge to the service charge, but:

… could the parties have intended it to include the potentially open-ended and ruinously expensive obligation in question here?

In my judgment clearly not.

And again, in signing up to covenants to repair and maintain, the original tenants knew that those terms excluded the remedying of structural defects.

They would not have intended that potentially enormous liability to be included in the general wording of clause 5(5)(o); still less would they expect it to be derived from the words of a definition.

This second, final element of the appeal was also dismissed.