The case before the Upper Tribunal highlights the fact that Schedule 8 provides some protection to all leaseholders in a building that is a relevant building but that qualifying leaseholders are given more protection.

Facts

The case concerned Mr Lehner who owned a flat in a building at 4 Sanctuary Street, London. Mr Lehner was held liable by the First Tier Tribunal to pay £1244.85 as a service charge contribution towards the cost of the installation and fire stopping work intended to be undertaken to the walls of the building. He appealed the decision.

Issues

The issues before the Upper Tribunal were to what extent Part 5 of the Building Safety Act (BSA) and in particular Schedule 8 of the Building Safety Act afforded protection to Mr Lehner in connection with the transmission of remediation costs into service charge. To answer that question the Upper Tribunal had to consider to what extent Schedule 8 applied.

In performing that exercise the Upper Tribunal explored a number of deeming provisions within the BSA starting with paragraph 13 of Schedule 8 which requires that provided a lease satisfies the conditions in paragraph A/B and C of section 119(2) of the Building Safety Act it will be treated as a qualifying lease unless the landlord has taken all reasonable steps to obtain a qualifying lease certificate from a tenant under the lease and no certificate has been provided.

The Upper Tribunal also considered the extent to which Schedule 8 affords protection to qualifying leaseholders in connection with charges in respect of any relevant measure as defined by paragraph 1 (1) of Schedule 8 * relating to a relevant defect. Usefully the Upper Tribunal described a relevant measure as a measure taken to remedy a relevant defect or to diminish the harm which it might cause.

The Upper Tribunal then explored the protection Paragraph 2 provides to all leaseholders describing the protection as an exception to the general rule that leaseholder protection in Part 5 of the BSA is limited to qualifying leaseholders.

It usefully confirmed that a landlord or an associate of the landlord will be responsible for a relevant defect if they were the developer or undertook or commissioned the construction or conversion of the building or they were in a joint venture with the developer.

The Upper Tribunal clarified:

1. A relevant defect as being a risk arising out of the original construction or conversion of the building which creates a building safety risk.

2. The Paragraph 2 protection applies where a landlord attempts to recover service charge where the landlord or superior landlord on the 22nd of February 2022 was the original developer of the building [or an associate] and the service charges payable for work to remedy or mitigate a defect in the building which gives rise to a risk from fire.

3. Where a landlord fails to provide a landlord certificate is that the condition in Paragraph 2 (2) of Schedule 8 to the BSA is to be treated as met. The consequence of this is if the current landlord has not complied with the requirement to provide a landlord certificate it is responsible for the defect for the purposes of Paragraph 2 of Schedule 8 with the result that no service charges will be payable in respective relevant measures.

Importantly the Upper Tribunal has now provided a sequence of questions when advising a landlord or leaseholder as to whether service charges are payable in respective of work to which the leaseholder protections in Schedule 8 BSA apply.

A) Preliminary Conditions

Section 117 BSA are we dealing with a relevant building?

Section 120 BSA is the service charge in dispute relating to a relevant defect?

Para. 1(1) BSA is the service charge a charge relating to a relevant measure relating to a relevant defect?

B) Does Para.2 Schedule 8 provide protection:

Is the service charge in dispute payable after 20.07.22?

Was the landlord required to produce a landlord certificate?

Did the landlord produce a landlord certificate within time?

If the landlord did not provide a landlord certificate the contribution condition is taken to be satisfied meaning the service charge is not payable.

Where the landlord has provided a valid landlord certificate, or the service charge was payable before the 20.07.22 if the landlord or superior landlord on the 14.02.22 or an associate of either was responsible for the relevant defect the contribution condition is taken to be satisfied.

C) Is the lease a qualifying lease?

Is Section 119(2) BSA (a) to (c) complied with?

Has the landlord taken reasonable steps set out in Para. 13 Schedule 8 to obtain a leaseholder deed of certificate? If not, the lease is treated to be a qualifying lease.

Has the landlord taken all reasonable and prescribed steps to obtain a leaseholder deed of certificate and a leaseholder has failed to provide it, the lease is assumed to be non-qualifying. If the leaseholder produces a leaseholder deed of certificate confirming all the conditions in S119(2) BSA apply to the lease, the lease is a qualifying lease.

D) Does the contribution condition (para.3) Schedule 8 BSA apply?

Has the landlord provided a landlord certificate stating the landlord on the 14.02.22 did not meet the contribution condition? If this is the case the service charge for the remediation of the relevant defect is payable. Where the landlord provides a landlord certificate stating the landlord met the contribution condition on the 14.02.22 no service charge is payable.

E) Para. 4 Schedule 8 BSA protection:

Was the value of the lease as at 14.2.2 less than £325,000 (Greater London) or less than £175,000 (elsewhere)? If yes, no service charge for remediation costs for relevant defects is payable.

F) Para. 8 Schedule 8 BSA protection:

Is the relevant measure or are the relevant measures comprising the removal or replacement of any part of the cladding system?

If the answer to the above is yes, is the cladding system for the outer wall of an external wall system and was the cladding unsafe?

Then Para. 8 protection applies and no service charge is payable in respect of the removal or replacement works.

G) Para. 5,6, and 7 Schedule 8 BSA protection:

Where a service charge is still payable in respect of relevant measures is the sum claimed subject to a cap (Paras 5 and 6) and is the capped sum payable over a ten-year period (Para 7)?

Decision

The FTT recorded in its decision that both when giving procedural directions and at the hearing it had suggested to the parties that because of the complexity of the BSA it may be preferable for them not to rely on its provisions but effectively to reserve their position until another occasion. It was said that adopting that approach would not prejudice their right to rely on the leaseholder protections at a later stage.

The Upper Tribunal challenged that position working on the principle that it could not be open to the leaseholders to rely on the protections of the BSA at a later date to defeat a claim for service charges which the FTT had already decided he was liable to pay.

Not surprisingly, the Upper Tribunal was correct in explaining to the leaseholders of the complexity of the BSA and wise to recommend to the leaseholders that legal advice should be sought, noting that advice is not always available at proportionate expense.

It was for the FTT to determine in every case whether the leaseholder protections apply, and the burden on it is particularly heavy where one or both parties is unrepresented.

The FTT considered one issue which concerned the impact of the BSA namely works referred to in an email from the managing agents involving:

“(i) The removal of the cladding and insulation, replacing the insulation with material that meets current standards. It seems that there was no need to replace the cladding which was reinstated after the insulation had been upgraded.

(ii) The inspection of the current cavity barrier to establish if any are in place and install a safety barrier (if required) between each dwelling. It seems that it was necessary to install these safety barriers.”

In reaching its decision the FTT did not explain what it meant by a “cavity barrier” or a “safety barrier” but the Upper Tribunal understood this to mean an intumescent strip installed in the gap between the cladding system and the concrete face of the building which is either a ‘closed state’ cavity barrier, which forms a tight seal between cavities within the cladding system, or an ‘open state’ barrier which allows ventilation and drainage but is designed to expand on exposure to heat and thereby to seal that gap and prevent the passage of fire between floors and apartments.

In deciding that the leaseholders were liable under the terms of their leases to contribute towards the cost of the work and that the landlord had complied with its obligation to consult before commencing the works the FTT decided the following:

a) The protections in paragraphs 3, 4 and 8 of Schedule 8 apply only to “qualifying leases” and in their application the leaseholders were said to have adduced no evidence that their leases were qualifying leases.

b) The landlord was not the developer, nor were they associated with the developer (Wimpey) on the relevant date of 14 February 2022.

c) In examining the contribution condition, the FTT stated “A landlord meets a “contribution condition” when the landlord’s net worth exceeds £2 million in respect of each of the buildings of which it is landlord. The ground rents for Sanctuary Street are £150 per annum. The Tribunal therefore accepts that it is highly unlikely that the Respondent [LSMC] meets the criteria of £2 million per year.” It did not refer to paragraph 14(2) of Schedule 8 or to the potential significance of the fact that no landlord’s certificate complying with regulation 6 of the Leaseholders Protections Regulations had been served.

d) In considering the cladding works The FTT next quoted paragraph 8 of Schedule 8 and noted that cladding remediation involved the removal or replacement of part of cladding system which forms the outer wall of an external wall system, and which is unsafe and determined that neither of these requirements was satisfied making two findings on the facts:

“(i) The fire remedial works did not involve the “removal or replacement” of any part of a cladding system. The works rather involved the replacement of the insulation and the addition of a cavity barrier. The cladding system itself was neither removed nor replaced.

(ii) The cladding system was not itself unsafe. It did not require any removal or replacement of part of the cladding system and was therefore not “cladding remediation” for the purposes of this paragraph.

e) The FTT said that that none of the Schedule 8 protections applied.

f) It also held that the leaseholders had not established that their leases are “qualifying leases” In reaching this conclusion, the FTT did not refer to paragraph 13 of Schedule 8 or to the potential significance of the fact that no landlord’s certificate had been served.

Appeal to the Upper Tribunal

Using the framework highlighted earlier, the UT worked its way through the step or questioning process.

Step 1 – preliminary conditions

Relevant building (Section 117)

4 Sanctuary Street is a relevant building. It is self-contained, contains at least two dwellings, and is both at least 11 metres high and has at least five storeys above ground level.

Relevant works and relevant defect (Section 120)

The disputed service charge is claimed in respect of the works found by the FTT to comprise the removal of the cladding and insulation, the replacement of the insulation with material meeting current standards, and the reinstatement of the cladding using the original panels.  While the cladding was off the building, the exposed structure was inspected to establish if cavity safety barriers were in place between each dwelling and were installed where they were not originally provided.

The insulation which was replaced dated from the original construction of the Block, and the risks associated with its use therefore arose as a result of something used in connection with the original construction; the risks associated with the absence of cavity barriers arose because of things not done at the same time. All those works were completed within the period of 30 years ending on 14 February 2022 and they were therefore relevant works within the meaning of section 120(3)(a).

The defects the disputed service charges relate to are therefore relevant defects for the purpose of sections 122 to 125 and Schedule 8, as defined in Section 120.

Relevant measure (paragraph 1(1), Schedule 8)

The purpose of the works was to remedy the relevant defects, and the works were relevant measures for the purpose of Schedule 8.

Step 2 – paragraph 2 protection

The paragraph 2 protection applies if the relevant landlord (i.e., the landlord or any superior landlord on 14 February 2022) was responsible for the defects or was associated with a person responsible for the defects. The starting point in considering whether that condition is met is paragraph 14(2) of Schedule 8, and regulation 6(7) of the Leaseholder Protections Regulations made pursuant to it, by which any person who was a relevant landlord on 14 February 2022 is to be treated as having been responsible for the relevant defect if they have not provided a landlord’s certificate which complies with regulation 6.

The Leaseholder Protections Regulations, and the obligation to provide a landlord’s certificate, came into force on 20 July 2022. The obligation does not apply in all circumstances, but only in those identified in regulation 6(1)(a) to (e).  Regulation 6(1)(a) creates the obligation “when the current landlord makes a demand to a leaseholder for the payment of a remediation service charge.”

As the demand for service charge was dated 8 February 2021, before the Regulations came into force, there was no requirement on it to have given a landlord’s certificate within four weeks of making that demand. It does not appear to us to be possible to treat the condition in paragraph 2(2) of Schedule 8 as being satisfied on account of a failure to provide a landlord’s certificate, unless the obligation to provide such a certificate was in force when the relevant demand was made.

The Upper Tribunal raised an interesting ancillary point namely whether after the Leaseholder Protections Regulations came into force, a relevant landlord then came under an obligation to serve a landlord’s certificate in respect of any demand which had been made before that date. Regulation 6(1)(a) would not appear to have that effect, but it could be argued that regulation 6(1)(c) might.

The UT decided that, when the matter came before the FTT, regulation 6(7) was not engaged and the absence of a landlord’s certificate did not affect the availability of the paragraph 2 protection in relation to the demand made on 8 February 2021.

The absence of a landlord certificate stating whether the relevant landlord was responsible for the relevant defect or was associated with a person who was responsible, gives rise to a presumption of fact, but the certificate itself is not proof of the facts which it certifies. Where a compliant certificate has been provided the presumption that the contribution condition is met is dispensed with, but the facts remain to be determined if they are in dispute. If a leaseholder challenges statements made in an apparently compliant certificate, it is for them to demonstrate that the relevant landlord or an associate was responsible for the relevant defect.

Further, if there was no obligation to provide a certificate at the time a service charge became payable, the absence of a certificate will not give rise to any presumption that the paragraph 2(2) condition is satisfied. But the absence of the presumption will not prevent a leaseholder from proving that the landlord or a superior landlord or their associate was in fact responsible for the relevant defect.

On that basis it was therefore correct to conclude that the paragraph 2 protection was not available to the leaseholders. Based on the material provided, the FTT was entitled to conclude that the respondent was neither the developer of the block nor associated with the developer, Wimpey. On that basis it was therefore correct to conclude that the Paragraph 2 protection was not available to the leaseholders.

Step 3 – qualifying lease

The lease considered by the FTT was granted before 14 February 2022 for a term of more than 21 years and includes a service charge and so satisfied the first three of the four conditions in section 119(2) and may be a qualifying lease and eligible for the remaining leaseholder protections.

The UT then had to consider section 119(2)(d), concerning the relationship between the leaseholder and the flat and the extent of the leaseholder’s other property interests.  This requires either that the dwelling must have been the leaseholder’s only or principal home on 14 February 2022, or that on the same date the leaseholder did not own any other dwelling in the UK or owned no more than two dwellings in the UK apart from under the lease in question.

The FTT dealt with the issue of whether the lease was a qualifying lease by accepting that no evidence had been adduced to it to support a finding that it was. The UT held the FTT was wrong, it should have determined that the lease was a qualifying lease. The reason for this is looking at the lease provided to the FTT it was apparent that the conditions in section 119(2)((a), (b) and (c) were satisfied (i.e., the lease was a long lease of a single dwelling which included a service charge and had been granted before 14 February 2022).

Paragraph 13 of Schedule 8 then became relevant meaning the lease was to be treated as a qualifying lease unless the landlord “has taken all reasonable steps (and any prescribed steps) to obtain a qualifying lease certificate from a tenant under the lease, and … no such certificate had been provided” (paragraph 13(2)).

Step 4 – paragraph 3 protection – the contribution condition

The effect of paragraph 3 of Schedule 8 is that no service charge is payable under a qualifying lease in respect of a relevant measure where the landlord at the qualifying time met the contribution condition. The first step in determining whether this protection is available is to consider whether the presumption that the condition is met in paragraph 14(1) applies. The presumption applies unless the landlord provides a certificate to the tenant, complying with any prescribed requirements, that the person who was the landlord on 14 February 2022 (the relevant landlord) did not meet the contribution condition. If the presumption applies, it is not necessary to consider whether the qualifying condition was in fact met.

Not surprisingly the UT was not impressed with the approach of the FTT which contended that the contribution condition was not met as the ground rent of each individual flat was only £150 a year. It did not consider the effect of the paragraph 14(1) presumption.

The UT considered that had the FTT found that the lease was a qualifying lease and that the paragraph 14(1) assumption was engaged so that the contribution condition must be taken to have been satisfied, the proper conclusion would have been that the paragraph 3 protection applied and that not the disputed service charge was not payable (because it was in respect of relevant measures relating to relevant defects).  If the presumption did not apply the FTT would have been entitled to conclude that the contribution condition was not satisfied and that the paragraph 3 protection did not apply.

Step 5 – paragraph 4 protection – low value leases

The UT considered that the paragraph 4 protection was not available in this case as the value of the flat was likely to exceed the low value figure.

Step 6 – paragraph 8 protection – cladding remediation

Paragraph 8 of Schedule 8 provides no service charge is payable under a qualifying lease in respect of “cladding remediation” and so the FTT was required to consider whether the service charge is claimed in respect of the removal or replacement of any part of a “cladding system” which formed “the outer wall of an external wall system”, and which was unsafe? If so, the service charge is not payable in respect of the removal or replacement works.

The UT explored the FTT’s conclusion that the removal of the external cladding panels, the stripping out of the original insulation, its replacement with new insulation, the installation of fire safety barriers where these were missing, and the reinstatement of the original cladding panels, was not “cladding remediation”.

Helpfully the UT explained that it understood “cladding” to refer to material attached to the structure of a building to provide a protective or decorative outer skin but then emphasised that it was not concerned the definition of “cladding”, but “cladding system.”

It explained the BSA contains no definition of a “cladding system” and that the FTT’s narrow interpretation of that expression was wrong due to the following:

a) the reference to a “cladding system” is clearly not intended to be limited simply to a single building component such as the final layer of cladding panels visible on the facade of a building.  Any “system” has several components, and each is within the scope of paragraph 8(2): cladding remediation comprises the removal or replacement of “any part of a cladding system.”

b) where an expression is used in a statute dealing with a technical subject, such as fire safety, it is legitimate to consider how that expression is usually understood in that context.

The UT held that the expression “cladding system” is often used in technical literature concerned with fire safety in a way which includes the layers of insulation commonly found behind the outermost sheet of cladding material. For example, in the prospectus for the Building Safety Fund published by the Department for Levelling Up, Housing and Communities in May 2021, a footnote on page 11 explains that:

“A cladding system includes the components that are attached to the primary structure of a building to form a non-structural external surface. The cladding system includes the weather-exposed outer layer or ‘screen’, fillers. Insulation, membranes, brackets, cavity barriers, flashing, fixings, gaskets, and sealants.”

Further guidance is provided by the RICS guidance to surveyors engaged to certify that the safety of a building’s external wall system has been assessed (see Cladding External Wall System (EWS) FAQs 23.5.24 which updates an earlier publication referred to by the UT and advises that “The external wall system (EWS) is made up of the outside wall of a residential building, including cladding, insulation, fire break systems, etc.”

The RICS guidance also makes reference to the British Standards Institution code of practice BSI PAS9980:2022 - Assessing the external wall fire risk in multi-occupied residential buildings. This defines “cladding” at paragraph 3.1.4, and includes an explanation of a cladding system:

“cladding system of one or more components that are attached to, and might form part of the weatherproof covering of, the exterior of a building”

The UT also mentioned Annex M to BSI PAS9980:2022 which explained:

“External cladding systems involve the combination of several different components, including cladding panels, ventilated cavities, thermal insulation, breather membranes, cavity/fire barriers and support systems.”

In reaching this conclusion the UT looked at how the term “cladding system” is used elsewhere in the BSA. For example, Section 149 is concerned with liability for past defaults relating to “cladding products.” A “cladding product” is defined as “a cladding system or any component of a cladding system” (section 149(12)). One condition of liability for cladding products includes that “the cladding product is attached to, or included in, the external wall of a relevant building” (section 149(3)). The UT explained that Parliament had not attempted to distinguish between different building components which might be attached to or included in the external wall of a building inviting a wider, rather than a narrower, interpretation of “cladding product” and “cladding system.”

It concluded that the ordinary meaning of that expression includes materials installed behind the external screen enabling the leaseholder to rely on paragraph 8 protection on the basis that the insulation was not “part of a cladding system.”

On the facts the work done to the building comprised the removal of the original two sheets of insulation and their replacement with a new single sheet of a different material with improved fire-resistant properties which involved the removal and replacement of part of the cladding system. Further the work included the installation of cavity barriers where these had previously been omitted and whereas the FTT said that the installation of these new components was not the removal or replacement of part of a cladding system the UT considered that in this respect also it took too narrow a view of the scope of paragraph 8.

The UT said it did not consider that paragraph 8 could be interpreted as covering only the removal of part of a cladding system and its replacement with an identical component, and we see no reason either as a matter of language, or having regard to the policy of the Act, why the replacement of part of a cladding system with something quite different, or additional, should not fall within the paragraph 8 protection. ”Replacement” need not mean replacement with something identical. The policy of the Act of providing leaseholders with protection against the cost of putting cladding systems into a safe condition would be frustrated if it were necessary to divide essential remedial work into those parts which involved the replacement of components which were there before and those which involved the introduction of something new. As a result, the UT regarded the whole of the work done to the building as comprising the removal or replacement of part of a cladding system. In our judgment the FTT was wrong to conclude that the works were not covered by the paragraph 8 protection.

On the facts, the UT concluded that the leaseholder was not liable to pay the service charge and allowed the appeal.

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Lehner v Lant Street Management Company Limited

Building Safety Act 2022

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