Leaseholders protected – the retrospective power of the Building Safety Act
The Court of Appeal (CoA) has handed down a pivotal judgement clarifying the retrospective application of the leaseholder protections afforded by the Building Safety Act (BSA) 2022, particularly concerning the recovery of service charges for historic building safety defects.
Background:
The property in question is Hippersley Point, a 10-storey building located in Abbey Wood, London, which was constructed around 2015. It contains 32 long-lease residential flats and a ground-floor commercial unit. Being over 18 metres high, it falls within the scope of buildings subject to enhanced safety regulations.
Adriatic Land 5 Ltd. acquired the freehold of Hippersley Point on 12 April 2017. In late 2020, significant fire safety defects were discovered in the external construction of Hippersley Point, necessitating substantial remedial and interim fire safety works.
The leases for the flats include service charge provisions, making tenants liable for building maintenance and repair costs. Section 20 of the Landlord and Tenant Act (LTA) 1985 limits a landlord's ability to recover more than £250 per flat for works unless specific "consultation requirements" are met or dispensed with by a
Tribunal. Adriatic applied to the First-tier Tribunal (Property Chamber) ("the FTT") for dispensation from these consultation requirements. The FTT granted unconditional dispensation in December 2021, duly acknowledging the immediate fire risk and the urgency of the works, but barred Adriatic from recovering its costs nonetheless. Adriatic appealed the FTT's costs condition to the Upper Tribunal (UT), which agreed that, although the FTT's costs condition was legally flawed, paragraph 9 of Schedule 8 to the BSA did apply, meaning that Adriatic could not recover the costs of its dispensation application from tenants holding "qualifying leases".
Decision:
The CoA, by majority decision, held that paragraph 9 of Schedule 8 to the BSA 2022 prevents the retroactive recovery of service charges associated with legal and professional costs related to safety defect liabilities under qualifying leases where those liabilities were incurred before 28 June 2022, the date on which the relevant provisions of BSA 2022 came into force.
Lord Justice Newey, favouring Adriatic, held that paragraph 9 applied only prospectively to liabilities incurred after 28 June 2022, while Lord Justice Nugee and Lord Justice Holgate determined that it also precluded service charges for earlier liabilities as yet unrealised into payments. The majority emphasised Parliament's clear intent to protect leaseholders from unsustainable financial burdens by granting the legislation a retrospective scope, despite its implications.
For Lord Justice Nugee, the correct construction of the BSA is that no further service charges are payable, irrespective of whether the costs had been incurred before that date.
Implications:
While the appeal concerns the interpretation of Schedule 8 paragraph 9, this case has much wider implications. This decision confirms that Schedule 8 of the BSA does have a retrospective effect regarding service charge liabilities. This means that, from the BSA's commencement date, qualifying leaseholders are protected from having to pay for certain building safety remediation costs (specifically, cladding removal under paragraph 8 and associated legal/professional services under paragraph 9), regardless of when those costs were incurred by the landlord or when the service charge demand was issued. This is a significant win for leaseholders, as it shifts the financial burden away from them for ongoing or unpaid demands related to these categories of costs.
Any landlords who incurred costs for cladding remediation or associated legal/professional services before 28 June 2022, and who have not yet received payment by that date, are now prevented from recovering those costs from qualifying leaseholders.
Thus, this judgement does not allow leaseholders to recover service charges that were already paid prior to 28 June 2022. If a leaseholder has already paid their service charge demand in relation to such costs before the BSA came into force, that payment remains valid and cannot be reclaimed. However, this in effect creates an "anomalous consequence" where "tardy" leaseholders who had not paid by the deadline are in a better position than those who diligently paid on time.
