The London Residential Property First-tier Tribunal has made its determination for “Various leaseholders of Citiscape” in Croydon. FirstPort Property Management Services Ltd, the manager applied to the FTT to establish liability to pay service charges.

The Tribunal decided that the costs incurred in the provision of the waking watch to 19^th December 2017 were reasonable, and that a service charge is payable in respect of those costs. 

Further, the estimated costs of £483,000 for the replacement of the cladding included in the 2017/18 budget was reasonable, and that a service charge is payable in respect of those estimated costs.

However, the case was not straight forward and there are some serious implications for managers contained within the judgement, not just for fire-watching but for other emergencies generally. The Tribunal indicated it expected to see these matters again. For this reason, we recommend you read on...

Citiscape was constructed in 2001 by Barratt Homes Ltd, being two blocks of flats; one ten storeys in height, the other being six storeys, with 95 flats between them. 12 days after Grenfell, the managing agents received the early indications that the cladding was ACM and a potential risk. The managers wanted to include within the next service charge annual budget an estimate of the cost of replacing the cladding, because there is no provision in the leases to enable the manager to issue a supplemental service charge demand during the course of the service charge year. The manager’s internal surveyor estimated the cost of replacing the cladding to be £483,000.

On 19^th September 2017, the London Fire Brigade issued Fire Safety Guidance Note GN90, “Waking Watch/Common Fire Alarm. Guidance to support a temporary simultaneous evacuation strategy in a purpose built block of flats”. IRPM members should find it here. Following an inspection of the building by the LFB, a second fire marshall was added. The weekly cost of the waking watch is £4,217 plus VAT, equating to a yearly cost of £263,000.

The cladding is reported to be ACM3, which failed the combustibility tests carried out by the BRE. A specialist report recommended replacement. Done in a single project, the cost was assessed at £1,815,822 including professional fees and VAT. As a phased project the cost was estimated to be £2,530,878.

The leases are all for 999 year terms and were made between Barratt Homes Ltd, Peverel OM Ltd and the individual leaseholders. They are therefore tripartite leases. Peverel OM Ltd has subsequently changed its name to FirstPort Property Services Ltd.

Importantly, clause 6 of the leases covenants the manager to perform the maintenance obligations “Conditional upon the Manager having first received payment of the Lessees Proportion then to carry out the works…”. Meanwhile, clause 4 requires the Lessees to pay their proportion of the Maintenance Expenses, defined as “…the monies actually expended or reserved for periodical expenditure by or on behalf of the Manager or Lessor at all times during the Term in carrying out the obligations specified in the Sixth Schedule”. This structure was pivotal in the Tribunal’s decision. For reference, the statutory framework referenced in the decision was the L&TA ’85; s18, s19, s27a.

Nearly all the tenants who responded to the application objected to the waking watch costs, some being happy to take the risk, while most being critical of the manager’s decision-making process and a perceived failure to consider other alternatives such as the installation of a permanent fire alarm system or the use of directly employed fire marshalls, that would be cheaper than agency staff. The Tribunal said “…it is impossible to criticise the manager for its initial decisions both to implement a waking watch and to increase the number of fire marshalls from one to two. However following the publication of the fire safety guidance note on the 19^th September the manager should have given active consideration to the other approaches recommended by the LFB not least because they are said to be preferable to a full waking watch. Three months would have been a reasonable time to consider those other approaches and to ask the tenants for their views.” Also, “It seems inevitable that this issue will return to the Tribunal.”

The difference between the initial estimate and the later estimates for the cost of the cladding replacement was tackled by the Tribunal. The Tribunal, in the application, was being asked to approve the cost contained within the 2017/18 budget, being £483,000. The tenants argued the cost was unreasonable, because hindsight has shown it is too low. The Tribunal pointedly declined to criticise the manager’s surveyor for the low figure, noting it was prepared in short order by a non-cladding expert to derive a figure for the looming deadline of the 2017/18 budget. Under the terms of the application, the Tribunal considered the cost “reasonable” and awarded it. How the manager will proceed with the work for this cost remains to be seen.

Mr Ede, a tenant and an engineer, opined that the defect was an inherent defect and therefore the manager must first knock on the door of Barratt Homes Ltd and the present landlord, Proxima GR Properties Ltd. The Tribunal considered that the difficulty is that the lease “is of no assistance in determining how hard the manager must knock on the other doors. …the manager had indeed knocked on the doors of both Barratt Homes Ltd and Proxima GR Properties Ltd but it had been firmly rebuffed. The tenant’s MP has knocked on the Government’s but so far to no effect.” “The difficulty with all these potential claims is that they are entirely speculative with uncertain outcomes. No claim could realistically commence until Sir Martin Moore-Bick has reported… …The tenants would find themselves mired in litigation for many years during which time their flats would be effectively unsaleable. The most vulnerable tenants would be those most at risk; those who need to sell their flats because of old age, infirmity, family breakdown and the like.” Consequently, the Tribunal found that a service charge is payable in respect of the estimated recladding cost.