Adriatic Land 5 Limited v Leaseholders at Hippersley Point
Building Safety Act 2022:
Court of Appeal decision as to whether leaseholders are liable for costs incurred prior to commencement of BSA Sch 8
Earlier in the year, the Court of Appeal considered an appeal from the Upper Tribunal in respect of whether leaseholders were liable to pay service charges in respect of legal costs incurred (for a dispensation application for cladding works) by the landlord prior to commencement of Schedule 8 of the Building Safety Act 2022.
The background
Adriatic Land 5 Limited v Leaseholders at Hippersley Point (Secretary of State for Housing, Communities & Local Government intervening) [2025] relates to a 10-storey building containing a commercial unit on the ground floor and 32 residential flats above, all of which are held on long leases. The appellant is the freeholder of the building. Substantial remedial works and interim fire safety works were identified and implemented in 2020, in order to address fire safety risks at the building. The freeholder sought recovery of the costs of such works through the service charge.
In 2021, the freeholder applied to the First-tier Tribunal for consent to dispense with the consultation requirements of the Service Charges (Consultation Requirements) (England) Regulations 2003 which require freeholders to consult with leaseholders where any leaseholder’s contribution exceeds £250. The FTT had no hesitation in making the order due to the urgency of the works, but directed that the freeholder could not recover the costs of its application to the FTT from leaseholders by way of a section 20C order.
On review of its decision, the FTT set aside the section 20C order on the basis that no section 20C applications had been made by any of the leaseholders but, instead, made the grant of dispensation conditional upon the landlord being unable to recover its legal costs from the leaseholders via the service charge.
The landlord applied for permission to appeal the costs condition, and when granting appeal, the Deputy President of the Upper Tribunal invited the parties to make submissions in relation to whether the legal costs fall under paragraph 9 of Schedule 8 to the Building Safety Act 2022. This paragraph of the Building Safety Act 2022 had not been in force when the FTT had made its original decision.
In an appeal to the Upper Tribunal (“UT”) in 2023, the UT found that para 9 Schedule 8 of the Building Safety Act 2022 prevented the freeholder from recovering its costs in making the application from qualifying leaseholders:
“9 (1) No service charge is payable under a qualifying lease in respect of legal or other professional services relating to the liability (or potential liability) of any person incurred as a result of a relevant defect
…
(2) In this paragraph the reference to services includes services provided in connection with-
(a) obtaining legal advice,
(b) any proceedings before a court or tribunal, …”
Schedule 8 came into force on 28 June 2022. The freeholder appealed to the Court of Appeal (“CA”).
The decision
The CA considered three principle issues:
- Whether the freeholder’s costs of making the dispensation application fell within the scope of paragraph 9 of Schedule 8 (the “Scope Issue”);
- Whether paragraph 9 of Schedule 8 applies retrospectively to costs incurred before the provision came into force on 28 June 2022 (the “Retrospective Construction Issue”);
- Whether a retrospective application of paragraph 9 violates Article 1 of Protocol 1 of the European Convention on Human Rights, requiring a compatible interpretation of the Human Rights Act 1998 (the “A1P1 Issue”).
Scope Issue:
The freeholder argued that an application for dispensation from consultation requirements did not relate to liability for building safety defects, and that therefore paragraph 9 did not apply. The CA disagreed, finding that the costs of making the dispensation application did fall within the scope of paragraph 9 of Schedule 8.
Retrospective Construction Issue:
The CA’s decision was split on this point, which considered whether paragraph 9 applied retrospectively. In a 2:1 decision, the freeholder’s appeal was dismissed.
Nugee LJ and Holgate LJ concluded that paragraph 9 applied from commencement, finding that no further relevant service charges were payable by qualifying leaseholders from 28 June 2022 in respect of costs incurred, whether or not the services had been provided and invoiced for, or service charges demanded or fallen due, before or after that date. However, this application did not extend to costs incurred and charges paid before 28 June 2022.
The CA recognised that this approach causes unfairness to landlords, but stated that it did not believe that this justified going against the purpose of the legislation, which was to protect leaseholders against substantial service charges:
“…I do not think that the unfairness of depriving landlords of accrued rights adds very much; and I do not think this additional unfairness is sufficient to justify reading the legislation in such a way as to cut across the legislative purpose of providing protection to leaseholders against unaffordable bills in the way that Parliament obviously intended.”
Newey LJ dissented on the retrospectivity issue, determining this point in the freeholder’s favour. He stated his interpretation of paragraph 9 to be that no service charges should be payable under qualifying leases for relevant costs where the liability to pay for legal or other services was incurred on or after 28 June 2022.
This conflicted with Nugee LJ and Holgate LJ, who had found that no service charge was payable in respect of relevant costs regardless of whether services had been delivered and invoiced, or any service charge demanded or fallen due, before or after 28 June 2022.
LJ Newey’s conclusion accommodates the freeholder’s position that it may potentially be faced with significant costs without the opportunity for compensation, even where the freeholder, or a landlord, was not responsible for defects. LJs Nugee and Holgate found that the legislation did not contain any provision to suggest that Schedule 8 paragraph 9 did not apply until costs already incurred, demanded or fallen due had been paid.
A1P1 Issue:
The freeholder argued that retrospective application of paragraph 9 violated its property rights under the European Convention on Human Rights (Protocol 1), which states that “Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law…”
The CA’s decision was unanimous on this point, finding that retrospective application of paragraph 9 did not violate the Convention rights. The purpose of paragraph 9 was “control of use” rather than “deprivation” of property, and there was a legitimate public interest in the legislation’s purpose.
Final thoughts
This decision regarding retrospective application of paragraph 9 and the recovery of costs incurred in connection with an application for dispensation sets an important precedent for the industry.
It is now anticipated that the wider Schedule 8 provisions, drafted in similar terms, will carry the same interpretation, resulting in a notable impact on landlords.
This matter was heard alongside Triathlon Homes LLP v Stratford Village Development Partnership and others and permission to appeal to the Supreme Court has been applied for in both cases.
