The First-tier Property Tribunal has made a ruling in a case dealing with the issue of who should pay for the cost of replacing cladding on a Croydon block of flats. The case (FirstPort Property Services Limited -v- The Various Long Leaseholders of Citiscape (LON/00AH/LSC/2017/0435)) is expected to be significant as a raft of similar cases wait to be heard following the Grenfell Tower fire in June 2017.
The towers in question in this case were part of the Citiscape development in Croydon, comprising one ten storey block of flats and a second six storey block of flats. It was established by the property management company for the site that the blocks had been built with a similar cladding to those that caused the fire at Grenfell.
In response to this, the property management company, FirstPort Property Services, employed an agency to undertake “walking watch” fire marshalling to patrol the blocks, creating an annual cost of some £263,000. The estimated total cost of re-cladding the properties looked to be in the region of £2.5 million.
FirstPort sought to recover the cost of replacing the cladding and the cost of the fire marshals from the tenants through a service charge. The key sticking point was that tenants held a 999-year “tripartite” leases that were originally made between the site developer, Barratt Homes, FirstPort and the individual tenants. Barratt had subsequently sold its freehold interest to Promixa GR Properties.
999-year “tripartite” leases are often used to reduce the responsibility of a landlord for maintaining a property by transferring that duty to a third-party company. Usually that third-party company is controlled by the tenants who then have an interest in the property. However in this case, the third party was a professional manager, FirstPort, who had no interest in the building.
In these particular leases both the manager’s obligation to maintain and the tenant’s obligation to contribute are defined by identical wording. It therefore seemed to the Tribunal that the inevitable conclusion is that if the manager is obliged to do work or provide a service, the tenants are obliged to contribute to the cost. For all intents and purposes FirstPort was merely a managing agent.
The Tribunal further concluded that, in granting 999-year leases, the freeholder had relinquished its interest in the flats on the basis that under the Leasehold Reform, Housing and Urban Development Act 1993 there was no prospect of a freeholder receiving more than nominal premiums either on enfranchisement or renewals. It was, the Tribunal decided, reasonable to conclude that the parties had intended that all future costs associated with the blocks would be the responsibility of the tenants. This will no doubt come as a concern to tenants with long leases under similar ‘tripartite’ arrangements.
Whilst in this case the responsibility to foot the potentially multi-million pound bill to re-clad the blocks lies with the tenants, the Tribunal made it clear that this may not always be the case. It is important both leaseholders and freeholders review their leases and where necessary seek legal advice where appropriate as there could be large liabilities on the horizon.
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