The Mayor and Commonalty and Citizens of the City of London v Various Leaseholders of Great Arthur House
| Jurisdiction | England & Wales |
| Judge | Lord Justice Bean,Lord Justice Lewison,Lord Justice Arnold |
| Judgment Date | 25 March 2021 |
| Neutral Citation | [2021] EWCA Civ 431 |
| Date | 25 March 2021 |
| Docket Number | Case No: C3/2020/0268 |
| Court | Court of Appeal (Civil Division) |
[2021] EWCA Civ 431
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (LAND CHAMBER)
Mr Justice Fancourt
[2019] UKUT 0341 (LC)
LRX/42/2019
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Lewison
Lord Justice Bean
and
Lord Justice Arnold
Case No: C3/2020/0268
Timothy Straker QC & Jonathan Manning (instructed by The Comptroller and City Solicitor) for the Appellants
Christopher Baker (instructed by DAC Beachcroft) for the Respondents
Hearing dates: 17 th March 2021
Approved Judgment
Introduction and facts
The issue on this appeal is the extent to which the lessees of Great Arthur House are liable, under the terms of their leases, to contribute to the cost of carrying out substantial works to the structure and exterior of the building.
Great Arthur House is a Grade 2 listed building, consisting of 120 flats, on the Golden Lane Estate in London EC1. It was constructed in 1957. The flats are held under leases originally granted pursuant to the right to buy. Each lease was granted for a term of 125 years from 10 May 1982. The reversion is held by the City of London Corporation. The leases with which we are concerned were granted between 1983 and 2015. The leases all contain a covenant requiring the lessee to pay to the Corporation a reasonable part of the costs of carrying out specified repairs and of insuring against risks involving specified repairs. The expression “specified repairs” is defined by the leases as meaning:
“… repairs carried out in order:
(i) to keep in repair the structure and exterior of the premises and of the Building in which they are situated (including drains gutters and external pipes) not amounting to the making good of structural defects;
(ii) to make good any structural defect of whose existence the Corporation has notified the tenant in the notice served pursuant to [statutory requirements] which therein stated the Corporation's estimate of the amount (at then current prices) which would be payable by the tenant towards the costs of making it good (such defects being listed in the Fourth Schedule hereto) or of which the Corporation does not become aware earlier than ten years after the grant hereof and
(iii) to keep in repair any other property over or in respect of which the tenant has any deemed rights.”
As originally constructed, the building consisted of a concrete frame with the main east and west elevations largely clad in curtain wall glazing, contained by a framework of aluminium sections fixed to a timber sub-frame. That, in turn, was fixed to the edge of the floor slabs and ends of the cross walls of the main structure. The building has suffered from water penetration for many years. The Corporation has commissioned a number of expert reports; in particular, a report by Jenkins & Potter (who are structural engineers) produced in August 2002. That report concluded:
i) The standard of construction of the framework, and in particular the formation of joints was poor at a significant number of locations.
ii) In fabricating the aluminium framework no allowance had been made for thermal movement. The differential coefficients of expansion between the aluminium framework and the concrete frame had caused the aluminium framework to deform. Where the deformation exceeded the tolerance of the mastic, failure had occurred causing the cladding to leak.
iii) Vertical members of the aluminium frame were not supported.
iv) The opaque glazing was not supported equally along all four sides.
v) Wind deflection of the vertical members of the aluminium frame could result in leakage.
vi) Many of the brush seals in the opening lights of the windows were in poor condition. But even where they were in good condition, they were incapable of providing a wholly effective barrier against wind driven rain.
Further reports commissioned by the lessees confirmed these problems; and identified further ones.
The Corporation undertook a scheme of works, beginning in February 2016 and concluding in the summer of 2018, to address the problems. The works cost approximately £8 million; and consisted of:
i) Complete removal of the existing curtain walling.
ii) Installation of a new curtain wall of a completely different design.
iii) Investigation, strengthening and making good of the structural frame.
iv) New balcony doors and cladding.
v) New sliding windows to the north and south elevations.
vi) Works to the roof.
It is those works that are the subject of the current dispute. If the Corporation is entitled to pass on the full cost of those works to the lessees, it will result in a potential bill of over £72,000 per flat.
The issue
In a nutshell, the Corporation's argument is that whether works are or are not works of repair is a question of fact and degree. Works do not cease to be works of repair merely because they simultaneously eradicate a defect in the building that has been there from the time it was constructed, where that defect has caused damage to or deterioration in the subject matter of the covenant. On the other hand, if works eradicate a defect which has resulted in neither damage to nor deterioration in the subject matter of the covenant, then those works are not works of repair. If works are repair, properly so called, then they fall within paragraph (i) of the definition, and are properly chargeable to the lessees.
The Upper Tribunal Lands Chamber (Fancourt J, President) rejected the Corporation's argument. He held that works of repair of the structure and exterior of the building do not fall within paragraph (i) of the definition of “specified repairs” if the effect of the works is to make good a structural defect. The costs of works that do have the effect of making good a structural defect are only recoverable if they fall within paragraph (ii). Thus, if works have the effect of making good a structural defect, it makes no difference that the works also remedy damage or deterioration that has occurred over the time that the defect has existed. He went on to say that a structural defect is not confined to a so-called inherent defect but must be something that arises from the design or construction (or possibly modification) of the structure of the Building. It is to be contrasted with damage or deterioration that has occurred over time, or as a result of some supervening event, where what is being remedied is the damage or deterioration. The decision of the Upper Tribunal is at [2019] UKUT 341 (LC), [2020] L & TR 6.
The common law background
It is common ground that the legal background is relevant to the interpretation of the definition. I begin with the common law.
Until the landmark decision of Forbes J in Ravenseft Properties Ltd v Davstone (Holdings) Ltd [1980] QB 12 it had been widely thought that a repairing covenant did not require the covenantor to make good what was described as an “inherent defect” in the subject-matter of the covenant. An “inherent defect” used in this sense was a fault in the original design of a building as opposed to faulty materials or workmanship: see [1980] QB at 18. Forbes J held that that was a misconception. Whether works amount to repair was a question of fact and degree; and the relevant inquiry was whether the carrying out of the works in question would involve giving back to the covenantee a wholly different thing from that which was demised. If a scheme of works did not amount to giving back to the covenantee a wholly different thing to that which was demised, they were works of repair. They did not cease to be works of repair merely because they also eradicated an inherent defect which had given rise to the need to repair in the first place.
This test was elaborated in McDougall v Easington DC (1989) 58 P & CR 201, 207 in which Mustill LJ said:
“It is sufficient to say that in my opinion three different tests may be discerned, which may be applied separately or concurrently as the circumstances of the individual case may demand, but all to be approached in the light of the nature and age of the premises, their condition when the tenant went into occupation, and the other express terms of the tenancy:
(i) Whether the alterations went to the whole or substantially the whole of the structure or only to a subsidiary part;
(ii) Whether the effect of the alterations was to produce a building of a wholly different character than that which had been let;
(iii) What was the cost of the works in relation to the previous value of the building, and what was their effect on the value and lifespan of the building.”
Nevertheless, other cases introduced a further refinement. An obligation to repair was not triggered unless and until there had been some damage to the subject matter of the covenant: Quick v Taff Ely BC [1986] QB 809. As Lawton LJ put it in that case: “there must be disrepair before any question arises as to whether it would be reasonable to remedy a design fault when doing the repair”. It is only once some damage to the subject matter of the covenant has occurred, that the tests posed by Forbes J or Mustill LJ become relevant. This was taken a stage further in Post Office v Aquarius Properties Ltd (1986) 54 P & CR 61. In that case this court held that where defects in the building had existed since the date when it was constructed, but there had been no damage to or deterioration in the condition of the building, a repairing covenant did...
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