Defective cladding - who funds the remedial works?

The recent “Citiscape” decision is of particular interest as it considers, in respect of leasehold properties, the party responsible for funding remedial works in circumstances where cladding fails to comply with BR 2010. This decision by the Residential Property tribunal dated 9 March 2018 can be found here. A summary of the matter is set out below.

The property, constructed by Barratt Homes, comprises two blocks of flats (95 units in total), a car park and other amenities (the Property).

The applicant was FirstPort Property Services Limited (the Manager) the respondents were various leaseholders (Tenants) of the Property. The Tenants entered into leases with Barratt Homes Limited and Peverel OM Limited (which appears to be a subsidiary or associate of Barratt).

Following the Grenfell tragedy, a survey was carried out on the Property that appeared to suggest the cladding failed a fire test. The London Fire Brigade also attend the Property. Following this, on the advice of the London Fire Brigade, a fire marshal was commissioned to patrol each block constantly and to ensure the blocks are evacuated in the event of a fire. At this point there was an assumption (that later proved to be correct) that the cladding posed a fire risk and would have to be replaced.

The annual cost of two fire marshals totals £263,000.00. The estimated cladding replacement costs, to be included in the budget, are £483,000.00.

The key issues were:

• whether or not the cost of the fire marshals fell within the definition of costs being “reasonably incurred”, in respect of section 19 (1) (a) of the Landlord and Tenant Act 1985 Act (the Act) and/or were recoverable pursuant to the leases entered into by the tenants, and
• whether, pursuant to the Act and the leases, the estimated cost of the cladding was reasonable and recoverable by way of the service charge.

The Tribunal found in the Manager’s favour in respect of all the key issues. The reasons are as follows:

• The Tribunal found it was reasonable for regard to be had to the Fire Brigade’s general advice contained in the Fire Safety Guidance Note dated 19 September 2017. Contained within this note were a number of possible approaches to fire safety in the wake of Grenfell. One such approach was the installation of a fire marshal. In addition, there was no cogent evidence to suggest the hourly cost was unreasonable. The Tribunal therefore concluded that the fire marshals costs were reasonably incurred.
• The Tribunal concluded that the cost of the fire marshal was payable by the service charge because it fell within the definition of a “reasonable and property expenses….incurred by the Manager in and about the maintenance and proper and convenient management and running of the Development” as prescribed within the leases.
• The Tribunal concluded that the cost of replacing the cladding was "reasonable" in light of the definition in the Act for the following reasons:
  • because they did not consider the tenants were prejudiced by the low estimate, and
  • because the Manager obtained an estimate from its in - house surveyor. This was reasonable as it was due to the short timescales between obtaining the cladding reports (discussed above) and budget year end.
• The Tribunal concluded that the service charge was payable by the tenants. Reference was made to the case of Credit Suisse v Beegas Nominees Ltd [1994] 1 EGLR 76. In this matter, the covenant under consideration was very different to that contained in the leases; however, the Tribunal applied a similar reasoning in the Credit Suiss case to the matter before them. In particular:
  • reference was made to the words “renewing or otherwise treating as necessary” set out in the leases demonstrates that something beyond simple repair is required.
  • the leases required the blocks to be “in good and substantial repair order and condition”. The Tribunal could not see how this was the case in circumstances where the cladding remained a fire risk.
  • furthermore, the requirement set out in the leases for the Manager to rectify or make good “any inherent structural defects”, was in the opinion of the Tribunal, meant to encompass replacement of defective cladding with fire resistant cladding.

In addition, in circumstances where the Manager was required to carry out the work, the tenants are required to pay for it - therefore tenants were liable for these costs by way of the service charge.

An appeal to the Upper Tribunal (Lands Chamber) can be made within 28 days of the date that the Tribunal sends its reasons for its decision (ie 09 March 2018).