Case Law Analysis: Balancing Landlord Safety Obligations and Leaseholder Rights Post Building Safety Act 2022

Introduction

The Upper Tribunal (Lands Chamber) case, Adriatic Land 5 Limited v The Long Leaseholders at Hippersley Point [2023] UKUT 271 (LC), addresses the contentious issue of dispensation from consultation requirements under Section 20ZA(1) of the Landlord and Tenant Act 1985, interlinked with the application of new provisions under the Building Safety Act 2022 (the 2022 Act). This case is emblematic of the challenges faced in balancing landlords’ obligations to ensure building safety with leaseholders’ rights, particularly in the evolving legislative landscape post-Grenfell Tower tragedy.

Key Facts

The case involves Adriatic Land 5 Limited, the appellant and freehold owner of Hippersley Point, seeking a dispensation from consultation requirements for necessary safety remediation works. The respondents, being long leaseholders, would potentially bear the service charge levied to cover the remedial works. Initially, the First-tier Tribunal (FTT) granted dispensation unconditionally but ruled to preclude the appellant from recovering its legal and professional costs (the Costs) through the service charge—a decision later reviewed and modified to a conditional dispensation prohibiting the recovery of the Costs from respondents.

Legal Principals

A focal legal principle in this case revolves around the concept of “prejudice” from Daejan Investments Ltd v Benson [2013], emphasizing that tenants’ prejudice due to non-compliance with consultation requirements is a determining factor for granting dispensation. However, dispensation may be granted conditionally, accounting for tenants’ costs in contesting the application, if they’ve shown a credible case for prejudice.

The Tribunal also leaned on Lord Neuberger’s guidance in Daejan that tribunals possess the power to grant dispensation on terms they deem appropriate, provided they are just in nature and effect. In the present case, the FTT initially deemed it unjust for the landlord to recover the costs related to securing dispensation from leaseholders.

Additionally, the case tested the limits of the newly enacted Building Safety Act 2022, especially Paragraph 9 of Schedule 8, which restricts landlords from recovering certain costs via service charges. This case marks the Tribunal’s first encounter with the 2022 Act and its implications on service charges in the context of historic building safety defects.

Outcomes

The Tribunal allowed the appeal, setting aside the decision to impose the Costs Condition on multiple grounds. Procedurally, the FTT failed to afford parties the opportunity of being heard concerning the Costs Condition. Substantively, it contained errors in failing to adhere to established legal principles, particularly where no prejudice to leaseholders was found and in light of the Appellant’s intentions being viewed as non-avoidant of its responsibilities.

Significantly, the Tribunal found that irrespective of the FTT’s decision on dispensation conditions, Paragraph 9 of Schedule 8 of the 2022 Act would inhibit the Appellant from recovering the Costs from leaseholders holding qualifying leases. The Costs incurred in pursuing the now-granted unconditional dispensation are non-recoverable from said leaseholders, as determined on a chronological basis and the effect of Paragraph 9 from the date of its enactment.

Furthermore, the Tribunal chose not to address the Section 20C applications made by some respondents seeking to prevent cost recovery through the service charge, reasoning that they were beyond the Tribunal’s remit and appropriately under the FTT’s jurisdiction.

Conclusion

In summary, “Adriatic Land 5 Limited v The Long Leaseholders at Hippersley Point” serves as a pivotal illustration of judicial balancing acts between landlords’ remedial obligations and leaseholders’ protection from undue service charges, especially in the context of upfront historical building safety defects. This judgment reaffirms the primacy of leaseholders’ interest in the face of newly enacted protective legislation and clarifies the scope and applicability of the relevant legal principles and statutes. The outcome not only signals a shift in the legal landscape following the Building Safety Act 2022 but also enforces procedural fairness and substantive accuracy in FTT decisions.