[2023] UKUT 271 (LC)

This point can, it seems to me, be taken further. Viewed as a self-contained code, the overall scheme of Sections 116-125 and Schedule 8 can be seen to emerge. This part of the 2022 Act is concerned with relevant defects. Section 116 provides that “Sections 117 to 125 and Schedule 8 make provision in connection with the remediation of relevant defects in relevant buildings.”. Broadly, relevant buildings are buildings of a certain height, and relevant defects are those which arise as a result of relevant works and cause a building safety risk. A building safety risk means a risk to the safety of people in or about the relevant building arising from the spread of fire or the collapse of the relevant building or part of it. The legislative intention which emerges from these provisions, and specifically from Schedule 8, is that certain categories of expenditure, in relation to relevant defects, are no longer recoverable by a service charge, including the costs of Qualifying Services. In terms of the passing on of liabilities for expenditure caught by Schedule 8, there is Section 124 and the ability to apply for remediation contribution orders. Whether an application under Section 124 will produce an equitable distribution of a liability to meet expenditure which is caught by Schedule 8 will depend upon the circumstances of each particular case. What is clear is that Parliament has decided that the specified categories of costs in Schedule 8 are not to be payable by the service charge.

Viewed in this light it does not seem to me to be surprising that Paragraph 9, or for that matter other Paragraphs of Schedule 8 are capable of applying to costs incurred before Schedule 8 came into force. This seems to me to be consistent with the overall scheme of Sections 116-125 and Schedule 8. What might be seen as unfair results are, it seems to me, simply a reflection of life in the new world of the 2022 Act.

So far as the problem of the 2022 Act having retrospective effect is concerned, this seems to me to beg the question which has to be answered, which is how, in chronological terms and on its language, Paragraph 9 operates. There is no provision in Paragraph 9 or Schedule 8, equivalent to Section 135, which provides that Paragraph 9 must be treated as having always been in force. Paragraph 9 has to be treated as coming into force on 28^th June 2022. If however there is no restriction, in terms of time, as to when the costs of Qualifying Services have to have been incurred, and I can see none in Paragraph 9, I do not see that this gives Paragraph 9 a retrospective effect of a kind which infringes the general presumption against retrospective legislation identified in Wilson v First County Trust Limited.

For all these reasons I reject Mr Allison’s primary submission on the question of how, in chronological terms, Paragraph 9 takes effect. I do not think that it is possible to read into Paragraph 9 a provision that it does not apply to the costs of Qualifying Services incurred prior to 28^th June 2022.

Turning to Mr Allison’s alternative submission, I was, initially, attracted by this alternative submission. Paragraph 9(1) provides, as I have said, that no service charge is payable. Given that the restriction is on payability, then there is a certain logical attraction in concluding that Paragraph 9 does not apply to a relevant service charge (ie. a service charge comprising the costs of Qualifying Services) which became payable prior to 28^th June 2022. The same would apply in the case of a service charge demanded prior to 28^th June 2022, assuming that the service charge became payable on the date of the demand. This construction of Paragraph 9 would also avoid the anomalous result that, if service charges payable prior to 28^th June 2022 are capable of being caught by Paragraph 9, a situation could easily arise where one tenant might pay the relevant service charge prior to 28^th June 2022, while another tenant in the same building might, by delaying payment, reach 28^th June 2022, and then not have to pay the service charge. In this situation the late payer would be rewarded, which would be an unattractive result.

Once again however it seems to me that this alternative submission does not fit with the language of Paragraph 9, which provides that no service charge is payable. Given that Paragraph 9 came into force on 28^th June 2022, this means that no service charge in respect of Qualifying Services is payable as from 28^th June 2022. There is no exclusion, in the wording of Paragraph 9, of service charges in respect of Qualifying Services which became payable prior to 28^th June 2022, and I find it hard to see how any such provision can be read into Paragraph 9.

So far as the problem of retrospectivity is concerned, I repeat my reasoning in this respect in relation to Mr Allison’s primary submission. If there is no restriction, in terms of time, as to when the service charge in respect of Qualifying Services became payable, and I can see none in Paragraph 9, I do not see that this gives Paragraph 9 a retrospective effect of a kind which infringes the general presumption against retrospective legislation identified in Wilson v First County Trust Limited.

I do very much see the problem of anomalous results which could be produced, particularly between diligent and less diligent service charge payers, if Paragraph 9 applies to service charge in respect of Qualifying Services which became payable prior to 28^th June 2022, but I am not convinced that this is sufficient to justify reading into Paragraph 9 a provision that such service charges are excluded from Paragraph 9. In this context I repeat what I have said above, as to the legislative purpose behind Sections 116-125 and Schedule 8. It seems to me that my reasoning in this context, as set out above, applies equally to Mr Allison’s alternative submission.

Ultimately, and keeping firmly in mind the importance of following the language of Paragraph 9, I find myself drawn to the most obvious interpretation of Paragraph 9(1). It seems to me that the words “No service charge is payable” mean what they say. As from 28^th June 2022, when Paragraph 9 was brought into force, no service charge is payable in respect of Qualifying Services. The new regime applies, regardless of when the costs of the Qualifying Service were actually incurred, and regardless of when the relevant service charge became payable.

This construction of Paragraph 9 seems to me to be consistent with what I have identified above as the overall purpose of Sections 116-125 and Schedule 8, as noted by the FTT in Kedai, and with my reasoning on this point, as set out above.

This construction may also be said to be supported by paragraph 986 of the Explanatory Notes, which I have set out above. In his further submissions Mr Allison made the point that the Explanatory Notes cannot override the words of the 2022 Act. I accept this point, but the present case is not one where I am relying on the Explanatory Notes to override what would otherwise be the natural construction of Paragraph 9. Rather, the Explanatory Notes seem to me, in particular at paragraph 986, to support what I regard as the most obvious reading of Paragraph 9.

My construction does not seem to me to be consistent with the reasoning of Judge Holbrook in paragraph 13 of his decision in Waterside, which I have quoted above. To that extent, I find myself in disagreement with the reasoning of Judge Holbrook in Waterside. That said, it seems to me to be significant that Waterside was concerned with service charges which, so it appears, had already been paid before Schedule 8 came into force. The Judge did not therefore have to consider what would have been the more difficult case of service charges becoming payable prior to 28^th June 2022, but remaining unpaid as at that date. Bearing this point in mind, the actual decision in Waterside does not seem to me to be inconsistent with my construction of Paragraph 9.

Turning to Sutton, it seems to me that the approach of the FTT in that case was correct, in the sense that the FTT proceeded on the basis that there was no objection to making a remediation contribution order in relation to sums which, it appears from the decision, were incurred by the landlord and paid (or paid in part) by the long leaseholders by way of the service charge prior to 28^th June 2022.

Drawing together all of the above analysis of the question of whether Paragraph 9 can apply to the Costs, bearing in mind the date when Paragraph 9 was brought into force, I reach the following conclusions:

Is the recovery of the Costs affected by Paragraph 9? – overall conclusions

Drawing together all of my analysis on the question of whether the recovery of the Costs is affected by Paragraph 9, I reach the following overall conclusions:

It will be appreciated that it does not follow from these overall conclusions that the decision of the FTT to impose the Costs Condition was necessarily wrong. Although I have previously decided, in the earlier part of this decision, that the decision to impose the Costs Condition was wrong in law, it does not seem to me that my conclusions in relation to Paragraph 9 necessarily provide an additional reason for saying that the decision to impose the Costs Condition was wrong. It seems to me that the situation is more accurately expressed as one where the Reviewed Decision can be said to have been incomplete. The Reviewed Decision did not take account of the fact that the Costs were not recoverable, in any event and by reason of Paragraph 9, from those of the Respondents who hold qualifying leases. In fairness to the FTT I should record that the Reviewed Decision is dated 30^th June 2022, and that it is clear that no one raised Paragraph 9 before the FTT. It would therefore be unfair to criticise the FTT for the fact that the Reviewed Decision was incomplete. Nevertheless, the omission of the effect of Paragraph 9 does seem to me to constitute a reason for saying that the Reviewed Decision was incomplete.

In the light of my overall conclusions, the position seems to me to be this. By the time the FTT came to exercise their discretion as to what (if any) conditions to impose on the grant of dispensation in the Reviewed Decision, Paragraph 9 was in force. As I have said, it seems to me that Paragraph 9 fell to be taken into account in the exercise of the discretion because, as I have decided, Paragraph 9 affected the ability of the Appellant to recover the Costs from those of the Respondents who hold qualifying leases, regardless of the Costs Condition. The failure of the FTT to take this factor into account seems to me to have constituted an error of law in the exercise of their discretion.