A flat with defective cladding was still a dwelling

Picture the dismay of the purchasers of a flat in Greenwich who were informed, hours after completing their purchase, that the block in which the flat was situated was covered in cladding similar to that used on Grenfell Tower. The buyers had acquired the flat, through a property company, to add to their property rental portfolio. However, after consideration, they came to the conclusion that they could not let the flat out under a formal tenancy agreement. Fortunately, the property had the benefit of an NHBC guarantee, but it took two years to get the cladding replaced. Meanwhile, the buyers allowed their daughter and one of her friends to occupy the flat and charged them a rent that was lower than the company was finally able to charge when the cladding was replaced and the property was let commercially. The company’s SDLT return had indicated that the higher rate of SDLT on “high-value residential transactions” was not applicable because the company had purchased the property for the purposes of its property rental business. HMRC accepted that the relief had potentially been available to the company; however, it argued that the company had disqualified itself from the relief because the owners of the company had gone on to let the flat to an individual who was connected with them – ie to their daughter and her friend – within a period of three years from the date of the transaction. And the ensuing argument led to the litigation in Fish Homes Ltd v HMRC [2020] UKFTT 180 (TC). The company argued that the acquisition of the flat was not a residential transaction – and not a “high-value residential transaction” – and that the non-residential rates of SDLT should apply because the flat was unsuitable for use as a dwelling, thanks to the danger created by the cladding. It relied on PN Bewley Ltd v HMRC [2019] UK FTT 65 (TC). In that case, the purchaser of a derelict bungalow (from which some floorboards and the radiators and pipework had been removed, and which contained asbestos) had been able to avoid SDLT at the higher rate because the property was not suitable for use as a dwelling. So when do defects in a building mean that it is not a dwelling, or not suitable for use as such? The tribunal was prepared to accept that the block might not have complied with the building regulations in force when the flat was built, or when the company purchased it, because of the cladding. But that was not enough, in itself, to render the flat unsuitable for use as a dwelling. The tribunal accepted that defects that make it dangerous to live in a property could have the requisite effect, if a reasonable person would say: “It’s too dangerous to live there.” Risks from high radioactive pollution, a high probability of walls collapsing and the kind of hazards that cause the issue of a prohibition notice restricting the use of premises might fall into this category. But no prohibition or enforcement notice had been served and the flat had been occupied as a dwelling, with the consent of the company. It followed that a reasonable person would not say that it was too dangerous to live there. Therefore, the risk posed by the cladding was not such as to prevent the flat from being a dwelling, or from being suitable for use as such. Allyson Colby is a property law consultant