Ella Grodzinski examines the recent legal proceedings in the case of Adriatic Land 5 Limited v Leaseholders at Hippersley Point, highlighting its relevance to disputes involving high-risk properties, with a particular focus on residential service charges and the implications under the Building Safety Act 2022. 

Case Link and Bailii Link:

Adriatic Land 5 Ltd v Long Leaseholders at Hippersley Point [2023] UKUT 271 (LC) (Decision 13 November 2023) 

http://www.bailii.org/uk/cases/UKUT/LC/2023/271.html 

Facts and background 

The Applicant was the registered freeholder of Hippersley Point. The 32 residential flats within the relevant building were let on long leases, which contained provisions for the payment of a service charge. The Respondents were the long leasehold owners of those flats. 

In 2020, investigations revealed fire risks arising from the external construction of the building, requiring substantial remedial works (“the works”). The works were qualifying works to which s.20 of the Landlord and Tenant Act 1985 (“the 1985 Act”) applied. Unless the consultation requirements referred to in s.201 were complied with or dispensed with by order of the FTT, the costs for the works that could be recovered through the Service Charge would be limited to £250 [22].  

The Appellant applied for the consultation requirement to be dispensed with under s.20ZA(1) of the 1985 Act (“the Dispensation Application”) [26]. The FTT’s original decision granted dispensation from the consultation requirements, on an unconditional basis. However, the FTT also made an order under s.20C of the 1985 Act, preventing the Appellant from recovering the costs of making the dispensation application (“the Dispensation Costs”) from the Respondents by the service charge [27-28].  

Following the Appellant’s application for review, the FTT revised the original decision (“the review decision”). The s.20C Order was revoked, but it was made a condition of the grant of dispensation that the Appellant would not be entitled to recover the Dispensation Costs from the Respondents (“the Costs Condition”).  

The UT Deputy President granted the Appellant permission to appeal the review decision [30-32]. 

Issues 

There were two issues to be decided: 

1. Whether the FTT had erred by imposing the Costs Condition as a condition of the grant of dispensation from the consultation requirements. If so–  
2. Whether the Dispensation Costs were covered by paragraph 9 of Schedule 8 to the Building Safety Act 2022 (“the 2022 Act”), so that no service charge was payable in respect of such costs by any leaseholder whose lease was a qualifying lease within the meaning of s.119 of the 2022 Act.  

The paragraph 9 issue was identified by the Deputy President when granting permission to appeal, rather than by the parties. The Appellant argued that the Dispensation Costs were not within the scope of paragraph 9, and in any event were incurred prior to paragraph 9 coming into force, therefore they were not affected. [37].  

Decision 

The Costs Condition 

The Chamber President, Mr Justice Edwin Johnson, held that the FTT’s imposition of the Costs Condition could not be upheld.  

Procedurally, the UT held that by replacing the s.20C order with a Costs Condition “the FTT made the same procedural error … as they had made and had acknowledged that they had made in relation to their decision to make the Section 20C Order; … making the decision of their own initiative, without hearing submissions from the parties” [44-46]. It had not been open to the FTT to do so.  

Substantively, the UT held that while the FTT could impose a costs condition if it determined that a consultation dispensation would be unreasonable without one, this must be a determination made on the facts of the case. A costs condition may not be appropriate in every dispensation case. The focus must be on prejudice suffered by leaseholders due to the failure to consult. In the present case, the FTT failed to properly apply their findings that the Respondents had failed to establish any prejudice, and the Appellant had been acting responsibly by proceeding to make the building safe as quickly as possible [76-84]. Accordingly, the FTT had erred in law by imposing the Costs Condition.  

Paragraph 9 of Schedule 8 of the 2022 Act 

Paragraph 9(1) provided that “No service charge is payable under a qualifying lease in respect of legal or other professional services relating to the liability (or potential liability) of any person incurred as a result of a relevant defect.”2 

On the construction of paragraph 9, the UT held that the words ‘relating to’ were “very wide. All that is required is a relationship between the services and the liability or potential liability of the relevant person incurred as a result of the relevant defect.” Accordingly, Johnson J “[found] it difficult to see how such a relationship can be said not to exist between the costs of a dispensation application made by a landlord, in relation to works required to remedy a relevant defect, and the liability of that landlord to remedy the relevant defect” [112]. The UT concluded that the Dispensation Costs were capable of falling within the terms of paragraph 9 [118].  

On applicability, the question was whether paragraph 9 could apply to the costs of services incurred prior to paragraph 9 coming into force on 28th June 2022, i.e. whether paragraph 9 has retrospective effect.  

There is a general proposition that legislation is not intended to operate retrospectively, in the interests of fairness and legal certainty [123]. Paragraph 9 is not expressly retrospective. However, it is not framed by reference to the incurring of the costs of the relevant services. Rather, as Johnson J noted, “Paragraph 9(1) is drafted on the basis that no service charge is payable under a qualifying lease in respect of Qualifying Services. … If the relevant services qualify as services “relating to” to the relevant liability or potential liability of any person incurred as a result of a relevant defect, … I find it difficult to see why it matters when the costs of the relevant services were incurred” [151]. Johnson J held that the legislative intention behind Schedule 8 was that certain categories of expenditure incurred in relation to relevant defects should no longer be recoverable by service charge. Accordingly, in the context of the surrounding provisions, the conclusion that paragraph 9 could be capable of applying to costs incurred before Schedule 8 came into force was unsurprising. In summary, “the words “No service charge is payable” mean what they say…. The new regime applies, regardless of when the costs of the Qualifying Service were actually incurred, and regardless of when the relevant service charge became payable” [165]. 

Accordingly, recovery of the Dispensation Costs was not available by service charge from those Respondents who held qualifying leases [171].  

Since the FTT’s reviewed decision was taken after paragraph 9 came into force, the failure to take the effect of paragraph 9 into account was an error of law [173].  

Comment 

Paragraph 9 should provide greater certainty than the availability of a discretionary costs condition was capable of doing. Its effect is sweeping, but this appears to be intentional and is “simply a reflection of life in the new world of the 2022 Act” [158].