Adriatic Land 5 Ltd v Long Leaseholders At Hippersley Point

Factual and Procedural Background

The appeal concerns whether the Building Safety Act 2022 ("the BSA") prevents the Appellant, Company A, from recovering service charges from tenants of a building it owns in respect of certain costs incurred before the BSA's relevant provisions came into force. The Upper Tribunal held that it does, and Company A challenges that decision in this Court.

The building at issue, located in The City, was constructed circa 2015 by Company B, a subsidiary of a larger entity. It consists of 10 storeys, over 18 metres in height, containing commercial and 32 residential flats subject to long leases. Company A became registered freehold proprietor in April 2017 and holds a limited financial interest estimated at 2.52% in the building. Substantial remedial works were required in late 2020 due to defects posing fire risks.

The leases include service charge provisions, but under section 20 of the Landlord and Tenant Act 1985 ("L&TA 1985"), Company A was barred from recovering more than £250 per flat for the works unless consultation requirements were dispensed with. Company A applied for such dispensation, which the First-tier Tribunal ("FTT") granted unconditionally in December 2021 but initially precluded Company A from recovering costs from tenants. On review, the FTT revised this to condition dispensation on Company A being prohibited from seeking costs from tenants.

Company A appealed this costs condition to the Upper Tribunal, which raised issues regarding the BSA, effective from 28 June 2022. The appeal was heard by the Chamber President ("the Judge"), who concluded the FTT's costs condition was unlawful but that paragraph 9 of schedule 8 to the BSA barred Company A from recovering costs of the dispensation application from tenants with qualifying leases. Company A now appeals this conclusion.

Legal Issues Presented

1. Whether costs of the dispensation application fall within the scope of paragraph 9 of schedule 8 to the BSA ("The Scope Issue").
2. To what extent, if any, paragraph 9 applies retrospectively to costs incurred before it came into force ("The Retrospective Construction Issue").
3. Whether paragraph 9 should be construed compatibly with Article 1 of Protocol 1 to the European Convention on Human Rights ("A1P1") to avoid retrospective effect ("The A1P1 Issue").

Arguments of the Parties

Appellant's Arguments

• Paragraph 9 does not apply to costs of a dispensation application under section 20ZA of the L&TA 1985.
• The phrase "relating to" in paragraph 9(1) is too wide and the provision was aimed at costs of pursuing third parties, not costs incurred by the landlord itself.
• Paragraph 9 should not apply retrospectively to costs incurred before 28 June 2022.
• If paragraph 9 were retrospective, words should be read into it to make it compatible with A1P1 under the Human Rights Act 1998.

Respondents' Arguments

• Paragraph 9 applies broadly to legal and professional costs relating to liabilities incurred due to relevant defects, including costs of dispensation applications.
• Paragraph 9 applies to costs incurred before its commencement, effectively barring recovery of such costs from qualifying tenants.
• The legislative purpose of the BSA supports a broad and retrospective application to protect leaseholders from historic costs.
• Paragraph 9's retrospective effect does not violate A1P1 as it constitutes a control of use rather than a deprivation of property and is proportionate to the public interest.

Intervener's Arguments (Secretary of State)

• Paragraph 9 applies prospectively from 28 June 2022; costs incurred or service charges payable before that date are not affected.
• The retrospective application to costs incurred before commencement is not supported by the statutory language.
• The BSA's provisions are part of a broader scheme to protect leaseholders while ensuring those responsible bear costs.
• Retrospective application does not breach A1P1 given the legitimate public interest and proportionality.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Burr v OM Property Management Ltd [2013] EWCA Civ 479	Definition of when costs are "incurred" for service charge purposes under L&TA 1985.	Costs are incurred when the landlord is invoiced or pays; mere provision of services is insufficient.
Wilson v First County Trust Ltd (No 2) [2003] UKHL 40	Presumption against retrospective effect of statutes.	Reinforced the principle that statutes should not have retrospective effect unless Parliament's intention is clear.
L'Office Cherifien des Phosphates v Yamashita-Shinnihon Steamship Co Ltd [1994] 1 AC 486	Presumption against retrospectivity and fairness in statutory interpretation.	Emphasised that courts must weigh fairness and clarity of language to determine retrospective effect.
Granada UK Rental & Retail Ltd v Pensions Regulator [2019] EWCA Civ 1032	Distinction between prospective and retrospective legislation and their fairness.	Legislation removing accrued rights is more objectionable than prospective liability.
R (O) v Home Secretary [2022] UKSC 3	Role and weight of explanatory notes in statutory interpretation.	Explanatory notes are secondary aids; notes published post-enactment have limited interpretative value.
R (PACCAR Inc) v Competition Appeal Tribunal [2023] UKSC 28	Limits on use of explanatory notes in interpretation and importance of statutory context.	Emphasised primary role of statutory text and context over external aids.
AXA General Insurance Ltd v HM Advocate [2011] UKSC 46	Distinction between prospective and retrospective laws affecting rights and obligations.	Retrospective laws affecting existing rights require greater justification.
Bank Mellat v HM Treasury (No 2) [2013] UKSC 39	Four-stage proportionality test under Convention rights.	Applied to assess if interference with rights is justified and proportionate.
R (SC) v Secretary of State for Work and Pensions [2021] UKSC 26	Nuanced approach to proportionality and margin of appreciation in social and economic policy.	Courts must weigh context and respect legislative judgment especially in socio-economic matters.
British American Tobacco UK Ltd v Secretary of State for Health [2016] EWCA Civ 1182	Distinction between control of use and deprivation of property under A1P1.	Restrictions on rights were control of use, not deprivation, so no compensation required.
Attorney General v Horner (1884) 14 QBD 245	Principle against construing statutes as interfering with property rights without clear authority.	Court should avoid interpretations that injure property rights absent clear parliamentary intent.
Westminster Bank Ltd v Minister of Housing and Local Government [1971] AC 508	Statutes should not take away property rights without compensation unless clearly expressed.	Confirmed the principle of construing statutes in favour of protecting property rights.

Court's Reasoning and Analysis

The Court began by addressing the scope of paragraph 9 of schedule 8 to the BSA, concluding that the provision broadly applies to legal and professional costs relating to liabilities incurred due to relevant defects, including costs of dispensation applications. The Court rejected the Appellant's narrower interpretation, finding that the phrase "any person" naturally includes the landlord incurring the costs and that the costs of dispensation applications are sufficiently related to the liability to remedy defects.

Regarding the retrospective construction issue, the Court undertook a detailed statutory interpretation exercise. It noted that paragraph 9 is not expressly limited by time and states that "no service charge is payable" without qualification. The Court considered the legislative purpose of the BSA, which aims to protect leaseholders from large, often unaffordable, historic costs associated with building safety defects, and found that a retrospective application aligns with this purpose.

However, the Court also acknowledged the strong common law presumptions against retrospectivity and interference with property rights, emphasizing that these presumptions require clear parliamentary language to be displaced. The Court found no such clear language in paragraph 9 or elsewhere in schedule 8.

Balancing these considerations and fairness factors, including the interests of landlords who had accrued contractual rights to recover costs, the Court concluded that paragraph 9 should not be construed to apply retrospectively to costs incurred or service charges payable before 28 June 2022. Instead, the provision should be understood as applying only to costs incurred or service charges falling due on or after that date.

On the A1P1 issue, the Court analyzed whether a retrospective effect of paragraph 9 would violate the right to peaceful enjoyment of possessions. It held that the provision effects a control of use rather than a deprivation of property, given that the landlord retains meaningful rights and that the interference pursues a legitimate public interest. The Court applied established proportionality principles and recognized a wide margin of appreciation for Parliament in social and economic policy matters. It concluded that even if paragraph 9 had retrospective effect, it would not breach A1P1.

The Court also discussed the role and limited weight of explanatory notes, especially those published post-enactment, and confirmed that while such notes may be persuasive, they are not determinative of Parliament's intention.

In a concurring but dissenting view on the retrospective construction issue, one Judge favored the interpretation that paragraph 9 applies prospectively only, aligning with the Court’s ultimate holding to allow the appeal on that ground. Two other Judges agreed with the scope and A1P1 analyses but dissented on the retrospective construction, preferring to dismiss the appeal.

Holding and Implications

The Court's final decision on the appeal was to ALLOW the appeal on the Retrospective Construction Issue while dismissing the appeal on the Scope and A1P1 Issues.

This means that paragraph 9 of schedule 8 to the Building Safety Act 2022 does apply to bar recovery of legal and professional costs from tenants under qualifying leases only in respect of costs incurred or service charges falling due on or after 28 June 2022. Costs incurred or service charges payable before that date remain recoverable by landlords. The decision preserves landlords' accrued contractual rights to recover costs incurred before the BSA's relevant provisions came into force.

No broader precedent was established beyond the interpretation of paragraph 9's temporal scope and its compatibility with human rights protections. The ruling clarifies the application of the BSA's leaseholder protections in the context of historic building safety remediation costs, balancing tenant protections with landlords' property rights.