Landlord’s works: liability, remedies and risk

Helena Davies and Ian Laurie review landlord responsibility for safety in the wake of Grenfell and other high-profile cases. Being the freeholder of a large multilet building brings exciting opportunities alongside quite heavy responsibilities. The ability to develop and improve the space, accommodate quality tenant mix and invest in the most marketable specifications to attract the best covenants, cream off the rents and increase reversionary value, all sit beside the need to comply with statutory obligations, provide services, keep the building in repair, and allow tenants quiet enjoyment of their demises. Recent events have highlighted how landlords can underestimate the reach of their obligations.  The case of Blue Manchester Ltd v North West Ground Rents Ltd [2019] EWHC 142 (TCC) arose in relation to the Beetham Tower (the tallest completed building in the UK outside London), and concerned the stability and aesthetics of its fully glazed external elevations. The safety of multi-tenanted buildings is of course already under the spotlight as a result of the Grenfell Tower disaster and, even more recently, the speed of the fire-spread to the timber-clad block at the Barking Riverside estate has added further concern. Legislation is changing to try to prevent a repeat of Grenfell (see EG, 27 July, p52), but there is also a wider review of many modern buildings and materials under way, leaving many landlords scratching their heads as to whether their building is in disrepair and what they need to do about it.  Does the landlord have to repair? While the question of repairing liability stems from the precise wording in any given lease, Dilapidations: The Modern Law and Practice (Dowding N, and Reynolds K) offers a number of principles that can assist an analysis, and were recited by the judge in Blue Manchester: What is the physical subject matter of the covenant? Is the subject matter in a damaged or deteriorated condition? If so, is the condition below the standard contemplated by the covenant? What work is required to put the subject matter into the contemplated condition? Is that work of such a nature that the parties did not contemplate that it would be the liability of the covenanting party? The glazing at the Beetham Tower was becoming de-bonded from the frame, and temporary surface-fixed “stitching” plates were installed, which had a life expectancy of no longer than three years and gave a patchwork appearance. Applying the above tests, the judge found the building was not in good or substantial repair, and ordered specific performance requiring the landlord to undertake permanent works. The landlord argued it could never have been intended that it should undertake extensive and expensive works to remedy either inherent or design defects, given the disparity in prices paid for the freehold (£400k) and 999-year leasehold (£45m) interests in the property; the intended 50-year design life of the facade; and the length of the lease. The judge, however, concluded that the covenant was clear and that the landlord took on this risk when it decided to acquire the freehold reversion as a ground rent investment vehicle.     An inherent defect will not always fall to the landlord. In Ravenseft Properties Ltd v Davstone (Holdings) Ltd [1979] 1 EGLR 54 (appropriately about cladding) the tenant was found liable to pay for the alterations that accompanied repairs. The service charge permitted recovery of repair costs to the building envelope, and the case centred on the additional sums that arose as a result of a lack of designed movement joints to the stone cladding (that neither the architect nor engineers originally realised would be required).  In both Blue Manchester and Ravenseft, defects had become manifest but no responsible landlord will wait for a fire to demonstrate that a defect exists. As such, an anticipatory review of condition and liability ought to be undertaken. Safety While Blue Manchester did not relate to fire risk, there are serious safety concerns with regard to the glazing falling off the building. Dowding and Reynolds’s question 2 is expanded by the wording “This question involves asking whether there has been a deterioration from some previous physical state. If the answer is no, there will have been no breach of the general covenant to repair, notwithstanding the fact that the premises may be unsafe or unsuitable for occupation or use for some other reason”. A landlord may thus take some comfort in respect of the strict repairing liability but a change in legislation could result in breaches of other covenants, and there may be moral questions if life is at risk. Simple economics may force a freeholder’s hands as properties become blighted as a result of cladding concerns.  While generally UK legislation is not held to be retrospective, requirements regarding thermal performance have set a precedent in relation to construction and, given the risks, fire safety changes may well be imposed on older buildings. Of course legislation such as the Housing Act 1985, and most recently the Homes (Fitness for Human Habitation) Act 2018, already impose implied obligations on some residential landlords regarding repair, safety and suitability. Who ends up paying? Undoubtedly landlords and tenants are concerned about who pays for remedial works should their buildings fail inspections, and liability will depend on the specific lease provision. In Blue Manchester, the hotel lease specifically excludes service charge recovery in respect of inherent, construction and design defects. This is not uncommon in modern leases where collateral warranties from the contractors should provide comfort for the freeholder. Unfortunately for the defendant landlord in Blue Manchester, the contractor was Carillion – so that claim was passed on to insurers. In Firstport Property Services Ltd v Various leaseholders of Citiscape LON/00AH/LSC/2017/0435, the repairing obligations fell mainly on Firstport, the management company. Investigations confirmed the building’s cladding was “Grenfell style” and needed replacing – at a cost of up to £2.5m. The First-tier Tribunal (Property Chamber) found the precise lease wording “renewing or otherwise treating as necessary” and “in good and substantial repair order and condition” went beyond the remit of simple repair (applying Credit Suissse v Beegas [1994] 4 All ER 8). The service charge entitled recovery of the costs of rectifying inherent structural defects and the work had to be done and paid for by the tenants. Interestingly, the Tribunal considered the length of the leases a relevant factor, the same point which was dismissed in Blue Manchester, albeit in respect of a commercial lease. When the landlord undertakes the works When a landlord undertakes works to repair, improve safety, or improve his asset, disruption for the tenant is likely. In Timothy Taylor Ltd v Mayfair House Corporation [2016] EWHC 1075 (Ch); [2016] PLSCS 136, the ground-floor tenant operated a high-end art gallery on a 20-year lease which contained an express reservation for the landlord to alter or rebuild the building even if the tenant’s premises, use or enjoyment were materially affected – an unusual and quite permissive provision. Nevertheless, the landlord was held liable in damages for breaching its covenant. The landlord’s scaffolding shrouded the building in darkness, and with high levels of noise from the works. The court held that the landlord had not taken reasonable steps to minimise the disturbance to the tenant.  By their nature, the Beetham Tower works are going to be extremely disruptive to the hotel operation as they will involve either long-term scaffolding, or other access systems, meaning rooms may not be useable for the duration. The last thing this landlord will want is more litigation. Cautious investing An investment landlord should undertake thorough due diligence before purchasing a freehold of a large multilet building, even if it is a modern construction. This must include a detailed survey of the construction, design and building materials, fire precautions, review of any collateral warranties (and the strength of those covenants), and a legal analysis of any pre-existing leases to assess the extent of liability and potential for cost recovery. Building surveyor’s comments on fire risk The combination of uPVC windows, poor fire separation, and ACM cladding all contributed to the disaster at Grenfell. Forty years ago, the fire in Woolworths in Manchester resulted in 10 people losing their lives, partly as a result of bars over the windows, but the smoke from the flammable polyurethane foam in the furniture obscured the fire exit signage. Untreated foam was banned from furniture use by The Furniture and Furnishings (Fire) (Safety) Regulations 1988, and fire precautions, building design, and safety certification, were all subject to change. Incredibly, that same polyurethane came to be allowed to form part of the envelopes to some modern buildings. Woolworths is a good example of the struggle building owners face over property safety with the near total destruction of their distribution warehouse in Rochdale in 1971 (which was not helped by a defective sprinkler system) and a number of significant store fires in following years. Woolworths’ procedures failed to keep pace with their changing building stock and the use of modern materials, and legislation failed to reflect the changes in construction and materials that had started to become popular from the 1950s. Today’s construction is changing more quickly than ever and buildings often have a shorter design life, with developers intending them to be redeveloped as demand changes. There are pressures on the speed of construction, and increased off-site pre-fabrication, with more specialist works packages and sub-contractors being used. This often means interface detailing is neglected, and changes in one component are not always adequately reflected in necessary changes elsewhere. This was quite possibly part of the problem encountered at Grenfell.  Recent cladding testing has moved away from single material destruction to system evaluation, resulting in some ACM systems being currently considered safe. Concerns are, however, being raised regarding timber and high-pressure laminate systems. Building surveyor’s comments on glass adhesives It may come as a surprise that the glazing panels on the Beetham Tower were intended to be held in place simply with adhesive. However, it should be remembered that many commercial aircraft components are essentially glued together. Modern adhesives are unquestionably up to the job in respect of the stresses that an aircraft sustains, and should be fit for a tower block construction. That said, the quality checks and fabrication procedures for the air industry demand far higher standards than are likely to occur on a building site. It is also significant that the Beetham Tower’s windows are adhered to powder-coated frames. While the bonding of powder coating is far tougher than simple paints, contamination of the metal surface, or damage allowing corrosion of the metal can lead to de-bonding of the coating – something many surveyors will have encountered with older powder-coated aluminium windows. It is, therefore, less surprising that adhesion has been found to be failing. Clearly in the Beetham Tower case there is a construction defect, although it is unproven as to whether there is a design defect. Helena Davies is a partner in real estate litigation at Brabners LLP and Ian Laurie is a director at Watts Group Ltd