Citiscape case highlights post-Grenfell cladding challenge

The First-tier Tribunal (Property Chamber) (FTT)  considered whether tenants at two blocks of flats in Croydon can be held liable for service charges which included the initial estimated cost of replacing the cladding on the outside of the buildings, and for fire watch services that have been provided in the aftermath of the Grenfell fire.

Property management business FirstPort Property Services (FPPS) applied for a determination from the FTT that the costs could be charged to the tenants of the Citiscape blocks.

An internal surveyor at FPPS estimated that it would cost £483,000 to replace the cladding and FPPS included those costs in interim service charge demands it issued to the Citiscape tenants in September 2017. However, FPPS subsequently commissioned an independent surveyor to produce a cladding replacement feasibility report. That surveyor estimated the cost of replacing the cladding at more than £1.8 million, or potentially over £2.5m, depending on which approach to replacing the cladding is taken.

Fire marshals have been deployed on the Citiscape site in recent months as part of a 'waking watch' service organised by FPPS following the Grenfell fire. The total annual cost of the service has been calculated at approximately £263,000, which FPPS argued it is entitled to charge to tenants through their service charge.

In its decision, the FTT held (21-page / 4.43MB PDF) that the 'waking watch' costs up until 19 December last year were reasonably incurred under the terms of the Landlord and Tenant Act 1985 and that a service charge was payable by the Citiscape tenants in respect of those costs.

The FTT also held that the £483,000 estimated cost budgeted for by FPPS for replacement cladding was reasonable as defined by the Act, and that a service charge is payable by the tenants in respect of that estimated cost.

The FTT said that it might be open to the tenants of the Citiscape blocks to pursue claims against others for the cost of replacing the cladding on their buildings.

Paul Pinder of Pinsent Masons, the law firm behind Out-Law.com, said: "It is possible that those responsible for the cost of replacing the cladding under the lease may be able to claim a contribution from other parties such as; the manufacturer of the cladding, in particular if any warranties were given as to its suitability or if they have withheld test results as may have been the case at Grenfell Tower; the architect, developer or contractor, if it was negligent as to the selection and installation of the cladding; the local authority, if there were errors in the certification process; and/or against the Ministry of Housing, Communities & Local Government, if the relevant building regulations were not fit for purpose."

The FTT's decision highlights the incredibly difficult position that tenants, management companies and landlords of buildings with Grenfell-type cladding now find themselves in, Pinder said.

"In the present case, the cost of replacing the cladding is currently estimated to be between £1.8m and £2.5m," he said. "This is an eye-watering sum with potentially significant consequences for tenants having to remortgage or even lose their home if the management companies or landlords look to forfeit leases where tenants are unable to pay. Whilst worryingly for the tenants in this case it was determined that, in principle, they will be responsible for the cost of replacing the cladding, the position may be different in other cases as it will turn on the facts of each case and, in particular, the wording of the lease."

In the case of the wording of the lease for the Citiscape blocks, it was significant that the lease provided FPPS with obligations extending beyond simple repair, Pinder said.

According to the wording highlighted in the FTT's decision, those obligations included "inspecting rebuilding re-pointing repairing cleaning renewing or otherwise treating as necessary and keeping the Maintained Property comprised in the Block and every part thereof in good and substantial repair order and condition and renewing and replacing all worn or damaged parts thereof" and "rectifying or making good any inherent structural defects".