City of London v Various Leaseholders of Great Arthur House

Factual and Procedural Background

The appeal concerns the liability of lessees of Great Arthur House, a Grade 2 listed building comprising 120 flats on the Golden Lane Estate in London, to contribute to the costs of substantial structural and exterior repair works under the terms of their leases. The leases, granted between 1983 and 2015 for terms of 125 years from 1982, require lessees to pay a reasonable part of costs for specified repairs and insurance. The building, constructed in 1957 with a concrete frame and aluminium curtain walling, has suffered long-term water penetration and defects in its structure and cladding.

The City of London Corporation, as reversion holder, commissioned expert reports identifying defects including poor construction standards, lack of allowance for thermal movement causing deformation, unsupported frame members, and inadequate sealing. Following these findings, the Corporation carried out a major works scheme from 2016 to 2018 costing approximately £8 million, involving removal and replacement of curtain walling, structural strengthening, new balcony doors, windows, and roof works. The dispute centers on whether the full cost of these works can be charged to the lessees, potentially exceeding £72,000 per flat.

The Upper Tribunal Lands Chamber previously held that works of repair do not include works that amount to making good a structural defect, and costs for such works are only recoverable if the tenant was notified of the defect before lease grant or if the defect was discovered more than ten years after lease grant. This decision is central to the appeal.

Legal Issues Presented

1. To what extent are lessees liable under their leases to contribute to the costs of works that involve substantial repairs and/or making good structural defects to the building?
2. Whether works that eradicate structural defects can be classified as "repairs" under the leases and thus chargeable to the lessees.
3. The proper interpretation of the definition of "specified repairs" in the leases, particularly the scope of the exclusion for works "not amounting to the making good of a structural defect".
4. How the relevant statutory provisions, especially those in the Housing Act 1980 and subsequent legislation, inform the interpretation of the leases and liability of tenants for repair costs.

Arguments of the Parties

Appellant's Arguments

• The appellant (the Corporation) argued that whether works are repairs is a question of fact and degree and that works do not cease to be repairs merely because they also eradicate an inherent structural defect that has caused damage or deterioration.
• It was submitted that there is a "bright-line distinction" between repairs and works to make good inherent defects, with the latter not falling within the scope of repair obligations chargeable to tenants.
• The appellant relied on previous case law and statutory provisions to support the contention that costs of works that are repairs should be recoverable from lessees, even if they incidentally remedy structural defects.
• The appellant contended that the phrase "in order to" in the lease definition indicates that the purpose of the works governs whether they are repairs chargeable to lessees.
• It was also argued that the service charge should be easy to operate and that the test proposed by the respondent introduces uncertainty.
• The appellant further relied on statutory provisions relating to housing revenue accounts to support their position, though this was ultimately rejected by the court.

Respondent's Arguments

• The respondents (the lessees) contended that the Upper Tribunal’s interpretation was correct: works that have the effect of making good a structural defect are not repairs within paragraph (i) of the definition and are only chargeable if falling within paragraph (ii), which requires prior notification or late discovery of the defect.
• It was submitted that the phrase "not amounting to the making good of a structural defect" excludes works that substantively make good such defects from the category of repairs chargeable to lessees.
• The respondents argued that the overarching requirement that works must be repairs means there must be damage or deterioration to qualify for recovery from lessees.
• The effect of the works, rather than the purpose or classification, should determine whether they amount to making good a structural defect.
• The respondents maintained that the statutory scheme and legislative background support a protective approach for lessees, limiting their liability for costs of structural defect remediation.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by examining the leases’ definition of "specified repairs," which requires lessees to contribute to costs of repairs "in order" to keep the structure and exterior in repair, but excludes works "amounting to the making good of a structural defect." The court analysed the statutory background, especially the Housing Act 1980 provisions, which impose landlord obligations to repair and make good defects, but restrict tenant liability for costs, particularly regarding structural defects.

The court emphasised that works must qualify as repairs under established legal tests, including the "fact and degree" approach from Ravenseft and subsequent cases, which consider whether the works restore the demised premises to their original condition without effectively providing a wholly different thing.

The court rejected the appellant’s submission of a "bright-line" distinction separating repairs and making good structural defects, holding instead that works may be both repairs and involve making good structural defects. However, the carve-out in the lease excludes from tenant liability those works that, in substance, amount to making good structural defects.

The court accepted that the phrase "in order to" does not override the exclusion clause and that all elements of the definition must be satisfied for costs to be recoverable from lessees. It held that unless works are repairs and do not amount to making good structural defects, they fall outside paragraph (i) of the definition and may only be recoverable under paragraph (ii), subject to notification requirements.

Furthermore, the court agreed with the Upper Tribunal that the effect of the works, rather than the subjective purpose, determines whether they amount to making good structural defects. The court acknowledged some uncertainty in this test but found it no more uncertain than alternatives and noted the tribunal’s expertise in resolving such issues.

The court also considered the legislative purpose of the right to buy, recognising the protective intent to shield lessees from bearing costs of latent structural defects, given the discounted purchase price and absence of warranties on construction quality.

In sum, the court upheld the Upper Tribunal’s interpretation that works which make good structural defects are excluded from the category of repairs chargeable to lessees unless falling within the narrow exceptions in paragraph (ii) of the definition.

Holding and Implications

The court dismissed the appeal.

The court held that under the leases, lessees are not liable to contribute to the cost of works that amount to making good structural defects unless the lessees were notified of the defects before lease grant or the defects were discovered more than ten years after lease grant, as specified in paragraph (ii) of the definition of "specified repairs." Works that are repairs but also incidentally remedy structural defects are excluded from tenant liability if they amount to making good those defects.

This decision confirms and upholds the Upper Tribunal’s approach, providing clarity on the interpretation of repair obligations and tenant liabilities under right to buy leases. The ruling balances landlord and tenant interests by limiting tenant exposure to costs of latent structural defects, consistent with legislative intent. No new precedent beyond the application and affirmation of existing legal principles was established.