Quiz - how well do you understand your lease?
Understand the key things you should know about your lease. If you are a purchaser, this can help make sure your solicitor has covered all of these points and explained them clearly to you.
By Simon Tye – Legal Adviser at LEASE
Manchester “Green Quarter” First-tier Tribunal decision – Vallea Court & Cypress Place
The First-tier Tribunal (Property Chamber) decision concerning the above two blocks of flats was released on the 26 July 2018. The Tribunal determined that, under the terms of the leases, the cost of the “waking watch“ for Vallea Court (VC) and the cost of re-cladding for both blocks, was recoverable via the service charge from the leaseholders. The tribunal also found that the costs incurred in providing the “waking watch” for VC were reasonably incurred.
The Green Quarter case involved the two blocks mentioned above, VC a block containing 130 leasehold flats and Cypress Place (CP) a block containing 245 leasehold flats. The blocks were completed in 2008 (VC) and 2012 (CP). The developer, Lendlease, subsequently sold the freehold to Pemberton Reversions (5) Limited.
Following testing, both blocks were found to have Category 3 Aluminium Composite Material, identical to the cladding used in Grenfell Tower. In view of this and the Department for Levelling Up, Housing & Communities advice, the landlord`s agent had discussions with Greater Manchester Fire & Rescue Service. The advice given was either to provide a temporary communal fire alarm system comprising fire detectors and fire alarm sounders in each flat, or alternatively, a fire watch by “…appropriately trained patrolling security “(“Waking watch”)
The “waking watch” option was adopted by the landlord for VC. It was not necessary at CP, which had its own suppression system, by way of sprinklers.
In view of the potential costs for both the “waking watch“ and the removal and replacement of the cladding material for both blocks, the landlord applied to the FTT for a determination as to:-
- The liability of VC leaseholders to pay, as service charge, costs incurred in providing a “waking watch”;
- The reasonableness of the costs incurred in providing a “waking watch” for the period from August 2017 to April 2018 and,
- The liability of the VC leaseholders and the CP leaseholders to pay, as service charge, costs incurred in replacing ACM cladding at the respective premises.
Liability of VC leaseholders to pay for waking watch and for both blocks to pay for re-cladding.
The landlord was represented by solicitors and a group of leaseholders represented themselves on behalf of approximately 26% of the total leaseholders.
One separate leaseholder respondent raised the argument that, as the development had been built in accordance with building regulations and subsequently signed off as such, it was not correct to recover the cost of recladding from leaseholders. The same leaseholder also questioned as to whether this was “morally right”.
The Tribunal determined that it was not within their jurisdiction to consider these matters, as they related to matters outside the contractual relationship of Landlord & Tenant under the leases, whatever the merits of those arguments.
A group of leaseholders at the hearing accepted in principle the right of the freeholder to recover the waking watch and fire safety costs via the service charge. However, the Tribunal still needed to consider this issue as regards the remainder of the leaseholders.
The Tribunal considered that in some clauses it was to stretch the plain meaning of the lease provisions to include the cost of the “waking watch”. However, after hearing submissions from the Applicant, they determined that adopting a common sense interpretation of the relevant paragraphs of the leases, the provision of the “waking watch” and the cost of re-cladding and associated costs were recoverable as costs for :-
Works and/or services for;
“the general benefit of the apartments”,
deemed necessary by the landlord in accordance with “the principles of good estate management“and
“employing such persons as the Landlord may in its absolute discretion consider desirable or necessary to enable then to perform or maintain the …Services.”
They also considered that it was covered by the landlord`s obligations as regards the structural aspects of the building and their obligations under a superior lease at the development.
Cost of waking watch
Issues raised by leaseholders included whether it was reasonable to continue with the waking watch beyond an initial 2 month period, as the costs were too high and that the landlord should have installed a temporary fire alarm system, as advised as an alternative by the Fire service. The question was also raised as to whether it was reasonable for the managing agent of the blocks to use an associated company to undertake the waking watch.
The landlord`s lawyers, successfully, argued that a communal a fire system had been, initially, considered, but that it later transpired there would not necessarily be a saving as the cost of this could amount to about £110,000. They stated that there were also practical difficulties in installing sounders/heat detectors in each flat, in view of the fact that the block was 74% sub-lets, and the possible difficulties in gaining access could also increase the cost further. It was also argued that there was the possibility that the system may prove redundant once the re-cladding was complete.
The Tribunal accepted the above arguments in respect of the reasonableness of the waking watch costs.
They also considered that the employment of an associated company by the managing agents to carry out the waking watch had not resulted in any financial, or other, disadvantage to VC leaseholders. It was satisfied, from the evidence given, that the landlord had sought to limit the cost of the waking watch.
The respondent leaseholders asked for a section 20 order to limit the Landlord`s recovery of legal costs via the service charge. However, the Tribunal declined to make such an order based on the relevant factors considered.
The above is, by necessity, a brief overview of the hearing and decision.
It is clear that each hearing has to be looked at on its own facts and based on the wording of the leases concerned. However, the trend of earlier Upper Tribunal and Tribunal rulings continues, in that the wording of leases have allowed for the waking watch and re-cladding costs to be recovered from leaseholders.
The government has committed to fund the removal and replacement of dangerous cladding in buildings over 18 meters, in the public sector.
Some developers and freeholders have already agreed to fund these costs in the private sector, such as in the Citiscape building in Croydon. As regards others, the Housing Minister made a statement in June of this year which included the following;-
..”we’ve made it clear that we expect building owners in the private sector to not pass costs on to leaseholders “
He also stated
“The private sector must step up and I am not ruling anything out if they do not.”
It remains to be seen what this may mean for private freeholders or developers who choose to pass on such costs to leaseholders.
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