Building safety – when common law, statute and contract collide

Under the Building Safety Act 2022, owners of residential buildings which are at least 11 metres tall or contain at least five storeys are required to reduce the risks associated with structural failures, fire hazards and other safety concerns that could endanger the occupants and users of the building.

Many building owners also have contractual rights and obligations by agreement with the leasehold occupants of the building. Statutory obligations arising under the building and fire safety legislation therefore need to exercised with an eye to those contractual provisions as well as any wider commercial considerations.

In this article we will consider a fictional scenario to illustrate some of the common legal and practical issues that can arise when a building owner needs to take action under the Building Safety Act.

The scenario

Ashfords View is a six storey tower block owned by Higher Properties Ltd. The building is comprised of four apartments per storey which are all leaseholder owned. Storeys five and six were added to the block when it was converted from office to residential use. Ashfords View is a relevant building for the purposes of the Building Safety Act.

Following comprehensive inspections, Higher Properties is advised that the building has significant building and fire safety issues and that urgent remediation works are required. These works include the demolition and rebuild of the top two storeys. The leasehold owners of the eight apartments on those floors have been contacted and advised that they need to give vacant possession so these works can be carried out.

Higher Properties and the leaseholders have taken legal advice and the following issues have been identified:

1. Contractual rights/obligations – the leases 

Higher Properties’ agreements with the apartment owners contain rights and obligations typical of a standard lease. 

The company argues that a clause which requires the leaseholders 'to permit the landlord to enter their properties in the event of an emergency to carry out remedial works to avoid consequential damage to other parts of the building gives' Higher Properties the contractual right to demolish and rebuild the apartments. 

The leaseholders’ position is that the clause contemplates a completely different scenario to the one outlined in the case study above – Higher Properties doesn’t want to enter the apartments to carry out remedial works, it wants to demolish the apartments; two very different outcomes and demolition is outside of its scope. 

Another contractual provision flagged is the leaseholders’ obligation to comply with all statutory and common law requirements in relation to their premises. This is considered further below. 

2. Common law non-derogation from grant

A fundamental common law principle is that if the landlord agrees to confer a benefit on the leaseholder, i.e. the use of a premises, then they should not do anything which substantially deprives the leaseholder of the enjoyment of that benefit. This is known as the obligation not to derogate from grant and it is an implied term of any lease. The remedy for any breach is injunction and/or damages. 

The proposed demolition of the apartments is completely at odds with Higher Properties’ obligation not to derogate from grant; no apartment equals no benefit.

3. Statutory rights/obligations 

Higher Properties argues that the contractual obligation to comply with all statutory and common law requirements in relation to their premises, requires the leaseholders to allow their apartments to be demolished. The relevant statutory requirements it relies on are:

• Section 95 of the Building Safety Act: requiring a resident of a higher-risk building or an owner of a residential unit in the building not to act in a way which creates a significant risk of a building safety risk materialising.
  
  Higher Properties’ position is that by failing to allow them to demolish their apartments, the leaseholders are creating 'a significant risk of a building safety risk materialising'. It's threatening to serve contravention notices and apply for court orders permitting it to demolish and rebuild the apartments.
  
  The onus here is on Higher Properties to satisfy the court that the statutory criteria are made out and even then the court retains a discretion. The court will need to grapple with the obligation on Higher Properties to make the building safe versus the leaseholders’ property interests. It's fraught with uncertainty.
  
  
• Section 112 of the Building Safety Act: this provision amends existing legislation to imply a covenant requiring leaseholders to comply with their statutory duties under the building safety legislation and to permit their landlords to enter their premises for a relevant building safety purpose. This amendment is not yet in force but expected imminently.
  
  Relevant building safety purpose is defined as inspecting and carrying out required building safety works to the premises. That is a very different purpose to the one contemplated by Higher Properties and objectively outside the scope of section 112.

4. Commercial considerations

Many of the leaseholders have charges securing mortgage borrowing against their apartments. If the apartments are demolished the leaseholders will be in breach of their mortgage conditions and liable for immediate repayment of the debt. This is a significant consideration which is likely to come up time and time again. Lenders will be swift to take steps to protect their security and it is likely that all parties will need to collaborate to find an acceptable way forward.    

Conclusion

Building safety matters are a minefield of legislative, commercial and contractual traps for the unwary. The various rights and obligations may not sit comfortably together and can often directly conflict. Seeking legal advice at the earliest stage possible could avoid unnecessary delays and costs later down the line. 

For further information please contact Sophie Michaelides or the property disputes team.