Property litigation weekly update - 12 February 2021


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This week's bulletin covers the Government's latest announcement on cladding funding, a landlord's successful opposition to the grant of a new business tenancy, and a case concerning service charge certification in residential leases.   

We also include our regular links to insight from colleagues across the firm and good news stories. 

Government announces additional funding for cladding works

The Government has announced a £3.5bn increase to the building safety fund for cladding replacement on high rise buildings over 18 metres. The increase in funding is intended to ensure that the Government will pay for the removal of unsafe cladding for leaseholders in all residential buildings that are 18 metres (6 storeys) high and over. 

For buildings between 11 to 18 metres, works will not be fully grant funded but financial assistance will be given to leaseholders by a low-interest loan, for which leaseholders will pay no more than £50 per month.

The Government further announced a new tax on residential property development to help pay for the cladding works.

Whilst the additional funding has been welcomed, it remains unclear how other fire safety works that are often recommended following fire safety inspections will be funded. It also remains to be seen whether this latest announcement will be the final word on the matter, given that leaseholders in buildings lower than 18 metres will still face the potential threat of very large service charge bills for remedial works.  

Landlord successfully opposes renewal of business tenancy on disrepair grounds – Kent v Guest [2021]

In a relatively rare reported example, the High Court has considered the disrepair and breach of covenant grounds upon which a landlord can oppose a new business tenancy under sections 30(1)(a) and (c) of the Landlord and Tenant Act 1954. 

The case concerned Ingmanthorpe Racing Stables in Wetherby, a 40 acre site which had been leased to Mr Guest, a Grand National winning jockey. When the tenant refused to vacate upon contractual expiry of his 12 month term, the landlord served a section 25 notice opposing renewal on the basis of substantial disrepair and other breaches, including unauthorised alterations and sharing of occupation.

Mr Justice Snowden dismissed the tenant's appeal against the County Court's refusal to order a new business tenancy. The judge held that the disrepair was substantial, based on 53 photographs taken by the landlord and a surveyor's report. The County Court's findings of other breaches of covenant were also upheld, including unauthorised alterations and a failure to insure. Mr Justice Snowden further upheld the County Court's finding that it would not be fair to compel the landlord to enter into a new lease with the tenant, as it appeared likely that the condition of the property would further deteriorate.

The High Court's decision offers encouragement for landlords that in cases where clear evidence of substantial breaches can be provided, a possession order can be obtained provided that the Court is persuaded that it would be unfair to compel the landlord to grant a new tenancy.

Certification of service charge accounts - Powell & Co Investments Ltd v Aleksandrova and another [2021]

The Upper Tribunal (Lands Chamber) has ruled on whether a statement by a Chartered Accountant was sufficient to trigger the leaseholder's contractual liability to pay service charges. 

The lease included the following two separate provisions: 

  • that the leaseholder would be liable to pay the year-end service charge "upon the production of a certified account"; and 
  • that the leaseholder's liability "shall be certified by a Chartered Accountant to be appointed by the Lessor". 

The landlord's 2019 service charge accounts were produced but the only certificate was provided by the landlord's managing agent, who was not a chartered accountant. The accounts also contained a one-page document referred to as the "Accountant's report of factual findings". This was prepared by accountants but was addressed to the managing agents only and did not express any assurance on the service charge accounts other than two factual statements based on a limited review of material. 

The Upper Tribunal ruled that the obligation to pay depended on an account of the liability of the leaseholder being certified by a Chartered Accountant, stating the individual leaseholder's share of total expenditure, the payments made on account, and the resulting shortfall or surplus. Although there was no requirement for an audit, the landlord's accountant's report was deficient as it failed to certify the liability of the leaseholder and so the service charge was not yet due. 

This decision acts as a stark reminder for landlords and managing agents that where the lease contains provisions requiring a certificate of a particular nature, the terms of the lease must be strictly followed to ensure a leaseholder's liability to pay service charges is properly triggered. 

 

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