Losses to be recovered by leaseholders resulting from fire-safety defects
Allegedly there are fire safety defects at the Celestia development in Cardiff, which Redrow developed having engaged Laing O'Rourke (Laing) as their design and build contractor in about 2004. Redrow are said to be getting on with a programme of remedial works now. That hasn't stopped 41 past and present leaseholders of the development suing Redrow (who have, in turn, brought in Laing) for breach of section 1 of the Defective Premises Act 1972 (DPA) for a swathe of losses they say they have suffered.
In a judgment recently handed down by His Honour Judge Keyser KC in Wilson & Ors v HB (SWA) Ltd [2025] EWHC 1315 (TCC), post-dating URS v BDW, three of the claimants (who were no longer using the same solicitors as the remaining claimants by the time the hearing came about) found themselves on the receiving end of Redrow's application to strike out and summarily dispose of some of their claims. Mr & Mrs Wilson, the first two claimants, had purchased two of the flats. The third claimant was a company owned by them which for all intents and purposes has dropped out of the picture. They gifted the flats to two of their children in 2024.
By the end of the hearing, it was common ground the approach to quantifying their alleged losses should be the same when considering allegations of breach of a sales contract, section 1 of the DPA and section 2 of Buildmark cover to put right any defect or damage (instead of, say, diminution in value). As the Judge held:
"I do not consider that there is any difference between damages for breach of an obligation to carry out work properly in the first place or to remedy defects when it comes to the approach. Neither obligation, in my judgment, leads to a limit on the proper approach at law to assessing damages for defective buildings".
He went on to say:
"To put the matter broadly: if the leaseholders have valid claims resulting from previously unknown defects in the flats, they are entitled to damages reflecting the consequences of the defects; this will typically be diminution in value, and it may also include loss of use value and something to represent the disturbance resulting from the defects and any remedial work".
All claimants pleaded the following losses to be recovered:
- Diminution in value notwithstanding the remedy of defective work;
- Loss of rental income;
- Damage to health due to mould and damp, and inconvenience and distress; and
- Decanting costs if indeed decanted during remedial works.
Redrow were applying to strike out paragraph 51 of Mr & Mrs Wilson's Schedule of Loss in particular, which split up the alleges losses into particularised and unparticularised figures. Part 1 contained the particularised losses at c. £210k and £350k for each flat, with Part 2 setting out more generalised calculations to be made and to be confirmed.
Part 1 comprised of the following heads of loss: Total Capital, Investment, Re-Investment and Service Charge. Part 2 comprised of Rental Income, Secured Borrowing, Interest, Indemnity and Taxation. Redrow sought to strike out / summarily dismiss all heads of loss other than the Service Charge and Interest claims.
The largest claim by some distance was the claim for Total Capital losses. The claim was made by way of several other definitions Mr and Mrs Wilson adopted (Mr Wilson is a solicitor), essentially being the culmination of diminution in values in 2016, 2019 and 2024. This was described as spurious because Mr & Mrs Wilson claimed diminutions at specific past dates despite retaining the flats thereafter. The claim was struck out.
The Investment and Re-Investment losses were calculated by comparing the difference between the acquisition and disposal cost with the average return on investment in the area. It duplicated the first claim and, in any event, was not a calculation reflecting the consequences of the defects which Mr & Mrs Wilson are free to claim. As the Judge held, "They are...not to claim for the possible profits from a road not taken". The claims were struck out.
The Rental Income Loss is to be confirmed on giving of expert evidence, presumably from a forensic accountant. It is calculated by the loss of rental income when comparing the flats with and without the alleged defects, together with any loss of contributing towards Council Tax for reason of not being able to let out the flats because of the defects. The trouble for the Wilsons is that they compared their first rental income figure with their last and then compared the increase with growth in rents over the same period publicised by the Office for National Statistics, instead of relying on any actual loss suffered supported by independent expert evidence - something the Judge termed a "give-away". Nevertheless, this head of loss is deemed to be recoverable in principle and the Wilsons were given the opportunity to seek permission to amend their case to properly plead it.
The Secured Borrowing loss resulting from the inability to raise capital on the flats for re-investment was considered to be too remote, based on the manner in which it had been pleaded. The Wilsons had not attempted to show they sought to raise finance and failed due to the defects. There seemed to be scope to claim if properly pleaded but here it was held to be far too remote.
The claim for the Indemnity was made on the basis there is scope under legislation to say tenants can potentially reclaim their rent paid from the Wilsons on the basis of the existence of the defects. The measure of damage is the risk of restitutionary claims being made against them by former tenants. Again, any such claim must be properly pleaded. The Wilsons were given the opportunity to seek permission to amend their case to properly plead it.
The Taxation claim was struck out. It appeared to be based on the loss of chance of selling the flats earlier which would have reduced the risk of inheritance tax being due, quantified by the cost of buying an insurance policy against that risk. This was held to make no sense given the Wilsons could have chosen to transfer the flats earlier to protect the IHT position, irrespective of any defects.
Redrow's application succeeded. The Service Charge and Interest losses remained claimable as they did not form part of the application. The Rental Income and Indemnity losses have to be properly pleaded. It appears the same applies to loss of opportunity cost based on actual inability to attain Secured Borrowing, but a lot will need to be shown to ensure such loss is not too remote. The case shows how leaseholders will have to prove actual rather than hypothetical losses resulting from alleged defects to recover them. Of the heads of loss deemed to be recoverable in principle, this is likely to be a fraction of the c.£560k claimed, if anything at all.
