Leaseholder protections for relevant buildings
The Building Safety Act contains various protections for leaseholders of relevant buildings (over 11 metres or 5 storeys high with at least two residential units) from paying service charge for works to remedy or mitigate a defect in the building which gives rise to a risk of fire or structural failure (“relevant works”).
All leaseholders (including commercial tenants) are exempt from service charge to remedy fire safety defects where the landlord is responsible for the relevant defect and/or is associated with the person responsible (i.e. it was the developer or was in a JV with the developer, or commissioned works to construct/convert the building). Even if the landlord was not in fact responsible, it will be deemed responsible (and so unable to recover service charge for remedying the defects) if it fails to provide a landlord certificate when required to do so.
Qualifying leaseholder protections
Certain leaseholders – known as qualifying leaseholders – are entitled to further protection from service charge.
Qualifying leases must be for a term of over 21 years, contain an obligation to pay service charge, be granted before 14 February 2022 and be the leaseholder’s home, or one of up to 3 dwellings they own in the UK.
The rationale for these additional protections is to protect home owners from service charge costs for safety related works to their homes.
Qualifying leaseholders are not required to pay service charge for remedying relevant leaseholders where:
- the landlord meets the “contribution condition” – meaning it has a net worth over £2 million in respect of each relevant building owned by the landlord group. The landlord is deemed to meet that threshold if no landlord certificate is provided when required so cannot recover service charge is payable for remedying relevant defects;
- their properties are worth under £325,000 in Greater London or £175,000 elsewhere;
- the works involve repairing a “cladding system”; or
- the costs are for legal or professional services relating to the landlord’s liability arising from relevant works.
Where no other protections apply, there is a limit on the total amount of service charge payable over a 5 year period, and annually.
Background to the case
This case concerned a property in London, which was originally owned by Damgate Freehold Limited, who sold it to Wimpey to develop. Once construction was completed in 2004, Wimpey granted leases to tenants, then granted an intermediate lease to the management company – LSMC – in 2007. Shortly after, Damgate exercised an option to reacquire the freehold of the block.
Failure to name correct landlord in service charge
In January 2021, LSMC served a demand on Mr Lehner for a service charge contribution of £1,244.85 for removing and replacing combustible insulation and installing additional fire stopping in the cavities between the interior and exterior surfaces of the walls. The demand incorrectly stated that Damgate (rather than LSMC) was the landlord, and included Damgate’s address.
The First Tier Tribunal (FTT) found that Mr Lehner was liable to pay those costs and he appealed to the Upper Chamber. The Upper Chamber reversed that decision, on the basis that LSMC, not Damgate, was Mr Lehner’s landlord and the demand had therefore fallen foul of section 47 of the Landlord and Tenant Act 1987 – which requires any demands to contain the landlord’s name and address, failing which the amounts demanded are treated as not falling due.
Presumption landlord responsible for defects if no landlord certificate served
The Upper Tribunal also considered whether the landlord was unable to recover the costs because it has failed to serve a landlord certificate under the BSA.
Under the regulations, landlords are required to serve a landlord certificate when demanding service charge in respect of relevant works (as well as other triggers, set out here). However, the demand for service charge in this case was served before the relevant regulations came into force, so the landlord was not required to serve a landlord’s certificate and the deeming provisions referred to above in the case of a failure to do so did not apply.
While the deeming provisions did not apply here, the outcome would have been different had the service charge demand been served after the regulations had come into force (or had the obligation to serve a landlord certificate been triggered via one of the other routes).
The case leaves unanswered the question of whether a landlord who fails to serve a landlord certificate when required can “cure” the deeming effect of its failure by subsequently serving a certificate. The regulations are not clear on this and there are differing views, however, it would be a brave landlord who takes the risk and the message is clear: landlords who wish to have any hope of recovering service charge in respect of relevant works need to understand and comply with their obligations to serve landlord certificates in a timely manner.
Presumption tenant held a Qualifying Lease
The Upper Tribunal determined that, as Mr Lehner’s lease met the initial criteria for a qualifying lease, the lease should be presumed to be a qualifying lease, even though Mr Lehner had failed to serve a leaseholder certificate. This serves as a reminder to landlords to comply with their obligations to take all reasonable steps to obtain leaseholder certificates, in order to establish whether their tenants benefit from the additional leaseholder protections listed above, as tenants of Qualifying Leases.
Authored by Paul Tonkin, Lucy Redman, and Katie Dunn.
