Structural defects – who pays?

Remediating structural defects can often be very expensive, and it is becoming more difficult for freeholders to pass the cost on to leaseholders via their service charge. In this context, options for the landlord to recover the cost from parties who carried out the construction of the property are likely to become more important.

Cladding remediation costs

Many readers will be familiar with the restrictions introduced by the Building Safety Act 2022. No service charge is payable under a qualifying lease in respect of ‘cladding remediation’ which means the removal or replacement of “any part of a cladding system”, which forms “the outer wall of an external wall system” and which is unsafe.¹ The Upper Tribunal recently found that the ‘cladding system’ should be interpreted widely and includes the underlying insulation and cavity barriers.²

The scope of this restriction was extended by another recent decision.³ This is important as it was found that leaseholders’ protection from cladding remediation costs does not depend on there being a ‘relevant defect’ which causes a building safety risk (as required elsewhere within the BSA). The result is that leaseholders can benefit from protection from remedial costs regardless of when the cladding was put on the building.

Other structural defects

The recent decision in The London Borough of Tower Hamlets v. Lessees of Brewster House and Malting House⁴ is relevant to all structural defect remediation costs, not just cladding costs.

This case concerned the cost of remediating structural defects caused by the construction of a building using the Large Panel System. The dispute concerned whether the costs were recoverable from the leaseholders as being the cost of work to “maintain and keep in good and substantial repair and condition” the structure of the building or alternatively as costs which were was included in the “sweeper” provisions. It was held that:

• The obligations to repair and maintain the building did not require the landlord to remedy structural defects.
• The “sweeper” clause which required the landlord to maintain the building could not be construed as a covenant to remedy structural defects as it goes “too far beyond the scope of anything that precedes it”.

The remedial cost could not therefore be passed to the leaseholders.

Wider effects

The costs of remediating structural defects can often be high and can come as a shock to landlords and leaseholders alike. There are already significant restrictions on passing cladding remediation costs on to leaseholders, and these are being applied robustly.

The recent decision in The London Borough of Tower Hamlets is important. It means that without provisions in the lease which specifically state that the cost of remediating structural defects is part of the landlord’s responsibilities and can be included in the service charge, the costs cannot be passed to the leaseholders.

What other options do landlords have?

Where structural defects require extensive remediation work, other recovery options may be available to landlords. Where the property is residential, claims under the Defective Premises Act 1972 will often be possible against the original contractors or developers for the cost of remediating structural defects. Such claims have long limitation periods and may be possible in respect of properties constructed as early as 1992. Furthermore, where the original developer or contractor is no longer trading, it may be possible to obtain a Building Liability Order against its current or former parent companies, subsidiaries or other group companies.

These are options that landlords who find themselves responsible for the cost of remediating structural defects may wish to explore.

1. Schedule 8, para 8
2. Lehner v Lant Street Management Co Ltd [2024] UKUT 135 (LC)
3. Almacantar Centre Point Nominee No 1 Ltd & Other v Ogilvie & others [2024]
4. [2024] UKUT 193 (LC)