The Court of Appeal in Tower Hamlets LBC v Leaseholders of Brewster House and Malting House [2025] EWCA Civ 1591 upheld the decisions of both the First tier Tribunal and the Upper Tribunal, confirming that Tower Hamlets (the “Council”) was not entitled to recover the costs of historic structural defect works from right to buy leaseholders through the service charge.
The case concerned whether nine leaseholders were contractually obliged, via their service charges, to contribute towards substantial remedial works valued at £9.2 million, required to address longstanding structural defects arising from the original Large Panel System (“LPS”) construction of the buildings in the 1960s.
When the leaseholders applied to the First tier Tribunal for a determination under section 27A of the Landlord and Tenant Act 1985 as to the reasonableness and payability of the service charges, the Council relied on the obligation contained in Clause 5(5)(o) of the lease.
That clause provides that the tenant covenants to pay “all such works … as in the absolute discretion of the Lessors may be considered necessary or advisable for the … safety … of the Building” as well as “any other costs and expenses reasonably and properly incurred in connection with the Building.”
The Council therefore argued that the cost of the remedial works was recoverable through the service charge.
However, the First tier Tribunal held that the leaseholders had no liability for these costs, a decision upheld by the Upper Tribunal.
The Court of Appeal confirmed this. In reaching this view, the Court held that:
- The service charge wording within the leases did not capture historic structural defects
- “Safety” in clause 5(5)(o) in this context referred to ordinary management and maintenance matters, not major works required to rectify inherent structural defects present since construction.
- The general language used in the definition of “Total Expenditure” within the leases could not be stretched to include fundamental structural remediation.
In short, none of the lease provisions created a contractual obligation on leaseholders to fund works aimed at correcting defects embedded in the original 1960s LPS construction.
2. Right to buy legislation limits what leaseholders can be charged for
- Interpreting general service charge clauses as enabling the recovery of millions of pounds for historic structural defects would undermine the legislation within the Right to Buy scheme.
The Court therefore held that the service charge mechanism could not be used to shift these costs onto leaseholders.
This decision reinforces the importance of clear and transparent wording in leases, especially where the parties' intend leaseholders to pay for major historic structural repairs; and that general "sweeper" clauses will not be sufficient where leaseholders have acquired under the Right to Buy scheme.
