Court blocks Tower Hamlets from passing £9.2m cladding bill to leaseholders

The Court of Appeal has delivered a landmark ruling that protects thousands of right-to-buy leaseholders from crippling repair bills for major structural defects, in a decision with significant implications for local authorities across England.

In The Mayor and Burgesses of the London Borough of Tower Hamlets v Various Leaseholders of Brewster House and Malting House, the court unanimously dismissed the council’s appeal. It had sought to recover over £9.2 million from leaseholders for urgent works to remedy fundamental safety flaws in two 1960s tower blocks built using the Large Panel System (LPS).

Key Legal Implications for Councils:

1. 1. 1. “Sweeper Clauses” Have Limits: The ruling firmly establishes that broad, catch-all service charge clauses—requiring leaseholders to pay for works the landlord considers “necessary or advisable for the… safety… of the Building”—cannot be used to fund the remediation of long-standing, pre-existing structural defects. The Court found such defects are fundamentally different from routine maintenance or safety measures.

      2. Right-to-Buy Legislation is Central: The court held that the statutory right-to-buy framework forms a critical part of the background for interpreting these leases. This legislation specifically governs liability for structural defects, implying a landlord covenant to rectify them and severely restricting cost-recovery from leaseholders. General service charge wording cannot override this protective statutory scheme.

      3. Knowledge of Defect is Key: For the earliest leases, which contained specific exclusions, the Tribunal’s finding that the council knew of the LPS design flaw from the outset was fatal to its claim. This underscores that councils cannot charge for defects known at the time of sale, even if the full extent or required remedy emerges later.

      4. Prohibitive Cost a Relevant Factor: While not decisive, the “potentially ruinous” scale of costs for remedial works—here, up to £95,000 per flat—was a relevant contextual factor in deciding the clauses were never intended to cover such liabilities.

The Court found the council’s implied obligation to make the buildings safe under right-to-buy laws could not be converted into a right to recharge leaseholders via service charges. The ruling shields the leaseholders, many of whom purchased under the right-to-buy scheme, from bearing the multi-million pound cost of fixing the inherent building defects.

This judgment provides major clarity and protection for leaseholders, confirming that the financial risk for historic structural failures in such buildings rests with the freeholder, not the individual flat owner. For local authorities, it highlights the severe limitations on recovering costs for major legacy building safety issues through standard service charge provisions.

Photo : Matthew Robin Dix / Unsplash