This week we look at the first decision from the FTT regarding remediation contribution orders and a Supreme Court decision on commercial service charges together with our usual dose of positive news and insights from around the firm.
Successful application for a remediation contribution order under the Building Safety Act 2022
The first decision has been handed down by the First-Tier Property Chamber (Residential Property) (the FTT) relating to remediation contribution orders under section 124 of the Building Safety Act 2022 (the Act).
In Arjun Batish and other Leaseholders v Inspired Sutton Limited (1) Inspired Asset Management Limited (2) and Tommy Lyons and James Friis (3) there were 18 applicants who held 15 long leases at 9 Sutton Court Road, Sutton. The respondents were the freehold owners and developers of the property, and the directors of the freehold companies.
The respondents had served a section 20 notice to undertake the following works:
- The replacement of all unsafe cladding and replacement of render;
- Rectification and replacement of the balconies;
- Repair to the communal heating system.
The cladding works were funded by the Building Safety Fund but the balcony replacement works were not, and so the landlord issued service charge demands to leaseholders for these sums. The leaseholders applied for a remediation contribution order in relation to the balcony works on the basis that they had made service charge payments for the remediation of relevant defects, and they sought to have those payments returned. The applicants argued that those service charge costs fell within the limiting provisions of Schedule 8 of the Act and that it was just and equitable to make a remediation contribution order in their favour.
On consideration of the applications, evidence and submissions, the FTT ordered that Inspired Sutton Limited pay remediation contributions to each of the leaseholders totalling £194,680.62. This order was made without a hearing and despite the service charges having been demanded before the Act came into force.
Our team look into the decision in further detail here.
Pay now, argue later!
Sara Hossein Asset Holdings Ltd v Blacks Outdoor Retail Limited [2023]
The Supreme Court has considered a commercial tenant's service charge liability and the proper interpretation of a service charge clause in this recent case.
The clause in question provided that the landlord shall, at the end of the service charge year, provide to the tenant a certificate as to the amount of the total cost and the sum payable by the tenant and that, in the absence of manifest or mathematical error or fraud, such certificate shall be conclusive. A dispute had arisen as the certified sum sought from the tenant in the year 2017/2018 (a year before lease expiry) was circa £400,000, at odds with previous (and subsequent) years where the certified sum was circa £55,000.
Landlord's position
The landlord's position was that the wording of the lease was clear that the sum payable by the tenant was the sum on the certificate and that the provision must be understood in the context of the commercial purpose of the clause, i.e to ensure that a landlord is able to recover service charges particularly when in most cases, it would already have incurred the costs of providing the services. The landlord referred to the fact that there are exceptions (manifest error, mathematical error and fraud) and so the rights of the tenant to dispute the sum are not wholly ousted.
Tenant's position
The tenant's position was that a service charge calculation is a complex exercise, involving careful consideration of the lease provisions and services provided. Any part of the calculation can give rise to a dispute which would not fit neatly into the exceptions. Therefore, to take the landlord's interpretation of the provision would allow the landlord to be "judge in his own cause" and leave the tenant powerless to challenge its liability.
The tenant also alleged that the landlord's interpretation was at odds with the other terms of the lease, including the extensive dispute resolution mechanism for other matters and the fact the tenant has a right to inspect the receipts.
On that basis, the clause could only be interpreted such that it is conclusive as to the costs and expenses of the landlord but not as to the sum the tenant is liable to pay.
The Supreme Court's decision
The Court rejected both the landlord's and the tenant's positions, finding that there was an alternative interpretation, namely that the certificate is conclusive as to what is required to be paid by the tenant as at that date, but that does not preclude the tenant from later challenging its underlying liability. However, the onus will be on the tenant to make out and bring any such claim.
The Court considered that this interpretation gives effect to the words and protects the landlord's cashflow concerns but at the same time gives the tenant recourse to pursue any arguable case.
Commentary
This case highlights the difficulties of balancing the landlord's commercial purpose as a property owner and manager of a building, with a tenant's right to fairness and transparency. It also provides clear and unequivocal guidance to landlords and tenants with similar provisions in their own leases as to how the Courts expect such service charge provisions to operate.
Insights from around the firm
Positive news
The plan to turn a notorious New York jail into a green energy hub
Located on a 400-acre island between the Bronx and Queens, Rikers Island houses the majority of New York’s 5,700 prisoners. The jail is legally required to close by 2027 and a report by non-profit, the Regional Plan Association (RPA), in partnership with Rhode Island School of Design and the Renewable Rikers Coalition, which is an alliance of groups representing people who have been incarcerated in the complex, have worked together to develop a proposal.
Under the plan, noxious power and sewage treatment plants in the deprived neighbourhoods of the Bronx and Queens would be removed, freeing up 182 acres of land for community use. They would be replaced with sprawling solar arrays, battery storage and new wastewater facilities located on Rikers. The new infrastructure would include a composting and recycling hub, and a research and training institute arming front-line communities with new skills in solar installation and repair.
Time in nature was linked with lower drug use
This week brought fresh evidence of nature’s positive impact on public health. A study of 7,000 people in Helsinki, Finland, revealed a correlation between exposure to nature and lower use of prescription drugs, such as antidepressants.
Interestingly, the benefits of being in nature appeared to be strongest among those with the lowest household incomes, underscoring the need to improve public access to green spaces.
The research – conducted by the Finnish Institute for Health and Welfare, and published in the BMJ Journal – adds to a growing body of evidence that suggests spending time in nature is good for us.
