This note offers suggestions for local authorities looking at their Right to Buy (RTB) leases to establish whether and to what extent they permit costs to be recovered and general measures taken after the Grenfell fire.
As shown in this diagram, local authorities will want to consider the wording of both the service charge provisions and the leaseholders' general covenants to assess what cost recovery and reduction options might be open to them.
Contrary to a widely held view, service charge wording does sometimes permit the recovery of costs of this kind; and there are other useful provisions which address fire safety issues. Of course a thorough examination of the full terms of the leases will be necessary. Most local authorities will have many different forms of RTB leases that have been used over the 30-40 years so it will be important to check each lease's own terms.
Key provisions to identify are those (often in the form of landlord covenants) which relate to:
- the safety of the block – we know of one London Borough which has identified provisions of this kind and there are similar provisions in leases granted by other authorities;
- improvements – anecdotally recovery of costs for improvements is thought to be rare but from our investigations they are not infrequent;
- extending (sometimes "improving") services or facilities (and equipment) – this may offer scope for introducing new arrangements (such as retrofitted sprinklers);
- maintaining existing (fire) equipment etc. and any further equipment considered necessary.
Service charges of course do not directly relate to the demised premises themselves; and reliance upon service charge provisions requires compliance with the requirements of Section 20.
We therefore encourage a focus also on covenants by leaseholders in relation to the demised premises themselves. A number are helpful:
- compliance with fire regulations and official notices (including works);
- "internal" regulations for the building – concerned with the safety of occupiers - and the right to extend / modify / vary those services;
- compliance with (potential) insurance requirements, including increasing the costs thereof.
It will be clear that this enforcement option, subject to the limited expense of the necessary steps, involves none of the risks attached to service charge recovery and none of the complications arising from Section 20.
The suggestions here will of course need to be considered in a wider context. Whilst some cost recovery might be legally possible under the terms of the RTB leases, is it appropriate to consider enforcement of the terms in the light of the type of works being carried out? As a corollary, is it right, when considering a local authority's fiduciary duty, not to enforce and seek cost recovery from the leaseholder at all? A cost benefit analysis would need to be considered.
