The London Borough of Tower Hamlets v Lessees of Brewster House and Malting House

The right to buy legislation has been amended on a number of occasions; the provisions in the Housing Act 1980 were replaced by those of the Housing Act 1985, which was then amended by the Housing and Planning Act 1986 which came into force on 7 January 1987.

All the respondents’ leases were granted after that date. That means that all were subject to restrictions only as to the level of service charges recoverable for the first five years of the term: section 125, and Schedule 6 paragraphs 16B and 15C, of the Housing Act 1985 as amended. Accordingly none of the statutory provisions in the right to buy regime has any effect now upon the extent to which the service charges imposed by the leases are recoverable and I do not need to look further at that legislation. And I am not assisted by the decisions of the Tribunal and of the Court of Appeal in City of London v Leaseholders of Great Arthur House [2019] UKUT 341 (LC) and [2021] EWCA Civ 341, which were about leases where the landlord was obliged to make good structural defects.

Second is the proviso to the definition of Total Expenditure in the leases of 7 Malting House and 44 Brewster House (italicised in the text quoted at paragraph 17 above). The effect of the proviso is to narrow down any provision in the lease that enables the landlord to charge to the service charge the cost of “such repairs as amount to the making good of structural defects”; it therefore has no effect at all unless any of the provisions of the lease allow the landlord to charge for such items. The appellant relies upon the terms of the lease (although it does not say that the proposed work amounts to “repair”); it says that if the lease does allow it to charge for the work then the proviso in these two leases does not affect that entitlement because the need to strengthen the buildings against normal loading was not known until very recently. Conversely, if the provisions of the lease do not allow the appellant to charge for the work the proviso does not add anything.

As will be seen, I agree with the FTT that the terms of the lease do not allow the appellant to charge the lessees for the work, and so the terms of the proviso are irrelevant.

Ms Gibbons sought to argue that the proviso was nevertheless relevant in that it had obviously been drafted with the right to buy legislation in mind and that that strengthened the respondents’ position, since the policy of that legislation was that they should not be charged for this sort of work. I am unimpressed with that argument. Policy changed in 1986 and the right to buy legislation was amended so that the landlord’s ability to recover a service charge was not regulated beyond the first five years of the lease; I do not agree with Ms Gibbons, nor with the FTT, that a policy expressed in legislation that is no longer in force should colour the construction of the leases. They are to be construed in accordance with the ordinary principles of construction as elucidated in Arnold v Britton [2015] UKSC 36.

I now turn to the provisions of the lease on which the appellant relies. Mr Bates KC rightly emphasised the approach set out by the Supreme Court in Arnold v Britton, and particularly paragraph 15:

Clause 5(5)(a) of the leases requires the landlord “To maintain and keep in good and substantial repair and condition … the main structure of the buildings”. Mr Bates KC argued that the FTT was wrong to find that remedying a structural defect, absent some degree of physical damage or deterioration, does not fall within that obligation. He accepted that this was not a work of “repair”, because the authorities are clear that there can be no repair in the absence of disrepair. But the work falls squarely within the natural and ordinary meaning of the word “maintain”, which means to prevent damage or harm. They will ensure that the buildings do not fall down and are safe for occupation and habitation; if the work is not done the building will not be “maintained” or in “good condition”.

Mr Bates KC relied on the decision of the Deputy President, Martin Rodger KC, in Assethold Limited v Watts where the Tribunal had to decide whether a landlord was entitled to recover from its tenants the legal expenses incurred in a dispute with the owner of neighbouring land over work to a party wall. One of the provisions on which the landlord relied was its covenant to maintain the property, and to do whatever “may be considered necessary or desirable” for its “proper maintenance safety [and] amenity”. At paragraph 44 the Deputy President recorded the landlord’s argument:

That argument was not successful because incurring legal fees was found not to fall within the covenant to maintain (although the landlord succeeded on a different basis); but Mr Bates KC relies on what the Deputy President said at paragraph 49:

The work in question here is precisely to preserve the building in a functional condition, said Mr Bates KC. Looking again at the points made in paragraph 15 of the Supreme Court’s judgment in Arnold v Britton, the natural and ordinary meaning of this covenant encompasses the work. Another relevant provision is clause 5(5)(j) which sets out the professionals that the landlord is required to instruct: the wide range of skills indicates the breadth of the landlord’s obligations. As to what the parties knew at the time the lease was granted, at the time of the grant of each of these leases everyone had good reason to suppose that the problems of the Large Panel System had been fixed. All the work required had been done. So it is wrong to suggest that if the parties intended work caused by the large Panel Systems to be included they would have said so expressly; on the contrary there was no reason for them to mention it.

For the respondent, Ms Gibbons pointed out that the approach to “maintain” in Assethold Limited v Watts does not take the appellant far enough; there was no finding that to maintain means to improve on the building’s original state or to put the buildings into a condition they have never before been in.

Ms Gibbons continued to rely on the authorities about the meaning of “maintain”, which the FTT found persuasive. I can go through them relatively briefly.

Welsh v London Borough of Greenwich [2000] 3 EGLR 41 was a claim for damages by a tenant; the Court of Appeal found that by allowing severe black spot mould to develop in the building the landlord was in breach of its covenant to “maintain the dwelling in good condition and repair.” There was no disrepair, but the problem was caused by a failure to provide thermal insulation or dry lining for the walls, and crucially the problem was a physical one which meant that the building was not in good condition.

In Fluor Daniel Properties Ltd and ors v Shortlands Investments Ltd [2001] 2 EGLR 103 the issue was whether a landlord was entitled to recover by way of service charge the cost of replacing major components of the air-conditioning in the building, which it could do if the work fell within its covenant to “uphold maintain repair amend renew …and otherwise keep in good and substantial condition and as the case maybe in good working order and repair… all apparatus equipment plant and machinery” in the building. The landlord failed; Blackburne J found that although the covenant “extends to the doing of works which go beyond repair strictly so called”, nevertheless the obligations “presuppose that the item in question suffers from some defect (i.e. some physical damage or deterioration or, in the case of plant some malfunctioning) such that repair, amendment or renewal is reasonably necessary” (emphasis added).

In Mason v Totalfinaelf UK Limited [2003] EWHC 1604 (Ch) Blackburne J reached a similar conclusion in a claim for damages for terminal dilapidations. Here the covenant in question was to “well and substantially uphold support maintain amend repair decorate and keep in good condition the demised premises”, and the question was whether that could include preventive work; it was held that it could not, and that there was no authority for the proposition that:

The same conclusions were reached in Westbury Estates Ltd v The Royal Bank of Scotland Plc [2006] CSOH 177 (the Outer House of the Scottish Court of Session) and in Alker v Collingwood Housing Association Ltd [2007] EWCA Civ 343. Finally Ms Gibbons turned to Dowding & Reynolds, Dilapidations, where there is no separate consideration of the meaning of a covenant to “maintain” but a discussion of an obligation to “keep in good condition”. At paragraph 8-14 under that heading the learned authors discuss of Welsh v Greenwich LBC and the Court of Appeal’s approach to a covenant to “maintain … in good condition and repair” and say this:

Paragraph 8-15 states:

Mr Bates KC argued that the cases turn on their own facts, and that all I need do is look at the words of the lease in light of what is said in Arnold v Britton. I do not agree that these authorities are rendered irrelevant by the Supreme Court’s decision; the appellant accepts, as it must, that the meaning of “repair” is well-established, and in the same way the approach taken by the courts to “maintain” – and similar terms such as “keep in good condition” - cannot be ignored. The cases seem to me to speak with one voice that such covenants are engaged only where there is some form of physical deterioration; none of the cases supports the appellant. Assethold Limited v Watts is as unhelpful as the rest; what was argued there was that maintenance was “the preservation of the subject matter of the covenant in its original state” (Assethold paragraph 44, quoted at paragraph 34 above), and at paragraph 49 the Deputy President said that “To maintain involves preserving a functional condition by acts of maintenance performed on or to the thing to be maintained”; the emphases are mine. To preserve is not to make something new, or to make something safe that was not safe.

In Alker v Collingwood Housing Association Ltd at paragraph 13 Laws LJ said:

That sums up the position precisely. 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.

Clause 5(5)(o) requires the landlord:

If the work does not amount to maintenance, said Mr Bates KC, it is nevertheless obviously being done for the safety of the buildings and falls within this clause. Again he referred to clause 5(5)(j) as an illustration of the range of skills the parties had in mind that the landlord might need. Mr Bates KC criticised the FTT for reading down this provision on the basis that it is a “sweeper” clause.

In fact at its paragraph 36 the FTT was careful to point out that “giving a clause such a label does not define its meaning or extent.” But this is a deliberately non-specific clause coming at the end of a list; I agree with Mr Bates KC that it is a form of future-proofing such as is commonly and sensibly provided for in a lease that is supposed to last for many decades. The idea is to pick up items that cannot be specifically foreseen on the date of the lease

Mr Bates relied again upon Assethold v Watts, where at paragraph 58 Deputy President said that language that is clearly intended to encompass a wide variety of situations should not be so restrictively construed as to deprive it of any real effect, and added:

Ms Gibbons argued that a purely literal construction of this clause is not appropriate. As Lord Hodge said in Wood v Capita Insurance Services Ltd [2017] UKSC 24, paragraph 10:

So the issue is: was clause 5(5)(o) intended to encompass anything so far-reaching as an obligation to remedy structural defects? The FTT said that such a clause was “not intended for works so extensive that the costs would vastly exceed those likely in any category expressly mentioned.”

Mr Bates KC argued that it is wrong to consider the cost of the work when construing the Clause. Cost is relevant to the reasonableness of service charges in accordance with section 19 of the Landlord and Tenant Act 1985, but not relevant to construing the lease.

I agree with that to the extent that if a particular type of work were clearly within an obligation, then the fact that a particular instance of that work was dreadfully expensive would not be relevant to the construction of the lease. But this clause is, necessarily, unclear; and so it is relevant to its construction that the remedying of structural defects generally tends to be very expensive, and that 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). I appreciate that the sums involved here are lower, but for the leaseholders of flats in TowerHamlets a liability of £60,000, £70,000 or £80,000 may well be impossibly expensive. That is part of the facts and circumstances known to the parties, which Arnold v Britton tells us to consider, and also a matter of commercial common sense. The Court of Appeal in Holland Park Management Company Limited v Dell [2023] EWCA Civ 1460 confirmed at paragraph 51 (Falk J) that that was the correct approach. The issue there was whether the landlord’s covenants included an obligation to object to planning applications and to engage in litigation about a neighbour’s building operations which (unlike those in Assethold Ltd v Watts) did not threaten the structure of the landlord’s building. Reliance was placed upon a similar “sweeper clause”; after a long list of obligations relating to repair, maintenance, insurance, cleaning, and the employment of staff and professional advisers the lease required the landlord:

In examining that clause the Court of Appeal considered that the fact that this was a “sweeper” clause was relevant; as Falk J explained at paragraph 48 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, going far beyond the scope of its obligation to repair and maintain the building and so on in the clauses that precede the sweeper clause. Only an express provision could go that far.

I agree with Ms Gibbons that exactly the same can be said here. Clause 5(5)(o) in requiring the landlord to do everything it considers necessary or advisable “for the proper management maintenance safety amenity or administration of the Building” does not require it to remedy structural defects because that goes too far beyond the scope of anything that precedes it. Mr Bates KC argued that the words “Without prejudice to the foregoing” at the start of the clause mean that in construing it one cannot look at the items earlier in the list, but that is not correct. The effect of those words is to state that clause 5(5)(o) does not narrow down or contradict anything previously provided, but that does not mean those previous items have to be ignored. Far from it; they set the context for this clause and indicate its purpose and effect. Yes, 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).

In conclusion I agree with the FTT: clause 5(5)(o) does not encompass the work in issue here.

Finally, we turn to the definition of Total Expenditure. I set out the relevant provisions again, without the wording that appears in only two leases and that I have explained is irrelevant to what I have to decide:

So the term “Total Expenditure” indicates the entire sum of which each leaseholder pays a proportion. It is defined as what it costs the landlord to carry out its obligations under clause 5(5) of the lease – of which we have encountered three already, and of which the rest are not of assistance – and “any other costs and expenses reasonably and properly incurred in connection with the Building.”

So again we have a sweeping up clause. Again therefore it is not appropriate to read it literally as including absolutely anything that the landlord might reasonably and properly do in connection with the building, for the reasons set out above; we are required by Arnold v Britton to look at the context of the clause, which here includes its function, which is a definition. It clearly takes the scope of the service charge beyond what the landlord is obliged to do under clause 5(5), but how much wider does it go? It recognises that the landlord might reasonably and properly do more than it is actually obliged to do, and has the effect that if he does so the leaseholders must foot the bill; 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.

In my judgment the landlord cannot rely upon the definition of Total Expenditure to make the leaseholders liable for this work.

The appeal fails and the decision of the FTT stands.

Mr Bates KC indicated that the appellant is content to submit to an order under section 20C of the Landlord and Tenant Act 1985 that its costs in this litigation shall not be recovered from the leaseholders by way of service charge; if the parties would like a formal order to that effect I shall make one