An Important Building Safety Case Which Provides a New Process for Determining Service Charges Payable Under Leaseholder Protections

The Upper Tribunal recently provided a notable decision relating to leaseholder protections in Schedule 8 of the Building Safety Act 2022 (BSA 2022) in Lant Street Management Company v Lehner, which notably suggests a sequence of questions which a decision maker should address when determining whether service charges are payable in respect of work to which the leaseholder protections may apply.

In Context

Section 122 and Schedule 8 of the 2022 Act contain provisions designed to protect leaseholders under “qualifying leases” from liability to pay some or all of the service charges which would otherwise be due from them as their contribution towards costs connected with “relevant defects”. The most comprehensive of these protections protects all leaseholders from liability to contribute towards the cost of “relevant measures” if their landlord was “responsible for” the relevant defect. Where the landlord satisfies a “contribution condition”, “qualifying” leaseholders are protected from all liability to contribute towards the cost of relevant measures. Where the contribution condition is not satisfied, the qualifying leaseholder’s liability is nevertheless limited to a permitted maximum. Qualifying leaseholders also have protection from any liability to contribute towards “cladding remediation” costs, and in respect of the cost of certain legal or other professional services.

The Case

In this case, the appeal concerned the appellant leaseholder’s contribution towards the cost of removing and replacing combustible insulation and installing additional fire stopping in the cavities between the interior and exterior surfaces of the walls of certain parts of the building. This followed a decision given in the First-tier Tribunal (“the FTT”) on for a determination under section 27A, Landlord and Tenant Act 1985, of the leaseholder’s liability to contribute towards the costs of the proposed works on 12 April 2023, which had determined that the leaseholder was liable to pay £1,244.85 - demanded on 8 February 2021 as a service charge contribution towards the cost of the insulation and fire-stopping work intended to be undertaken to the walls of the building.

The Decision

Following close review and scrutiny of the FTT’s decision and a further focus on the definitions under the BSA 2022 regarding qualifying buildings, qualifying leases, provision of landlord certificates, the definition of remediation and contribution conditions, it was concluded that the service charge of £1,244.85 demanded on 8 February 2021, was not payable by the appellant, and will not be payable even if a proper demand is made for it in future. Two main reasons were given, firstly, because the 2021 demand failed to state the correct name and address of the landlord so that section 47 of the Landlord and Tenant Act 1987 meant that the amount demanded was not due. Second, because the work in respect of which the demand was made was “cladding remediation” and, as the owner of a qualifying lease, the leaseholder had the benefit of the paragraph 8 protection and is not liable to pay such a charge.

Implications: A New Methodology

Notably, in this case the UTT suggests a sequence of questions which a decision maker should address when determining whether service charges are payable in respect of work to which the leaseholder protections may apply and addressed the issues in this appeal - and provides additional questions which may need to be considered in other cases.

Importantly, these seven steps provide an important point of reference and framework for property managers, building owners and their legal representatives to consider. Section 45 of the decision details these as follows:

Step 1 – preliminary conditions

1. Is the building a relevant building (section 117)?
2. Does the disputed service charge relate to a relevant defect (section 120)?
3. Is the disputed service charge a charge in respect of a relevant measure relating to the relevant defect (paragraph 1(1), Schedule 8)?

Step 2 – paragraph 2 protection

4. Did the disputed service charge become payable after 20 July 2022?
5. If so, did any of the circumstances listed in regulation 6(1), Leaseholder Protections Regulations occur between 20 July 2022 and the date the disputed service charge became payable?
6. If so, did the current landlord provide a landlord’s certificate which complied with regulation 6? If not, regulation 6(7) applies, the paragraph 2(2) condition is taken to be satisfied and the service charge is not payable.
7. If the current landlord provided a landlord’s certificate, or if the disputed service charge became payable before 20 July 2022, was the landlord or any superior landlord on 14 February 2022 responsible for the relevant defect, or associated with a person responsible for the relevant defect? If so, the paragraph 2(2) condition is satisfied, and the service charge is not payable. If the landlord or any superior landlord or an associate was not responsible for the defect, the paragraph 2 protection does not apply.

Step 3 – qualifying lease

8. Does the lease satisfy the conditions in section 119(2)(a) to (c)?
9. If so, has the landlord taken all reasonable to obtain a qualifying lease certificate from the tenant for the purpose of paragraph 13 of Schedule 8? If not, the lease is to be treated as a qualifying lease and the protections in paragraphs 3 to 9 of Schedule 8 may apply.
10. If the landlord has taken all reasonable steps to obtain a qualifying lease certificate, and either no certificate has been provided, or the leaseholder has certified that the conditions in section 119(2)(d) were met, were those conditions in fact met? If so, the lease is a qualifying lease and the protections in paragraphs 3 to 9 may apply. If not, none of those protections apply.

Step 4 – paragraph 3 protection – the contribution condition

11. Has the landlord provided a certificate to the leaseholder that the person who was the landlord on 14 February 2022 (the relevant landlord) did not meet the contribution condition? If not, the contribution condition is taken to be satisfied and no service charge is payable (paragraph 14(2) and regulation 6(7)).
12. If the landlord did provide such a certificate, did the relevant landlord in fact meet the contribution condition on 14 February 2022? If so, no service charge is payable (paragraph 3(1)).

Step 5 – paragraph 4 protection - low value leases

13. On 14 February 2022 was the value of the qualifying lease less than £325,000 (Greater London) or less than £175,000 (elsewhere)? If so, no service charge is payable.

Step 6 – paragraph 8 protection – cladding remediation

14. Do the relevant measures in respect of which the service charge is claimed comprise the removal or replacement of any part of a cladding system?
15. If so, (a) does the cladding system form the outer wall of an external wall system, and (b) was the cladding system unsafe? If so the paragraph 8 protection applies, and no service charge is payable in respect of the removal or replacement works.

Step 7 – paragraphs 5, 6 and 7 – other protections

16. If after considering the previous steps the FTT is satisfied that a service charge is payable in respect of relevant measures, is that sum capped because it exceeds the maximum payable under a qualifying lease permitted by paragraph 5 and 6 of Schedule 8, or the annual limit permitted by paragraph 7?

Summary

This decision provides clarification on the interpretation of key elements of the BSA 2022 and associated regulations. By providing and actionable framework for future cases, it will be important to note how these tests are applied in similar cases as more decisions continue to emerge.

Readers are also encouraged to view the case decision in full, available here: LC-2023-622 Final.pdf (tribunals.gov.uk) and particularly the Appendix section which illustrates how these tests have been applied in this case.

If you would like to discuss this case, its implications and how it may affect you, please contact our building safety team directly: buildingsafety@jbleitch.co.uk