Phil Parkinson, Legal Director at specialist property solicitors JB Leitch, looks at the issues surrounding inherent defects – and the obligations and implications for both landlords and leaseholders.
With this issue’s focus on repair and maintenance, and the industry wide prioritisation of remedial works to ensure building safety, this article looks at the issues surrounding inherent defects – issues in design, faulty installation, or the use of inadequate materials which can lead to significant problems later, and crucially, disputes as to who bears the liability to remediate or resolve the issues uncovered. In contrast to issues surrounding disrepair, which typically arise due to the use of the property over the passage of time, inherent defects are attributable to defective design, workmanship or materials.
Damage & Disrepair
Disputes over inherent defects in leasehold property will often lead to careful scrutiny of both the terms of the landlord’s and the tenant’s repairing covenant in the lease. For liability to arise, there must have been some disrepair or damage suffered leading to a departure from the original condition.
Therefore, in situations where inherent defects do cause damage, liability will remain as the need to repair is a consequence of an inherent defect – in short, the responsibility to repair may also encompass the need to remedy the defect.
Improvement or Repair?
Conversely, where there is no disrepair, remedying such a defect would be an improvement rather than a repair – and therefore it is important to note that a covenant to repair does not carry with it an obligation to remedy poor design, installation or other defects that have not caused damage to the property – unless specifically stated within.
Implied Obligations?
As in almost all landlord and tenant disputes, the lease is generally regarded as the governing foundation of the landlord and tenant relationship. As such, when considering liability, much will depend on the precise wording of the landlord’s or tenant’s covenant to repair.
Considering the points above, in Grand v Gill [2011] All ER (D) 187 (May), a landlord had a long head leasehold interest in the flat demised to the tenant, but no interest in the rest of the building. The Court of Appeal held that the landlord was not liable under his repairing covenant for damage caused by condensation to the extent that it resulted from a design defect in the building. However, it was found that the landlord was liable for damage to the plasterwork within the flat, as this was physical damage which was covered by the landlord’s repairing covenant (as the plasterwork formed part of the structure of the flat).
Considering the Options Available to Landlords & Tenants
While recognising that tenants typically contribute to the cost of repair through a service charge, a landlord’s covenant to keep a property in repair does not automatically assume an obligation to remedy inherent defects nor be able to recover those costs from its tenants under the service charge. in Ravenseft Properties Ltd v Davstone (Holdings) Ltd [1980] QB 12. the court confirmed that remediation of inherent defects could qualify as a repair, when considering the cost, value and benefit of the work required, yet alternatively in in The City of London v Various Leaseholders of Great Arthur House [2021] EWCA Civ 431, the Court of Appeal found costs were not recoverable as the leases specifically excluded from the service charge the cost of repairs which amounted to the making good of structural defects. The key point again is that careful consideration of the lease covnenants is required in identifying whether those costs can be passed on to the tenant.
In Summary
In clarifying – and ultimately mitigating risk for both themselves and tenants – landlords should consider whether leases specifically provide for the remediation of inherent defects as part of their repairing covenant, and importantly whether there are specific definitions of what constitutes an inherent defect in relation to design, workmanship or materials, for example.
Warranty protection also offers a mechanism for assurance. In this instance, a landlord, developer or a third party may provide collateral warranties specifically for the benefit of a tenant from the contractors or parties, with material responsibility, Thereby, if a defect arises which can be attributed to a warrantor, the leaseholder may have direct recourse against the third-party contractor or supplier. Again, it is advisable that any such terms (and limitations) are set out clearly and unambiguously. Lastly, specific defect insurance may be a consideration, but policies should be carefully considered, particularly in relation to exclusions, such as water ingress.
In conclusion, the question of inherent defects can be seen to fall between interpretation of the individual fact and degree of matters that emerge, in tandem with what is explicitly set out in the terms of the lease. Should you wish to discuss this topic further, please contact us directly: [email protected].
