Caught in the Act? Problem cases under the qualifying lease regime in the BSA 2022

Andrew Butler KC takes a look at the problems associated with the new qualifying lease regime in the Building Safety Act 2022.

As the service charge protections contained in the Building Safety Act 2022 (“the BSA”) start to take root, it is probably to be expected that difficult cases, not foreseen by the legislature, will start to come out of the woodwork. Two have crossed my desk in the last few weeks.

Background

To recap (for anyone who is not already painfully aware): Schedule 8 to the BSA contains several such protections, which prevent or limit a tenant’s liability to pay service charge for relevant defects. Most (but not all) of these protections are confined to so-called qualifying leases. To be a qualifying lease, four conditions have to be satisfied. These are set out in s.119 and are as follows:

(a) the lease must be a long lease (that is, over 21 years) of a single dwelling in a relevant building (that is, a building of 5 storeys or 11 m in height;

(b) the tenant under the lease must be liable to pay a service charge;

(c) the lease must have been granted before 14 February 2022, and

(d) at the beginning of 14 February 2022 (“the qualifying time”)

(i) the dwelling must have been a relevant tenant’s only or principal home,

(ii) a relevant tenant must not have owned (which means, on freehold or long lease as defined above) any other dwelling in the United Kingdom, or

(iii) a relevant tenant owned no more than two dwellings in the United Kingdom apart from their interest under the lease.

It is no secret however that this part of the BSA seems to have more than a few “relevant defects” of its own. It is well-documented that condition (c) above appears to take outside the legislation leases which have been extended since 14 February 2022. Having initially poured scorn on that idea, the Government has belatedly acknowledged that this is an oversight, and legislation is promised to correct it.

As for condition (d), by virtue of para.13 of Schedule 8 this is disapplied unless the landlord has sought a Leaseholder Deed of Certificate (“LDoC”) when and how it should have done (which, given the strictness and complexity of the procedure it needs to follow, will probably be in most cases). But, assuming it applies, the two further issues which have come to my attention are: what if the relevant tenant is a company? And what if the tenant under the lease was deceased as at 14 February 2022?

Tenant a company

As to the first of these, some uncertainty has arisen because the definition of “relevant tenant” in s.119(4) refers to “a person”. I do not think this is unduly problematic; s.5 and Schedule 1 to the Interpretation Act 1978 makes it clear that where the word “person” appears in a statute, it includes a body corporate unless the contrary intention appears.

What is more problematic is that it is more or less established by the Housing Acts that a company cannot have a home, “only or principal” or otherwise (see e.g. Hiller -v- United Dairies (London) Ltd. [1934] 1 KB 57). While dicta in that and other cases suggests that the door is not entirely shut on one-person companies, I would expect a Court to take some persuading that a company can get home by that route. (It might also of course be said that including the requirement of an only or principal home is a sufficient manifestation of an intention that “person” should exclude a company in this instance; it is a judgment call, but I would not agree).

However, the three conditions in sub-para.(d) are disjunctive, so the tenant only needs to succeed on one in order for the tenancy to be a qualifying lease. While I have commented in previous articles that sub-para.(ii) seems to add little to sub-para.(iii) (in that, if the former is complied with, the latter will be too), I see no reason why a corporate tenant which meets condition (iii) should not have a qualifying lease.

Tenant Deceased

The second problem, that of a tenancy in the name of a tenant who has passed away before 14 February 2022, is (to my mind) somewhat more problematic.

The problem really concerns the status of executors. While – contrary, I think, to understanding in some quarters – the property of the deceased vests in an executor immediately on death (rather than on the grant of probate), it does not do so beneficially. Nor, however, are they trustees. An executor (or administrator) only holds, in the old legal French term “in autre droit” (in the right of another). If – but only if – they combine that legal ownership with occupation, they will be regarded as an assignee of the lease (Mayor, Aldermen & Burgesses of Stratford upon Avon -v- Parker [1914] 2 KB 562).

The question is whether that unusual status is (absent the taking up of occupation) enough to confer on them the position of “relevant tenant”. To my mind, the answer is “No”. Stepping back, since the whole purpose of the legislation is to divide liability for relevant defects fairly between landlords and tenants, it seems to me that the personal wealth of an executor should not be a relevant factor. Executors do not agree to act expecting their personal resources to be put on the line.

Who then is the relevant tenant in these circumstances? The only real alternative seems to me to be the deceased. But, as with a company, a deceased person cannot have a home, “only or principal” or otherwise. Nor is it legitimate, in my view, to speculate on whether a particular property would have been their only or principal home had they been alive as at 14 February 2022 (and to do so would also do excessive violence to the words of s.119(2)).

The question then is whether a deceased person can be said to own properties within the meaning of s.119(2)(d)(ii) and/or (iii). It might be said that they can no more do so than have an only or principal home. However, in my view, it is less of a stretch to the language (and more in line with the purposes of this part of the Act) to have regard to the size of the deceased’s estate in order to determine whether a lease is a qualifying lease or not.

Obviously, an LDoC in these circumstances can only be given by an executor; and the wording of the standard form requires the signatory to confirm their own asset position, rather than that of anybody else. So if an executor were to confirm the deceased’s asset position, that would require some adaptation of the standard form. Is that fatal? The Schedule to the relevant regulations (SI 2022/859) “sets out the information to be provided in the leaseholder deed of certificate and its form” – see Reg 7. These are perhaps less peremptory words than might be expected (e.g. “shall be in the form attached…”). My own view is that adapting the form so as to set out information about the estate of a deceased tenant, rather than a signing executor, should be permissible. The alternative, as I have said, is for the asset position of the executor him or herself to come under scrutiny, and for reasons I have set out I do not think that is what the legislature would have had in mind (had consideration been given to this situation, which it clearly was not).

Conclusion

These are, it should be emphasised, untested views, which cannot and should not be relied on as formal advice. The problems identified in this article are simply a couple of the multiple uncertainties to which the BSA has given rise (albeit ones which could quite commonly occur in practice). In circumstances where there is so much uncertainty, the better course might well be to invoke the statutory regime for the landlord to seek an LDoC and hope that it does not comply, thus taking sub-para.119(2)(d) out of play altogether.

 

This article first appeared in Practical Law’s Property Litigation Column.

You may also be interested in Tanfield’s other articles on the BSA which can be found on our BSA Hub.