Hastings Borough Council v Manolete Partners Plc [2016] UKSC 50

A Supreme Court case from last year offers a reminder that leasehold obligations between landlord and tenant can affect third parties’ obligations (here entitlement to statutory compensation).

In this case, the landlord had an obligation to the tenant to repair and renew the structure of a pier. The landlord failed to carry out its obligations and the Borough Council (Hastings) exercised its emergency powers pursuant to s.78 of the Building Act 1984 (“1984 Act”) to close the pier to the public owing to safety concerns.

The tenant, Stylus (whose claim was bought by Manolete), operated a Bingo Hall and amusement arcade on the pier. They pursued Hastings for compensation for business losses suffered as a result of the closure.

S106 of the 1984 Act allows businesses who suffer loss as a result of emergency action taken by a local authority to recover compensation from it but only “in relation to a matter as to which he has not himself been in default”.

Hastings argued that no compensation was payable as Stylus had been in default. It relied on alleged breaches the Occupiers Liability Act 1957, which imposes a duty of care towards visitors, and the Health and Safety at Work Act 1974, which imposes a duty on an employer to ensure the safety of his employees and the safety of the workplace.

This argument failed at the Technology and Construction Court, Court of Appeal and then last year in the Supreme Court.

The Supreme Court held that in order to assess default it was necessary to:

(1) understand the “matter” in relation to which Hastings had exercised its powers, being in this case the state of the pier and in particular the risk of collapse during planned events (not at the tenant’s premises) or in an emergency evacuation; and

(2) whether that was a matter to which the tenant had been in default.

In light of the fact that the responsibility for the structure fell upon the landlord and that Stylus was not responsible for the planned events which triggered the council's action, it was entitled to recover compensation.

The Supreme Court also clarified (and disagreeing with the TCC and Court of Appeal in this respect) that “default” was not limited to default of the 1984 Act but extended to other forms of legal default.

Key points:

  • Responsibility for the structure of premises is a key term of any lease for a number of reasons. A landlord may want to retain control of its premises and the tenant may not want the responsibilities involved with structural maintenance particularly where the structure is shared with other tenants (as was the case here) and/ or the lease concerned is for a short term. In this case the decision had wider impact as it affected whether or not the tenant could recover compensation for the losses it incurred from the local authority.
  • A case which demonstrates the power a local authority has over properties within its area, a power in respect of which there is no right of objection or recourse to the Court. There is also no absolute obligation to notify the building owner of the proposed action, only an obligation if reasonably practicable to do so. The right to compensation in these circumstances acts as an important “check” on its use.
  • S.78 does not anticipate the local authority carrying out any remedial works necessary to the building but does anticipate the local authority incurring expenses (in most circumstances recoverable from the building owner) in removing the danger, including fencing and security at the building. In this respect it differs to the provisions of s.77 of the 1984 Act which applies to dangerous buildings in non-emergency scenarios. This section allows the local authority to apply to the magistrates court for an order requiring the owner to execute necessary works to obviate danger or to demolish. The section further provides that if the owner fails to satisfy the order the Local Authority may carry out the works specified in the order and recover expenses from the person in default. In this scenario the tenant could also have a claim against its landlord for its failure to comply with its repairing covenant. The tenant did in fact here ask the landlord to comply with its repairing covenant before carrying out the remedial works itself and asking the magistrates court to permit public access to its premises.