The Court of Appeal (CoA) has delivered a landmark ruling, clarifying that the general service charge provisions in social housing leases cannot be used to shift the enormous financial burden of rectifying fundamental, pre-existing structural flaws from public landlords to individual leaseholders.

Facts:

This case concerns two tower blocks in East London, Brewster House and Malting House, which were constructed in 1967 using the large panel system (LPS), a method later identified as hazardous following the collapse of Ronan Point in 1968.

The London Borough of Tower Hamlets commissioned a structural reassessment in 2018 following fire safety concerns in other high-rise buildings, which concluded that the buildings were structurally insufficient, even in relation to coping with normal loading. This meant that even the existing weight of the occupants and their furniture posed a risk of collapse. To remedy this fundamental design flaw, the Council determined that major works were required – at a cost in excess of £9m. However, the Council sought to recoup a portion of this quantum from 32 long-leaseholders via their service charge.

The leaseholders had originally purchased their flats under the “right-to-buy” (RTB) scheme between 1989 and 2005. The Council estimated that each leaseholder would be liable for between £70,000 and £95,000, depending on the size of their flat. The leaseholders challenged these charges, arguing that their leases did not obligate them to pay for the remediation of pre-existing structural defects. The Council contended that the costs were recoverable under a “sweeper clause” in the lease, which allowed them to charge for works considered necessary for the ‘safety’ of the building, as well as under a general definition of ‘total expenditure’ for costs incurred in connection with the building.

Two of the earliest leases also contained specific wording regarding structural defects, stating that the Council could only recover costs for such defects if the leaseholders were notified before the grant of the lease, or if the Council had only discovered the defect five years after the lease was granted. The FTT and the Upper Tribunal (UT), however, both ruled in favour of the leaseholders, finding that the Council’s broad interpretation of ‘safety’ and ‘total expenditure’ could not be used to bypass the statutory protections and implied covenants of the RTB legislation. The Council appealed to the CoA.

Decision:

The CoA dismissed the appeal, for converting an unsafe LPS building into a safe one involves work so fundamental and expensive that it cannot be “swept up” by general clauses or nebulous wording. The Court noted that, to bring the cost of ‘making good’ a pre-existing structural defect into such a clause would be to include something that “clearly does not belong there”.

Under the Housing Act 1985, the Council has an implied mandatory covenant to make all good structural defects. The Court reasoned that a landlord cannot claim to be exercising “discretion” to carry out works that it is legally obligated to perform by statute.

Regarding the oldest leases, the Court found that the Council had indeed been cognizant of the inherent structural “LPS flaw” since the 1960s. The fact that they only recently realised the buildings were unsafe under “normal loads” did not suddenly make it a “new” defect. Because the Council knew of the flaw, yet did not notify the tenants at the time of purchase, they could not pass on the costs.

Implications:

In this case, the Court has solidified a sharp legal distinction between maintaining a building and fixing an inherent design flaw. This judgement confirms that standard covenants to “maintain” or “keep in repair” only apply to the deterioration of a building over time. They do not automatically extend to making a building “safe” if it was structurally unsound from the day it was built.

For a landlord to pass on “ruinous” or “extraordinary” costs, the lease must contain express and unambiguous language specifically mentioning structural defects. Without this, the financial risk remains with the freeholder.

The ruling establishes that the statutory background of a lease is not merely a footnote, for it serves as a primary tool for interpretation. Because the RTB scheme was intended to foster homeownership for people of modest means, courts will interpret these leases through a lens of “consumer protection”.