Adriatic Land 5 Limited v Long Leaseholders at Hippersley Point & Anor

This dispute came out of the building safety crisis that followed Grenfell and the practical question many owners faced once serious defects were found in residential blocks: who actually pays? Hippersley Point was a mixed-use building in Abbey Wood with one commercial unit and 32 flats held on long leases. Defects in the external construction created fire risk, and interim fire safety steps were also needed.

Adriatic, the freeholder, had lease clauses that would ordinarily support service charge recovery. But major works in leasehold buildings are also affected by the consultation rules in section 20 of the Landlord and Tenant Act 1985. Because the building was unsafe, Adriatic asked the First-tier Tribunal to dispense with those consultation requirements so works would not be delayed. The tribunal granted dispensation in December 2021.

After review, in June 2022 it changed the form of its order and made dispensation conditional on Adriatic not recovering the costs of that dispensation application from leaseholders.

Adriatic appealed. The Upper Tribunal agreed the First-tier Tribunal had been wrong to impose that costs condition in the way it did. But that did not end the matter. By then, paragraph 9 of Schedule 8 to the Building Safety Act 2022 had come into force. The Upper Tribunal held that, whatever the position on the tribunal’s condition, the statute itself prevented recovery of those costs from tenants with qualifying leases. Adriatic then took the point to the Court of Appeal.

The argument was really about timing. Adriatic said the Building Safety Act should not strip away recovery rights for legal and professional costs that it had already incurred before the relevant protection started on 28 June 2022. In business terms, that is a familiar position: if you have already spent the money, signed the engagement and become liable for the invoice, you may assume the lease recovery route remains intact.

The leaseholders and the Secretary of State argued for a different reading. Their position was that once paragraph 9 was in force, no service charge was payable under a qualifying lease for the protected category of legal or professional costs, even if the landlord had already incurred those costs before commencement, provided the charge had not already been paid. That interpretation gave the protection immediate effect from the commencement date.

There was also a wider argument in the case, advanced on behalf of the leaseholders, that the wording should be read even more strongly so that historic paid charges could be treated as never having been payable at all. The Court of Appeal did not accept that broader approach. So the real choice became narrower: did the Act only protect leaseholders from future costs, or did it also stop unpaid recovery of earlier costs once the provision came into force?

That question matters beyond this one building because service charge collection often happens slowly. Costs may be investigated, consulted on, billed, challenged and reconciled over months or years. A statutory rule that bites on what is still payable at a later date can therefore have a major effect on costs already sitting in the system.

The legal issue was how to read paragraph 9 of Schedule 8 to the Building Safety Act 2022. In simple terms, that paragraph says no service charge is payable under a qualifying lease in respect of legal or other professional services relating to liability or potential liability incurred as a result of a relevant defect. The dispute was about what that means when the landlord had already incurred the underlying cost before 28 June 2022.

The court had to deal with the usual presumption against retrospective legislation. Courts are generally cautious about reading a statute as taking away existing rights unless Parliament has made that intention clear enough. Adriatic relied on that principle. It said Parliament should not be taken to have cut down an accrued contractual recovery right unless the wording clearly required it.

But the court also had to read the provision in the context of the wider Building Safety Act scheme. The judgment explains that Parliament was responding to a serious market and consumer crisis: leaseholders facing very large bills, difficulty selling homes, and pressure caused by unsafe buildings and interim measures. The statutory question was therefore not just about abstract retrospectivity.

It was also about whether the words chosen by Parliament were meant to give immediate practical protection from ongoing payment demands.

The issue was not whether every building safety cost is treated the same way. Schedule 8 contains different protections for different categories of cost and different leaseholders. This appeal focused on one category only: legal and professional services within paragraph 9, and only in relation to qualifying leases.

The Court of Appeal dismissed Adriatic’s appeal. The majority held that, from 28 June 2022, paragraph 9 prevented recovery through service charges under qualifying leases of the relevant legal and professional costs, even where those costs had been incurred before that date. In practical terms, if the protected charge had not already been paid, it was no longer payable once the provision came into force.

The court did not accept the broadest interpretation that would have reopened already paid historic charges and treated them as never payable at all. That would have had much more extreme consequences for settled transactions. But the court also rejected Adriatic’s narrower reading that would preserve recovery simply because the landlord had already incurred the cost, or because a charge had already fallen due, before commencement.

A key part of the reasoning was the purpose of the legislation. The judgment describes Parliament’s response to a crisis in which many leaseholders faced unusually large and often unaffordable bills, were trapped in affected homes and could not easily sell. Against that background, the wording that no service charge is payable was read as having immediate effect from commencement, rather than only protecting against a later and narrower set of future liabilities.

The court also recognised that any line Parliament drew would create hardship somewhere. Some landlords had already committed to contracts, incurred liabilities or issued demands in the expectation that leaseholders would pay. But the majority considered that the statutory language and the overall scheme pointed to a commencement-based rule: from 28 June 2022, protected unpaid charges under qualifying leases were no longer payable.

This case matters most if your business owns, manages or invests in buildings with long residential leases. It shows that service charge recovery is not just a lease drafting exercise. Even where the lease wording would ordinarily support recovery, statute can override that position and can do so in a way that affects costs already incurred but not yet collected.

For a business owner, the commercial risk is straightforward. You may instruct lawyers, surveyors, fire engineers or other consultants, or run tribunal proceedings, expecting those costs to be recharged later. If the building falls within the Building Safety Act regime and the lease is a qualifying lease, that assumption may fail. The result can be a direct hit to cashflow, reserves, financing assumptions and investor reporting.

The judgment is also a reminder that building safety costs should not be treated as one pot. Schedule 8 uses different rules for different categories. This appeal was about legal and professional services. Other parts of the statutory scheme deal with remediation measures, cladding and capped contributions in different ways. A landlord or asset manager who lumps all costs together is more likely to misstate recoverability.

Mixed-use owners should be especially careful. Hippersley Point had both a commercial unit and long residential leases. The protection discussed in this case concerned qualifying residential leases. That does not automatically answer what can be recovered elsewhere in the building under different contractual arrangements. In practice, cost allocation, budgeting and demand preparation may need to separate residential protected costs from any other sums that remain recoverable under other leases or arrangements.

The case also points businesses towards the wider statutory recovery landscape. The judgment refers to routes that may shift costs away from leaseholders and towards landlords higher up the chain, developers or associated entities. That does not mean recovery will always be simple or complete. It does mean that a sensible strategy should look beyond the leaseholder demand as the default answer.

If you are a landlord, freeholder, management company or managing owner dealing with building safety defects, the safest approach is to treat recoverability as a live legal and commercial question before you spend, demand or allocate costs. This is especially important where the building has mixed-use elements, a chain of superior landlords or a developer with ongoing remediation obligations.

Start by separating the building facts from the billing assumptions. Ask: is this a relevant building, are the leases qualifying leases, and what exact category of cost are we dealing with? A tribunal application cost, legal advice on liability, fire engineer advice and physical remediation works may not all be treated the same way.

The mistake this case warns against is assuming that because one item would once have sat inside the service charge machinery, it still can after the Building Safety Act protections apply.

Next, review timing carefully. The court’s approach means the date the landlord incurred the cost is not the only date that matters. You also need to know whether the charge had already been paid before 28 June 2022. For unpaid protected charges, the commencement date can be decisive. That can affect arrears strategy, accounting treatment and whether a demand should be pursued, revised or written off.

Then look at the ownership chain and alternative recovery routes. The judgment refers to the wider scheme under which costs may be recoverable from other landlords, developers or associated entities. For a business, that means the operational question is not just can we bill the leaseholder, but who in the structure may ultimately bear the cost if the leaseholder cannot be charged.

Finally, update communications and budgets. Boards, lenders, investors and managing agents should not be working from outdated assumptions about service charge recovery. If protected costs may no longer be payable by qualifying leaseholders, reserve planning and project approvals should reflect that early rather than after demands are challenged.