On 13 November 2023, Mr Justice Edwin Johnson (President of the Upper Tribunal (Lands Chamber)) handed down judgment in Adriatic Land 5 Limited v Leaseholders of Hippersley Point  UKUT 271 (LC) – the first appeal relating to the provisions of the wide-ranging Building Safety Act 2022.
The underlying proceedings were an application under s20ZA of the Landlord and Tenant Act 1985 to the First-tier Tribunal (‘FtT’) for dispensation from the need to consult in respect to major building safety works to the building, Hippersley Point. The Tribunal granted dispensation, but subject to a condition that the landlord could not recover its costs of the application via the service charge.
The appeal raised 2 issues:
Whilst those issues appear discrete, in a detailed judgment, the President addressed a number of points of much wider importance, going to the heart of the leaseholder protections in the Building Safety Act 2022. The underlying appeal as to the FtT’s decision to impose a condition on the grant of dispensation succeeded. However, the President found that the effect of paragraph 9 of Schedule 8 was that costs that were incurred and were payable as a service charge prior to the Building Safety Act 2022 coming into force on 28 June 2022 were rendered no longer payable from that date by leaseholders with a qualifying lease.
Firstly, the decision confirms that there is no general principle that a landlord should bear its own costs of a dispensation application and should be prevented from recovering those costs as part of the service charge. It will always be a matter for the relevant tribunal to consider whether, on the particular facts of each case, the imposition of a costs condition is appropriate in its nature and effect. On the facts of this case, the landlord could not properly be seen as ‘seeking an indulgence’ and the analogy with seeking relief from forfeiture as drawn by Lord Neuberger in Daejan v Benson did not apply.
Secondly, the decision confirms that paragraph 9 of Schedule 8 to the Building Safety Act 2022, which protects qualifying leaseholders against liability to pay by way of service charge professional costs a landlord incurs relating to the liability (or potential liability) of any person incurred as a result of a relevant building safety defect, is apt to apply to costs incurred by a landlord in bringing a dispensation application relating to building safety works.
Thirdly, the decision confirms that the leaseholder protections in Schedule 8 took effect from 28 June 2022 with respect to all service charge costs falling within one of the protected categories of expenditure in Schedule 8 (including the cost of professional services under paragraph 9) even where the sums had been incurred prior to and had been demanded prior to and became payable prior to that date. Whilst the President repeatedly expressed the view that this was not the same as the Act having retrospective effect, the result means that all unpaid service charges relating to relevant costs caught by the Building Safety Act 2022 ceased to be payable on 28 June 2022, wiping out overnight at the very least tens of millions of pounds of unpaid service charges.
Counterintuitively, landlords who had held off pursuing recovery of unpaid service charges relating to building safety remediation costs (perhaps whilst pursuing third party sources of funding), and leaseholders who had paid service charge demands for such costs on demand, are thus now in a less favourable position than landlords who did enforce payment of sums and leaseholders who did not pay.