The Mayor and Burgesses of the London Borough of Tower Hamlets v Various Leaseholders of Brewster House and Malting House

The issue in this appeal is whether the respondent leaseholders, who purchased flats in two tower blocks under the right to buy scheme, are liable to contribute to the cost of works required to remedy major structural defects and make the buildings safe for habitation.

The First Tier Tribunal (Judge Nicol, Mr DI Jagger and Mr JE Francis) held that the leaseholders were not so liable and the Upper Tribunal (Judge Elizabeth Cooke) agreed. The appellant council (‘the council’) now appeals to this court, contending that the tribunals below misconstrued the terms of the lease, specifically the obligations of the leaseholders to pay for ‘all such works … as in the absolute discretion of the Lessors may be considered necessary or advisable for the … safety … of the Building’ and for ‘any other costs and expenses reasonably and properly incurred in connection with the Building’ (clause 5(5)(o) read with clause 4(4) and the definition of ‘Total Expenditure’ in Schedule 5).

I have concluded that the decisions below were correct and that the appeal must be dismissed. In short, when the clauses from which I have quoted selectively are considered in full and in their context, which includes the right to buy legislation, they do not impose on the leaseholders an obligation to pay to make good a pre-existing structural defect in the building.

The facts are not disputed. I can take them as set out in the decisions below.

The Barleymow Estate in East London used to be an industrial area belonging to the Barley Mow Brewing Company. In the early 1960s it was acquired by the London County Council and redeveloped as social housing. Three tower blocks were built, one of which has since been demolished. The two remaining blocks are Brewster House and Malting House which, together, consist of 112 flats, 80 of which are let to council tenants and 32 are held on long leases. The respondents (‘the leaseholders’) are the lessees of nine of those flats. Their leases were granted under the right to buy scheme at various dates between August 1989 and January 2005. The council is the freeholder.

The blocks were built in or about 1967 using the Large Panel System (“LPS”), a construction method widely used in the 1960s whereby mass produced concrete slabs were bolted together to form the walls and floors of the buildings. However, a critical flaw in that method was that, because the walls bore the whole weight of the building, the structural integrity of the building depended on them. This flaw came to light as a result of the Ronan Point tragedy in May 1968, when a piped gas explosion destroyed some of the external walls in the Ronan Point building, causing the progressive collapse of one corner of the 22 storey block, killing four people and injuring 17 others.

The Ronan Point Inquiry recommended work to safeguard LPS buildings from the risk of collapse in case of abnormal loading (such as a gas explosion). Government Circulars 62/68 and 71/68 set standards for such work, and it appears that the requisite work was carried out on the Barleymow Estate, including Brewster House and Malting House, in the late 1960s, before the buildings were occupied.

The Estate was transferred to the council in 1986.

Additional work was carried out to strengthen the buildings between 1990 and 1994, following concerns raised in a report for the London Dockland Development Corporation prior to the construction of the new Limehouse Link tunnel. Again the work was done in order to make the building safe in case of abnormal loading. It was still considered that LPS buildings were safe under normal loading (that is, the weight of its occupants and contents).

In 2017, after a fire in Shepherds Bush and cracking in LPS buildings on the Ledbury Estate in Southwark, further concerns arose about the safety of buildings constructed using the LPS. The council commissioned a report from structural engineering consultants Wilde Carter Clack, who recommended in a January 2018 desktop study that an intensive structural reassessment of the buildings should be carried out. The result of the reassessment then undertaken was a conclusion in July 2018, for the first time, that the reinforcement of the buildings previously carried out was insufficient even to cope with normal loading.

More investigation was carried out and in March 2020 the council concluded that major works should be carried out in order to comply with the recommendations in Wilde Carter Clack’s reports. These included, in summary: the installation of an external steel frame; the application of external reinforcement to cross walls; the installation of internal bedroom steel frames; the installation of lobby cupboard steel frames; and other associated works.

The total cost of these works for the two blocks was estimated at over £8 million, although the final figure is now said to be over £9.2 million. Although it may seem surprising, at first sight, that buildings which have stood for almost 60 years should be regarded as unsafe even under normal loading, it has not been suggested that such works were unnecessary and, acting as a responsible landlord, the council had no alternative to carrying them out. We were told that (with the possible exception of some minor snagging repairs) the works have now been completed.

The council wishes to recover part of the cost of these works from leaseholders through the service charge. It estimated initially that for those flats which are let on long-leases, the cost for leaseholders would be between about £61,000 and £82,000, depending on the size of their flats. The updated figures now range from about £70,000 to £95,000.

The leaseholders made an application to the FTT for it to determine pursuant to section 27A of the Landlord and Tenant Act 1985 whether those service charges were payable under the terms of the lease. There was also an issue whether the costs incurred were reasonable, but the FTT and the Upper Tribunal dealt only with the issue of principle, leaving this issue to be determined in the event that the council is entitled in principle to recover the costs as part of the service charge under the leases.

The nine leases with which we are concerned are representative of all the long leases of flats in the two blocks which were granted pursuant to the right to buy scheme. Save in one respect (see para 18 below), they are in materially the same terms.

In each case, the lessee covenants to pay the service charge (clause 4(4)), while the landlord covenants (among other things) as follows:

‘5(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) …

…

(c)

(i) to insure and keep insured the Building (unless such insurance shall be vitiated by any act or default of the Lessee or any person claiming through the Lessee or his or their servants agents licensees or visitors) against loss or damage by (a) fire, explosion, lightning, thunderbolt, earthquake, riot, malicious damage, aircraft and other aerial devices, storm and flood, bursting, leaking or overflowing of water apparatus including washing machines, falling trees or part thereof, theft or attempted theft, impact by vehicles or animals, collapse resulting from subsidence, ground heave or land slip of the site, leakage of oil from fixed domestic heating installations, breakage or collapse of T.V. and radio aerials; (b) breakage of fixed glass and sanitary fittings; (c) accidental damage to underground services; (d) loss of rent and cost of alternative accommodation up to 10% of the sum insured; (e) houseowners liability for accidents caused to the public up to £500,000. …’

…

(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.’

Paragraphs of clause 5(5) which I have not set out deal with such matters as painting the building (para (b)), cleaning and furnishing of the common parts (para (d)), payment of rates and charges imposed on the building (para (e)), employment of a caretaker and other staff (para (f)), central heating and hot water (paras (g) and (h)), employment of managing agents and other contractors (para (j)), a television aerial (para (k)), firefighting equipment (para ((l)), a lift (para m)), an electric porter system (para (n)), and a sinking fund (para (p)).

Schedule 5 contains a definition of the service charge which the leaseholder is obliged to pay. The definition is the same in all the leases, except for the leases of 7 Malting House and 44 Brewster House which were the two earliest of the nine leases with which we are concerned, granted in 1989 and 1990 respectively. These contain additional words which I have set out in italics:

‘The Service Charge

…

(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 save such repairs as amount to the making good of structural defects other than structural defects already notified to the Lessee and which are specified in the Sixth Schedule hereto or of which the Lessor does not become aware earlier than 5 years from the date of this Lease and a reasonable proportion of the cost of insuring against risks involving such repairs not amounting to structural defects (except for structural defects notified as aforesaid) of which the Lessor does not become aware earlier than 5 years from the date of this Lease and also of insuring against the making good of structural defects 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 two leases which contain the additional words which I have italicised also contain a Sixth Schedule, but it is blank. Another lease, of 17 Malting House, also contains a blank Sixth Schedule, but there is no reference to that Schedule elsewhere in the lease.

Thus the scheme of the leases is that paragraph (a) of clause 5.5 imposes an obligation on the council to carry out certain work, while paragraph (o) imposes an obligation on the council to carry out other work which in its absolute discretion it considers to be necessary or advisable. Clause 4(4) and Schedule 5 entitle the council to recover the cost of the work carried out pursuant to clause 5(5), as well as any other costs and expenses reasonably and properly incurred in connection with the building, as part of the service charge.

There is no doubt, and it is not disputed, that the weakness in the structure of the buildings as a result of their construction using the LPS method is a structural defect which has existed since the buildings were built in the late 1960s. As explained by Mr Justice Fancourt at first instance in City of London v Various Leaseholders of Great Arthur House [2019] UKUT 341 (LC), [2020] L&TR 6:

‘40. A structural defect is not confined to a so-called inherent defect but must be something that arises from the design or construction (or possibly modification) of the structure of the Building. It is to be contrasted with damage or deterioration that has occurred over time, or as a result of some supervening event, where what is being remedied is the damage or deterioration. That is repair and is not in the nature of work to remedy a structural defect, even if it is a part of the structure that has deteriorated. …’

However, the fact that the buildings were unsafe even under normal loading was only appreciated relatively recently, as a result of the investigations recommended by the Wilde Carter Clack report.

Before the FTT the council argued that the cost of the proposed works was payable as part of the service charge either (1) because they amounted to maintenance under clause 5(5)(a), or (2) because they fell within the landlord’s obligations under clause 5(5)(o), or (3) because they were other costs and expenses reasonably and properly incurred within the definition of “Total Expenditure” in the Fifth Schedule.

The FTT recorded the parties’ agreement that ‘the proposed works do not involve repair in that they are not aimed, either in whole or in part, at remedying a deterioration in the buildings from some previous physical condition’ (Quick v Taff-Ely Borough Council [1986] QB 809 and Post Office v Aquarius Properties Ltd [1987] 1 All ER 1055).

The council relied on the obligation to ‘maintain and keep in good and substantial repair and condition … the main structure of the Building’ in clause 5(5)(a), but the FTT rejected this way of putting the case. After referring to a number of authorities, including Assethold Ltd v Watts [2014] UKUT 537 (LC), [2015] L&TR 15, it concluded that remedying a major structural defect in the absence of some degree of physical damage or deterioration was not within the scope of the maintenance obligation in clause 5(5)(a).

As to clause 5(5)(o) the FTT said that the clause was ‘what is commonly known as a “sweeper” clause in that it aims to “sweep up” or include management functions not expressly addressed in other clauses’, although giving a clause such a label did not define its meaning or extent. The FTT referred to the need to interpret a contractual term by ascertaining the objective meaning of the language in the context of the contract as a whole (Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173). After referring to the right to buy legislation in the Housing Acts 1980 and 1985 and some examples in which general language in a sweeper clause had been held not to apply to major works, the FTT said that it would be contrary to the purposes of the legislative scheme if works to remedy a structural defect could be caught within a sweeper clause rather than being addressed expressly and specifically. It concluded that:

‘47. Even looking at the words of the lease as a whole in isolation from the statutory scheme and its purposes, it is clear that clause 5(5)(o) is not intended for works so extensive that the costs would vastly exceed those likely in any category expressly mentioned. A lease which carried that kind of unknown and unknowable liability would be close to unsellable and cannot have been the parties’ intention as it appears from the wording of the lease.’

For the same reasons the FTT found that the definition of ‘Total Expenditure’ in the Fifth Schedule did not enable the council to charge for the work.

Moreover, in the case of the two earliest leases, the additional wording in the definition of ‘Total Expenditure’ expressly excluded the cost of remedying structural defects which were not notified to the leaseholder and which were known to the council on the grant of the leases. The FTT held that the defective design of LPS had been known to the council from the start. The only thing that was new was that further investigations had revealed more information about this defective design and had led to further remedies being devised.

The submissions before the Upper Tribunal were essentially the same as they had been at first instance.

The Upper Tribunal regarded the right to buy legislation as irrelevant to the interpretation of the leases, as was the additional wording in the definition of ‘Total Expenditure’ in the two earliest leases.

After considering the case law concerned with a lessor’s obligation to ‘maintain’ or ‘keep in good condition’ a demised building, the Upper Tribunal held that the obligation in clause 5(5)(a) was limited to preserving the original condition of the building and did not extend to remedying structural defects or making safe a building that was not safe when it was built.

The Upper Tribunal held that clause 5(5)(o) was a form of ‘future proofing’ against items that could not be specifically foreseen at the date of the lease and was not intended to encompass anything so far-reaching as an obligation to remedy structural defects. Although the mere fact that the cost of such work was generally high would not prevent it from coming within the scope of the clause if its wording was clear, it was relevant to the interpretation of clause 5(5)(o) that the remedying of structural defects was generally very expensive and that a commitment to bear the cost of such work would be potentially ruinous for the leaseholders, as would have been known to the parties. Referring to the decision of this court in 89 Holland Park (Management) Ltd v Dell [2023] EWCA Civ 1460, [2024] HLR 9, the Upper Tribunal considered that clause 5.5(o) did not extend to the remedying of structural defects because that would go far beyond the scope of anything in the earlier paragraphs of clause 5.5: express words would be required to generate an obligation vastly different in kind and in likely scale from the obligations already specified.

For the same reasons the definition of ‘Total Expenditure’ in Schedule 5 did not assist the council.

On appeal the council no longer seeks to rely on clause 5(5)(a). It pursues two grounds of appeal, namely that a contribution to the cost of the works is recoverable as part of the service charge (1) because the works were necessary and advisable for the safety of the building, and therefore fell within the scope of clause 5(5)(o); and (2) because the cost of the works was reasonably and properly incurred in connection with the buildings, and therefore fell within the definition of ‘Total Expenditure’ in Schedule 5.

Because of the potential importance of this appeal to the council, it has submitted to an order under section 20C of the Landlord and Tenant Act 1985, both in this court and below, that it cannot recover its legal costs of these proceedings through the service charge and will not seek any order for its costs against any respondent to the appeal. It has also explained that it will apply the outcome of this appeal to all the leaseholders in Brewster House and Malting House, not just those who are parties to these proceedings.

For the council Mr Justin Bates KC submits, in outline, that the only relevant question under clause 5(5)(o) is whether the works were necessary or advisable for the safety of the buildings; and that in the light of the advice from Wilde Carter Clack that question admits of only one answer, which is that they were. He submits that the language of the clause is clear and that the Upper Tribunal was wrong in placing too much emphasis on the cost of the works; and that remedying structural defects would not be beyond the scope of clause 5(5), read as a whole, which was focused on keeping the building safe and in good repair and condition. Finally, he submits that the Upper Tribunal placed too much emphasis on Dell, which should not be regarded as laying down a principle of law for interpretation of service charge provisions generally.

As to the concluding words of the definition of ‘Total Expenditure’, Mr Bates submits that the same points apply. Those concluding words show that the costs to be recovered through the service charge must extend more widely than those incurred in carrying out the council’s obligations under clause 5(5), as those words would otherwise be pointless. Accordingly the only question is whether the costs were reasonably and properly incurred in connection with the buildings, which they plainly were because they were essential to ensure that the buildings could be occupied safely.

The approach to be taken to interpretation of a contract, including a lease, is now well established (see e.g. Arnold v Britton [2015] UKSC 36, [2015] AC 1619 and Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173). The court’s task is to ascertain the objective meaning of the language chosen by the parties to express their agreement. That will depend not only on the literal meaning of the terms used, but on the context as it appears from the terms of the contract as a whole and the background matters of which the parties can be taken to have been aware.

There are no special rules of interpretation applicable to service charge clauses (Arnold v Britton para 23). However, as Lord Neuberger said, applying the ordinary principles of interpretation and approving what Lord Justice Rix had said in McHale v Earl Cadogan [2010] HLR 412, para 17, ‘the court should not “bring within the general words of the service charge clause anything which does not clearly belong there”.’

The leases in the present case were granted pursuant to the right to buy legislation contained in the Housing Act 1980, as amended in subsequent Acts. That is made clear on the face of the leases and is a matter of which the parties can be taken to have been aware, even if individual leaseholders (as distinct from the solicitors who would have acted for them) may not have been familiar with the detailed terms of that legislation. They would therefore have expected that the leases would be drafted so as to conform with that legislation and that the language used in the leases and in the legislation would be used consistently. In my judgment, therefore, the legislation forms part of the background which is relevant to the interpretation of the leases.

That view is supported to some extent by the decision of this court in City of London v Various Leaseholders of Great Arthur House [2021] EWCA Civ 431, [2021] HLR 36, para 13, where Lord Justice Lewison recorded that it was common ground (with which he clearly agreed) that ‘because the leases were granted pursuant to the right to buy, the legislative background is also an aid to interpretation of the covenants’.

Accordingly I agree with the submission of Ms Ellodie Gibbons for the leaseholders that the Upper Tribunal was mistaken to treat the legislative background as irrelevant to the interpretation of the leases.

The statutory right to buy was first enacted in the Housing Act 1980 and was amended in the Housing Act 1985. Structural defects were expressly addressed in the legislation. In the case of leases, Schedule 2, para 13(1) of the 1980 Act imposed an obligation on the landlord to make good such defects:

‘There shall be implied, by virtue of this Schedule, covenants by the landlord—

(a)

to keep in repair the structure and exterior of the dwelling-house and of the building in which it is situated (including drains, gutters and external pipes) and to make good any defect affecting that structure;

(b)

to keep in repair any other property over or in respect of which the tenant has any rights by virtue of this Schedule;

(c)

to ensure, so far as practicable, that any services which are to be provided by the landlord and to which the tenant is entitled (whether by himself or in common with others) are maintained at a reasonable level and to keep in repair any installation connected with the provision of those services.’

With some qualifications, any clause in the lease purporting to permit the landlord to recover from the tenant any part of the cost of making good such structural defects was rendered void. Thus paras 15 to 17 of Schedule 2 provided as follows:

‘15. Any provision of the lease or of any agreement collateral to it shall be void in so far as it purports—

…

(b)

to enable the landlord to recover from the tenant any part of the costs incurred by the landlord in discharging or insuring against his obligations under paragraph 13(1)(a) or 13(1)(b) above, …

but subject to section 19 of this Act and paragraph 16 below.

16.

A provision is not void by virtue of paragraph 15 above in so far as it requires the tenant to bear a reasonable part of the costs of carrying out repairs not amounting to the making good of structural defects or of the costs of making good any structural defects falling within paragraph 17 below or of insuring against risks involving such repairs or the making good of such defects.

17.

A structural defect falls within this paragraph if—

(a)

the landlord has notified the tenant of its existence before the lease was granted; or

(b)

the landlord does not become aware of it earlier than 10 years after the lease is granted.’

The effect of these provisions was that the landlord could only recover a contribution to the cost of making good a structural defect in the building if the defect was notified to the tenant before the lease was granted or if the landlord did not become aware of the defect until 10 years from the date of the lease.

These provisions were re-enacted by paras 14 and 18 of the 1985 Act and were amended by the Housing and Planning Act 1986. The landlord remained subject to the implied covenant in para 14(2)(a) of Schedule 6 of the 1985 Act to make good any structural defect, but new provisions applied concerning the recovery of the cost of making good such defects through the service charge. A new section 125(4A) imposed an obligation on the landlord to serve a notice on a tenant seeking to exercise a right to buy containing ‘a description of any structural defect known to the landlord affecting the dwelling-house or the building in which it is situated …’, and the tenant’s obligation to contribute to the cost of making good such defects was restricted by a new para 16B of Schedule 6. This provided that, if structural defects had been notified to the tenant before the grant of the lease, the tenant was not required to pay more than the estimated contribution notified to him at that time, together with an allowance for inflation. On the other hand, if the defects were unknown to the landlord, and therefore had not been notified at the time of the lease, the tenant (broadly speaking) was not required to pay to make good structural defects within the first five years of the lease, but could be liable to contribute thereafter (the decision of this court in Great Arthur House, para 24).

The leases with which we are concerned in the present case were all granted after 7^th January 1987 when the Housing and Planning Act 1986 came into force.

It seems to me that the critical question, so far as clause 5(5)(o) is concerned, is what is meant by the word ‘safety’ in that clause. The question is not simply, as Mr Bates submitted, whether the works in issue here were carried out for safety reasons, which I accept that they were, but whether the clause encompasses the making good of a pre-existing structural defect which renders the building unsafe for habitation. In my judgment, when the term is considered in its context in the clause, and against the background of the legislation, it is clear that it does not.

First, although the works can be regarded as necessary or advisable for the safety of the buildings, the word ‘safety’ takes its place in the middle of a list which also includes management, maintenance, amenity and administration. This suggests that the clause is concerned with relatively routine matters arising in the day to day management and administration of the building during the term of the lease, not with matters as fundamental as a pre-existing structural defect exposing the building to the risk of collapse. Examples might be such matters as a missing paving stone, defective lighting on the stairs or a missing handrail or fire extinguisher, all of which can be rightly regarded as affecting the safety of the building, but which are clearly different in kind from the fundamental structural defect with which we are concerned.

Second, under the legislation the council has an implied obligation to make good a structural defect. But clause 5(5)(o) is not expressed in this way. It imposes an obligation to carry out certain works, but only those which in the absolute discretion of the council may be considered necessary or advisable for a variety of reasons, only one of which is the safety of the building. In substance, therefore, it gives the council a right to carry out works which it regards as necessary or advisable for safety (among other) reasons, and a corresponding right to recover the cost of doing so through the service charge. In other words, the leaseholder cannot cavil at having to contribute to the cost of works which the council regards as necessary or advisable. But the language of absolute discretion is not apt to encompass something as fundamental as a structural defect rendering the building unsafe for habitation. As the legislation makes clear, that is something which must be made good by the council and no question of any discretion arises. It is apparent, therefore, that the reference to ‘safety’ in clause 5.5(o) is concerned with something other than such a structural defect.

Third, we have seen that the legislation deals expressly and in detail with the landlord’s obligation to make good pre-existing structural defects and with the limited circumstances in which the leaseholder can be required to contribute to the cost of doing so. That is so under both the 1980/1985 Act provisions and the later and different provisions of the 1986 Act. In those circumstances it is to be expected that any requirement on the leaseholder to make such a contribution would be stated in clear words, dealing expressly with structural defects, and not left to a very general term such as ‘safety’ in a sweeper clause. The fact that there is no reference in the later leases to structural defects or to the cost of making them good is telling.

In this respect the contrast between the landlord’s obligation to keep the structure and exterior of the building in repair and the obligation to make good any defect affecting that structure is striking. Both obligations are contained in para 14 of Schedule 6 to the 1985 Act. However, while the maintenance obligation, with a corresponding right to recover the cost of such maintenance through the service charge, is expressly provided for in the lease (clause 5(5)(a) and the definition of ‘Total Expenditure’), there is no equivalent provision concerning the making good of structural defects.

That omission appears to have been deliberate. It would have been surprising for leases giving effect to the right to buy legislation to impose a potentially ruinous burden on leaseholders who were likely to be of modest means. As Lord Justice Lewison explained in Great Arthur House:

‘50. … The purpose of the legislation was to encourage home ownership by council tenants; often persons of modest means. That was achieved not only by giving them the right to buy at all, but allowing them to buy at a substantial discount from market value. … it is by no means surprising that Parliament gave a measure of consumer protection to persons to whom the right to buy was given by partially insulating them from liability to contribute towards the cost of rectifying structural defects in the property in question …’

The analysis in the case of the two earliest leases, of 7 Malting House and 44 Brewster House, is different. In these leases there is a reference to the cost of making good structural defects, in the additional wording in the definition of ‘Total Expenditure’ which I have set out at para 18 above. This provides an exception to the expenditure which the council is entitled to recover through the service charge, and there is then an exception to the exception. Thus the council is not entitled to recover the cost of ‘such repairs as amount to the making good of structural defects’, but it is entitled to recover if the defect has been notified to the leaseholder before the grant of the lease or if the council does not become aware of the defect until five years from the date of the lease. This wording plainly reflects the terms of the legislation which I have described, albeit that it is something of a hybrid combining elements of the 1985 Act regime with the five year period referred to in the 1986 Act.

The impact of this wording was addressed by the First Tier Tribunal, which expressly rejected a submission by Mr Bates on behalf of the council that the works for which a contribution is sought in this case related to a problem which was not known at the time when the lease was granted. The Tribunal found as a fact that the defect – the structural flaw in the LPS design – was known to the council from the outset:

‘52. Mr Bates argued that, in fact, the proposed works do not relate to problems known on the grant of the leases. He submitted that there were three distinct stages in the story of this case:

(a)

The problem with the LPS system was first identified and addressed, following the Ronan Point disaster, in the late 1960s…

(b)

In the late 1980s, new problems were discovered and new remedies were suggested when investigations were carried out as part of the London Docklands development.

(c)

In recent times, again new problems were discovered and new remedies recommended from yet further investigations. In particular, the proposed works will tackle the buildings’ vulnerability to abnormal (sc. normal?) loads which previous investigations did not identify as something which needed remedial work.

53.

Mr Bates submitted that each stage was entirely discrete from the other so that the [council] is now dealing with a situation which did not exist in the past.

54.

In the Tribunal’s opinion, this argument confuses the underlying problem with the coincidence of further investigations, the fact of advancing knowledge and the later devising of further remedies. The fact is that LPS has a defective design. That defect was there at the start and still exists. Since it first arose, more has been learned about it and further remedies have been devised. However, that knowledge and those remedies relate to the same defect.’

There has been no appeal from this finding, which appears to be fatal to the council’s case so far as the two earliest leases are concerned. It amounts to a finding that the council was aware of the structural defect and that, because it was not notified to the leaseholders at the time of the grant of the leases, the council is not entitled to recover any part of the cost of making good the defect.

In case this is too harsh a view of the effect of the First Tier Tribunal’s reasoning, I would add that the same result is reached by reference to the insurance provisions of the additional wording. The wording contemplates that the council will insure ‘against the making good of structural defects’ and that the cost of such insurance, i.e. an appropriate share of the premium, will be passed to the leaseholder via the service charge. (This is distinct from the insurance against loss or damage dealt with in clause 5(5)(c)). It follows that the leaseholder is not liable for the cost of making good such defects. If it were, that would mean that it was both paying for insurance against that cost and yet was also liable by way of subrogation to the insurer who had agreed to bear the risk.

In that respect the leaseholder’s position would be comparable to that of the tenant in Mark Rowlands Ltd v Berni Inns Ltd [1986] QB 211. The tenant of basement premises was required to pay a proportion of the premium paid by the landlord for the insurance of the building against fire. When the building was destroyed by a fire caused by the tenant’s negligence, the insurer paid the money due under the policy to the landlord and sought to recover it from the tenant by a subrogated action in the landlord’s name. The claim failed. Lord Justice Kerr explained at 232G-233A that:

‘An essential feature of insurance against fire is that it covers fires caused by accident as well as by negligence. This was what the plaintiff [landlord] agreed to provide in consideration of, inter alia, the insurance rent paid by the defendant [tenant]. The intention of the parties, sensibly construed, must therefore have been that in the event of damage by fire, whether due to accident or negligence, the landlord’s loss was to be recouped from the insurance moneys and that in that event they were to have no further claim against the tenant for damages in negligence. Another way of reaching the same conclusion, on which [counsel for the tenant] also relied, is that in situations such as the present the tenant is entitled to say that the landlord has been fully indemnified in the manner envisaged by the provisions of the lease and that he cannot therefore recover damages from the tenant in addition, so as to provide himself with what would in effect be a double indemnity.’

In the present case it does not matter whether the council did in fact obtain insurance against the cost of making good structural defects. The point is that the lease contemplated that it would do so and would not look to the leaseholder for the cost of making good such defects.

I do not accept the council’s criticisms of the Upper Tribunal’s reasoning. Neither the Upper Tribunal nor the First Tier Tribunal considered that the cost of the works was a decisive consideration. Rather, they focused on the fundamental nature of the work which was required, essentially converting an unsafe LPS building into something very different which inevitably would involve the incurring of significant expense. In my opinion that was a highly relevant consideration. I agree with them that the cost of remedying a pre-existing structural defect in the building did indeed extend far beyond the scope of clause 5.5(o).

The same considerations which lead me to conclude that the council is not entitled to recover any part of the cost of making good a pre-existing structural defect pursuant to clause 5(5)(o) apply equally to the concluding words of the definition of ‘Total Expenditure’ (‘… any other costs and expenses reasonably and properly incurred in connection with the Building’). It is inconceivable that these very general words were intended to enable the council to recover the cost of making good such a defect which it had a positive duty to make good by virtue of para 14 of Schedule 6 of the legislation.

I would therefore conclude that the council is not entitled to recover through the service charge any part of the costs of the works, and that this is so in the case of all the leases, both those which contain the additional wording and those which do not. Adapting slightly what Lord Neuberger affirmed in Arnold v Britton [2015] UKSC 36, [2015] AC 1619, para 23, to bring the cost of making good a pre-existing structural defect within the general words of the service charge clauses in these leases would be to bring in something which clearly does not belong there.

That conclusion does not depend on the decision of this court in 89 Holland Park (Management) Ltd v Dell [2023] EWCA Civ 1460, [2024] HLR 9. The terms of the lease in that case were broadly similar to those in the present case and included clauses equivalent to clause 5(5)(o) and the definition (without the additional wording) of ‘Total Expenditure’. However, the issue had nothing to do with structural defects, but was whether the landlord was entitled to recover from the tenant substantial legal and professional costs which had been incurred in a dispute with the owner of a neighbouring property who sought to build a ‘glass cube’ at street level and two additional floors below street level. In a judgment with which Lord Justices Arnold and Phillips agreed, Lady Justice Falk held that these costs were not recoverable. In the course of her judgment she attached significance to the structure of the clauses and their place in the lease, and to the need not to give general words a wider scope than was warranted from their context, factors which are also relevant in the present case. However, as will be apparent from that short summary, the issue in that case was very different from the issue with which we are concerned.

I would dismiss the appeal.

I agree.

I also agree.