Court of Appeal decides, by a majority, that Leaseholder Protections in the Building Safety Act 2022 operate retrospectively

This morning, the Court of Appeal handed down judgment in Adriatic Land 5 Limited v Leaseholders of Hippersley Point, dismissing Adriatic’s appeal by a majority of 2 to 1.

Background

The appeal concerned whether the Building Safety Act 2022 (“BSA”) prevents the appellant, Adriatic, from recovering service charges from tenants in respect of costs which Adriatic had incurred before Schedule 8 of the BSA came into force.

The Upper Tribunal (“UT”) below held that the terms of paragraph 9 of Schedule 8 would prevent the landlord from recovering its costs of an application under section 20ZA of the Landlord and Tenant Act 1985 for dispensation from the need to consult in respect of major building safety works to the building.

Adriatic appealed and argued:

1. The costs of the dispensation application do not fall within the scope of paragraph 9 of Schedule 8 (“the Scope Issue”);
2. That, even if such costs fall within the scope of paragraph 9, that paragraph does not operate retrospectively in respect of costs that were incurred or became payable prior to 28 June 2022. Therefore, the UT erred in its conclusion that such costs can no longer be recovered from leaseholders with a qualifying lease by reason of paragraph 9 of Schedule 8 (“the Retrospective Construction Issue”); and
3. Even if the court concludes that paragraph 9 has retrospective effect on the application, that construction would amount to a breach of Article 1 of Protocol 1 to the European Convention on Human Rights (“A1P1”), and pursuant to section 3 of the Human Rights Act 1998 (“HRA”), the court must “read in” words preventing paragraph 9 from having retrospective effect (“the A1P1 issue”).

The Scope Issue

In relation to the Scope Issue, the Court of Appeal unanimously held that the costs of the dispensation application are within the scope of paragraph 9.

The Retrospective Construction Issue

In relation to the Retrospective Construction Issue, the Court of Appeal was split:

• Lord Justice Newey concluded that he would allow Adriatic’s appeal.
  
  He held that the factors relevant to fairness came down against retrospectivity and did not displace the presumptions against retrospectivity and interference with property rights. Accordingly, paragraph 9 should be construed to mean that no service charge is payable under a qualifying lease in respect of relevant costs incurred after 28 June 2022 as a result of a relevant defect. The words italicised did not fall to be implied but were simply an application of the presumptions which operate in respect to construction.
  
  
• Lord Justice Nugee, with whom Lord Justice Holgate agreed, came to a different conclusion and held that Adriatic’s appeal should be dismissed.
  
  He held that the correct construction was that from 28 June 2022, no further service charges of the relevant type are payable, irrespective of whether the costs have been incurred or the service charges had been demanded and were payable before that date, notwithstanding that this construction interferes with the landlord’s existing proprietary rights.

The A1P1 Issue

The Court of Appeal reached a unanimous decision in relation to the A1P1 issue. They held that a retrospective construction of paragraph 9 was to be seen as affecting control of use rather than deprivation for A1P1 purposes. Further, that section 3 of the HRA did not require the court to “read in” words to prevent paragraph 9 from having retrospective effect because retrospectivity would not violate A1P1.

Conclusion

Whilst the appeal concerns the interpretation of paragraph 9 of Schedule 8, the appeal has much wider implications as other paragraphs of Schedule 8 depend on similar language.

The practical effect of the decision on the Retrospective Construction Issue and the A1P1 Issue is that any service charges paid before 28 June 2022 are unaffected by the legislation. However, from 28 June 2022, no further service charges of the relevant type are payable, irrespective of whether the costs have been incurred or the service charges had been demanded and were payable before that date. Therefore, landlords who held off pursuing unpaid service charges in relation to building safety remediation costs and leaseholders who have paid service charges on demand are in a less favourable position than landlords who enforced payment of sums and leaseholders who did not pay.

Simon Allison KC, leading Malcolm Birdling (Brick Court Chambers) and Mattie Green acted for Adriatic.