Legal Director Phil Parkinson and Associate Katie Edwards of specialist property solicitors JB Leitch, once again provide insight and practical recommendations for building owners, managers and investors, on the issues surrounding the safe management of historic or listed buildings.
Preserving our built heritage continues to be an important factor in our cultural landscape. With many stately homes, gardens and villages acting as significant contributors to our visitor economy, landlords can understandably see the opportunity in offering desirable homes in properties with distinctive architectural, structural and historical value.
However, with character comes complexity. From safety, repairs and maintenance to insurance and improvements, buildings with listed status are subject to greater constraints, limitations and liabilities for owners and managers.
Historical Context:
Historic England provide three levels of listed building (grades 1 to 3) which broadly encompasses all buildings built before 1700 which survive in anything like their original condition, buildings built between 1700 and 1850 and carefully selected buildings constructed after 1945. The principal aim of the list is to record and protect “buildings of special architectural or historic interest from alterations that may negatively impact the character and historical context of the building.
Maintenance, Repair & Improvement:
Historic England advises that listed buildings should be well maintained, in order to avoid any problems that could lead to major repairs. Local authorities can take action to secure the repair of a listed building when concerned about its continued preservation. For example, they may serve on the owner a ‘repairs notice’ under Section 115 of the Town and Country Planning Act 1971. This notice must specify the works which the authority consider reasonably necessary and communicate that if it is not complied with within 2 months, the authority may subsequently make a compulsory purchase order (CPO) and submit it to the Secretary of State for confirmation.
Making changes to a listed building also requires additional consideration, with additional processes in place to ensure appropriate preservation and integrity of the property. Landlords and owners will need to recognise that permission will be needed from the local planning authority and that commencement of unauthorised works is regarded as a criminal offence.
Another noteworthy point is that repairs or maintenance for a listed building may be more expensive. If there are specific requirements to use like-for-like materials, specialist tradespeople may be required to repair to the original standards and style, which also raises potential questions of the level of skilled resource available, the time it will take and the additional cost this will present. These are vital considerations in mapping and setting the service charge and potential reserve or sinking funds.
Safety & Insurance:
With building safety and escalating insurance premiums very much at the centre of debate across the industry, many of the prevalent issues come into sharp relief when considering older, listed properties.
Fire in particular has always been a risk to older buildings, and Historic England also note increasing risks to property posed by storms, extreme rainfall and flooding and requiring the need for adaptation, adequate protection and insurance. Governing legislation which may require reinstatement of damage on a like-for-like basis, requiring a more comprehensive level of insurance cover being needed, than would be seen with a more modern construction.
As a minimum, it is likely that landlords or managers will require a policy to cover the following: fire, lightning, explosion and aircraft, storm and flood, burst pipes and water leakage, malicious damage, accidental damage, theft, subsidence and structural problems and building contracts – to ensure remedial work is undertaken to the required material standards for the building. Each area will need to be carefully considered and content of the policy should be scrutinised to gain a clear understanding of what restrictive exclusions are being made and their implication on any future claim. Again, the specialist nature of the policy will likely present a higher premium to be factored into service charge calculations. It is also advisable to keep insurers fully informed of any potential works to be conducted in order to mitigate any risk to the cover.
Repair or Replace? Implications on Service Charges – A Case in Point:
In a recent case at the First-tier tribunal, we touched upon a number of important points above in regard to the liability to pay service charges under section 27A of the Landlord and Tenant Act 1985.
The case concerned a listed, five storey Victorian building in central London. The property had 3 separate entrances with eleven flats served by a lift which had suffered from frequent breakdowns and had been out of service for three years. Further to commissioning a number of reports (concluding that replacement of the lift would be safer and more cost effective in the long term than repair) and undertaking an unchallenged section 20 consultation, a series of tender proposals were obtained by the property management company and the leaseholders notified. The respondents, comprising a group of leaseholders, contested that:
- The lift does not serve all of the property and therefore those not benefitting considered they should not need to contribute.
- That the leaseholders are not liable to pay for the works towards the cost of a new lift because Listed Building consent is required which may impose addition conditions for the works.
- The construction and interpretation of the lease is under dispute, with regard to repair versus replacement.
With our client bringing an application to determine whether replacement was reasonable and payable in accordance with the demand for on-account service charge, we argued on point one, that the leases are clear, with a clause clearly stating the contractual obligation to “Keep the lifts situate within the Building in repair and replace any parts thereof that require to be replaced” with a further clause outlining that each numbered flat constituted part of the property.
On the second point, we highlighted that the construction of the lease entitled the Landlord to demand on-account service charges for the forthcoming year if the service charge fund held are not sufficient to meet the anticipated expenditure. It was noted that a pre-application for advice on general acceptability for Listed Building consent and a formal application was made in a timely fashion, adding that a decision was likely in a short time and unlikely to have significant impact on the costs.
On the third point regarding repair versus replacement, the key matter was whether a repair of the singular parts would provide a properly functioning lift which complied with current health and safety regulations. Interpretation of the relevant lease clause implied it did not provide for rebuilding/entire replacement, only to “replace any parts”. Both parties therefore referred the Tribunal to the case of The London Borough of Hounslow v Waaler which considered the approach a Landlord must take when determining the cost of improvement works passed through the service charge were reasonably incurred. Although the Upper Tribunal held in that instance that particular consideration should have been given to the view of the leaseholders, in the context of this matter, the clause of the lease that stipulated keeping “the lifts situate within the building in repair and replace any parts thereof that require to be replaced” and the expert reports, supported the option to replace the lift which was installed in 1935, was currently defective and had not been in use for three years.
The Tribunal determined that the Respondents are contractually bound to contribute towards the cost of the lift, agreed that construction of the lease entitles the Landlord to demand on-account service charges for the forthcoming year and that replacement works would be in accordance with the provisions of the lease. Furthermore, the Tribunal noted that when the Section 20 consultation process was undertaken, no objections whatsoever were received in connection with the choice of contractor or final tender price.
In conclusion, there are many advantages to creating residences in listed and historic properties – their character, distinctiveness and style can be strong attractors to purchasers seeking originality or exclusivity. It should also be recognised that the obligations for both leaseholders (through higher service charges) and landlords (through restrictions, consent processes and inherent risk) may well require greater cost and time. Open and frequent communication between all parties, effective risk management and clear comprehension of leases and accompanying policies are vital.
