It is common in the UK, particularly in London, for people to own their homes on a long leasehold basis, often with a lease of 999 years. In this case, the homeowner doesn't own the freehold of their property. However, a lease of 999 years is effectively akin to a freehold interest, albeit there is still a landlord-tenant relationship.
Therefore, the lease will contain obligations on the part of the tenant, such as obligations to repair or pay service charges. Service charge payments are commonly used where multiple parties occupy the same building and where communal areas and common parts that everybody uses need to be repaired, maintained, and paid for.
There can often be friction between landlords and tenants regarding how much tenants have to pay for service charges, particularly when large items such as the building's roof have to be repaired or replaced, and the tenant is asked to pay their proportion of the cost, which can be tens of thousands of pounds.
Service charge obligations
It is very important if you are thinking of buying a property on a long leasehold basis that you properly understand before you commit to buying the leasehold interest, what service charge obligations you are signing up to and, importantly:
- how the service charge is apportioned between the residents of the building
- what happens when some of the properties within the building are vacant (who pays then)
- and whether the service charge is capped in any way?
It would also be prudent to make sure that you understand what obligations the landlord has to repair and maintain the building, what parts of the building that relates to and the steps you can take to force the landlord to carry out repair and maintenance works. Poorly drafted leases may not be tight enough to impose those obligations on the landlord. Situations can develop where those obligations are loosely worded. Tenants find themselves in a difficult position where the landlord is not obliged to do repair maintenance, but neither is it the tenant's responsibility.
Is there a difference between maintenance and remedying safety defects?
Another common area of dispute relates to the extent of the landlord's obligations and whether significant work needs to be done on the building. Do those works fall within the landlord's responsibility, and, more importantly, can they pass on the cost to the long leaseholders?
The Court has recently examined this topic in the case of London Borough of Tower Hamlets vs Lessees of Brewster House and Malting House, where the landlord had an obligation to maintain the building, but the building in which the flats were located was shown to have safety defects such that reinforcement works were required including the installation of an external steel frame and external reinforcement across walls. The cost of the work was estimated at over £8 million. The landlord sought recovery of part of that cost from the long leasehold tenants, which the tenants contested because the landlord's works did not fall within the service charge provisions of their leases.
Under the leases, the landlord was entitled to recover costs incurred in complying with
- a covenant to "maintain and keep in good and substantial repair and condition" the main structure of the buildings and also
- as a form of sweeper clause, a covenant "to do or cause to be done all such works installations acts matters and things as in the absolute discretion of the lessors may be considered necessary or advisable for the proper management and maintenance safety amenity or administration of the building."
The parties agreed that the necessary work did not involve repair as there was no damage or deterioration in the physical condition of the building that required repair.
However, the question was whether the works could be described as works needed to maintain the building. The case was referred to the Upper Property Tribunal where the Judge decided that the covenant to maintain was only engaged where there was some form of physical deterioration in the building. The Judge felt that while a covenant to maintain meant something different from a covenant to repair, denoting something preventative rather than remedial, neither covenant was a covenant to remedy structural defects or to make a building safe.
The sweeper clause
Whilst maintaining involves an element of preserving the condition of the property, "to preserve is not to make something new or to make something safe that was not safe". The Tribunal, therefore, decided that the landlord could not recover the costs under the maintenance obligation.
The Tribunal then went on to look at the sweeper clause, and the Judge decided that since the repair and maintenance obligations in the leases did not extend to remedying structural safety issues, such expenditure could not have been tucked into the general words of the sweeper clause.
A sweeper clause is designed to provide for items not yet thought of, but it is commonly accepted that if the landlord had intended the recovery of the cost of items vastly different in kind and scale from those expressly specified, clear words would've been used. Essentially this meant that the landlord could not recover any of the costs of works from the long leasehold tenants.
It is unsurprising to see a landlord relying on a sweeper clause to try and extract payment from long leasehold tenants. Many of the long leases that we see were drafted decades ago remain unaltered and don't cater to modern-day scenarios. It is, therefore, common for landlords to try and resort to relying on general wording to force tenants to pay for works to the building. However, it appears that the judiciary's current thinking in relation to the scope of sweeper clauses is to limit their applicability. The general view at the time of writing is that a sweeper clause should not be read as extending a service charge clause in a way that takes no account of the overall focus of the clause.
In the Tower Hamlets case, the tribunal judge felt that the general words referring to the proper management maintenance safety or administration of the building did not go so far as to require the landlord to remedy structural defects because that would go too far beyond the scope of anything that preceded it.
It is common for issues related to the interpretation of obligations to also involve prohibitively expensive works. The tribunal takes this factor into account, often forming the view that exorbitant costs are not something that one would expect to be covered by a general sweeper clause.
