In February 2014, the Upper Tribunals (Land Chamber) decided that long lease tenants occupying a shared building were liable through their service charge for the full cost of repairs to the building - totalling more than £300,000 - even though the landlord should have carried out the repairs over 40 years earlier.
The landlord had owned a Victorian building which contained nine shops on the ground floor with 18 residential flats above, since 1973. In front of the shops was a walkway which was held up with steel beams. These beams corroded over time and as a consequence, the landlord made emergency repairs and replaced all 27 beams at a cost exceeding £300,000.
The residential leases contained a landlord’s covenant to keep the structure of the building in repair, and a tenant’s covenant to pay for such repairs through a service charge.
The tenants argued that they should not be liable for full costs of repairs as the works should have been done decades earlier, and that the landlord’s failure to complete the works earlier increased the eventual costs of the repairs.
The Upper Tribunal decided that, despite the fact that the landlord had been in breach of its repairing covenant since it acquired the building in 1973, the tenants were still liable for the full cost . This was because they were unable to show that the eventual cost of the repair would have been avoided or reduced had the landlord remedied the defect at the time.
Where a tenant can show that eventual costs would be reduced or avoided, they will be able to use this ‘historical neglect’ argument as a defence against a claim for service charge and therefore have a claim in damages for breach of covenant. This could then be set off against the tenant’s liability to contribute through the service charge.
This case really highlights the importance for purchasers of leasehold property and their solicitors, to ensure they properly investigate the physical condition of the whole building of which the demise to be purchased forms part. It also provides a warning to landlords to ensure that they are alert to and comply with, all repairing obligations in order to avoid the possibility of tenant’s successfully arguing the historical neglect defence which is unpredictable and can lead to costly litigation.