Morello Quarter leaseholders stall ruinous cost of waking watch, but how useful is court decision for others?

By Liam Spender

Liam Spender is a trustee of the Leasehold Knowledge Partnership. Personally affected by the cladding scandal, Liam is a Solicitor-Advocate and Senior Associate at Velitor Law practising commercial litigation and arbitration in the City of London. Views in this article are personal and do not constitute legal advice. Liam is unable to take individual cases or to give legal advice to individuals.

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Many blocks of flats are affected by hugely expensive waking watches, to the outrage of leaseholders, MPs and even government ministers.

But until December last year, when leaseholders at Morello Quarter, in Essex, decided to fight the issue, waking watch provision has not been successfully contested in court.

The leaseholders have won a delay to the decision by Essex Fire and Rescue Service to impose on them £13,000 a week waking watch costs and a £200,000 communal fire alarm system.

Waking watch involves costly interventions that require leaseholders to pay for 24-hour fire patrols. Costs can run to £11,000 per building each month. More than 1,000 buildings in London presently have such watches in place, at an average cost of £256 per flat, according to government statistics.

The watches are normally imposed after a local fire authority – sometimes the building’s insurer – decides that the existing evacuation arrangements no longer provide an adequate level of assurance. Waking watches normally follow shortly after.

Law firm guarantees victory for Essex flat owners facing costly waking watch bills – IFSEC Global | Security and Fire News and Resources

Ellisons Solicitors has won a court battle on behalf of Essex flat owners fighting against costly waking watch bills. The law firm was instructed by Cherrydown Management Limited, the Residents’ Management Company responsible for a development called The Morello Quarter, Basildon, to challenge an enforcement notice which required it to put in place a waking watch within a month.

While these interventions are said to be temporary measures, some buildings have been subject to them for years, carrying hundreds of thousands of pounds of associated costs.

Leaseholders have found no way to avoid the costs landing on themselves. The property tribunal has found that lease terms typically require leaseholders to meet these costs through service charges, as leaseholders at Citiscape in Croydon and Green Quarter in Manchester found in 2017.

That changed in December 2021 when leaseholders at Morello Quarter, in Basildon, persuaded a court that they should have more time to comply with an enforcement notice issued by Essex Fire and Rescue Service (“Essex FRS”). The notice was issued under the Fire Safety (Regulatory Reform) Order 2005 (the “FSO”).

This piece looks at that decision in more detail, including whether other blocks could benefit. Full ruling is here

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Morello Quarter is a resident managed block in Basildon, Essex. According to news reports, it is a substantial development, consisting of 426 flats.

Weston Homes built the flats between approximately 2008 and 2012, describing the site as “the Docklands of Essex”, according to press reports.

These also quoted a Weston Homes spokesman as saying that the buildings were signed off in accordance with Building Regulations in force at the date of completion. The same spokesman refers to a 10-year structural guarantee issued by Premier Guarantee.

The block has fire safety issues related to cladding and internal fire safety defects. These defects include cladding on the external walls. There are also internal fire safety defects, including missing fire breaks. The total cost of remedial works is estimated at £7 million, the media says.

The defects were discovered in surveys conducted by the residents’ management company Cherrydown (“Cherrydown”). The Cherrydown surveys were conducted in October 2020 and December 2020.

Essex FRS is the authority responsible for enforcing the FSO in Basildon. Essex FRS conducted its own inspection of the building and concluded that the building could no longer sustain a stay-put policy in the event of a fire.

By enforcement notice dated 30 April 2021, Essex FRS required Morello Quarter to introduce effective simultaneous evacuation measures. The only practical ways of achieving this involved a waking watch and a new fire alarm.

Stay-put is the policy in place by default in residential buildings. It says that people should stay where they are unless directed to move, or unless affected directly by heat, flame or smoke. This policy relies on the building being constructed in such a way as to prevent the spread of heat, flame or smoke from one part to another until an evacuation can be coordinated.

Essex FRS, instead, recommended a move to simultaneous evacuation. This requires that there be a means of alerting everyone in the building to a fire, so that they can all evacuate at the same time. This requires one or both of a communal fire alarm with sounders in every flat and / or a waking watch.

In April 2021 Essex FRS issued an enforcement notice. Among other things, the notice required that Morello Quarter have both a waking watch and a communal alarm installed within 31 days.

The costs of these measures was substantial. The waking watch was estimated at £13,000 per week. The new alarm was estimated to cost more than £200,000.

The FSO gives local fire authorities a range of options in enforcing the FSO. These include issuing alteration notices, enforcement notices and prohibition notices.

Alteration notices require that parts of the building are changed to comply with FSO requirements. Enforcement notices require that certain steps are taken by the time specified in the notice to ensure compliance with FSO requirements. Prohibition notices prevent the use of some or all of the building until FSO compliance is secured.

The notices are addressed to a named responsible person. The FSO responsible person is the one liable for compliance with the FSO. The responsible person can be an individual or a body corporate (for example, a company or a limited partnership).

Cherrydown was named as the responsible person for Morello Quarter. Cherrydown is a resident management company. Cherrydown decided to exercise its right of appeal under Article 35 of the FSO.

Article 35 of the FSO provides that the responsible person has a right of appeal to the Magistrates’ Court within 21 days of receiving any notice under the FSO. Article 35 allows the court to cancel, affirm or affirm with modifications. The effect an alteration or enforcement notice is suspended whilst the appeal is determined.

On 14 December 2021, Chelmsford Magistrates’ Court handed down a judgment giving extra time to comply with the enforcement notice.

District Judge King decided that the one-month timeline to implement a waking watch imposed by Essex Fire and Rescue Service was unreasonable in the circumstances. This was primarily due to the fact that the costs of operating a waking watch whilst also obtaining a new fire alarm could not be met in the timescale allowed by Essex FRS.

Essex FRS argued that the 31-day limit was reasonable. It pointed to the fact that the building had a £117,000 reserve fund that could be used to part-finance the waking watch and alarm. Essex FRS said that Cherrydown could have used the process under section 20 of the Landlord and Tenant Act 1985 to raise money from leaseholders.

In its section 20 submissions, Essex FRS appears to have been mistaken. A contract for services – which includes a waking watch – is only subject to consultation under section 20 if it will both last more than one year and cost any leaseholder more than £100. It was unclear if the proposed waking watch met that requirement.

In any event, issuing section 20 notices does not necessarily produce money. The terms of the lease dictate whether money is payable through service charges, not the section 20 process.

District Judge King substituted his own decision that Cherrydown should have six months instead of one month to comply with the enforcement notice.

This extended period of time was given to comply with the full section 20 consultation procedure. By that time, it is expected that the simultaneous evacuation fire alarm would be in place and a waking watch will not be required.

This judgment illustrates all the difficulties with waking watches and enforcement notices. In particular, the following:

1. Enforcement notices are issued on the basis – as Essex FRS argued here – that it is up to the responsible person to decide how best to comply. Essex FRA appears to have undercut its own submissions by saying that compliance with the notice should have overtaken all other financial demands on Cherrydown. But the only option for compliance is to impose a waking watch, with or without a communal fire alarm. A responsible person who does not comply with the enforcement notice runs the risk of being prosecuted for breach of the FSO or, worst of all, a prohibition notice being issued requiring the building to be evacuated.

2. Was the assessment of risk proportionate to the probability of a fire occurring? Morello Quarter was completed in stages between roughly 2008 and 2012. There appears to have been no history of fire in the nine to 13 year period when the policy of stay-put was in place. The 2020 survey findings prompted the 2021 enforcement notice, but was that really a proportionate approach to risk given the defects had been latent within the building for all that time?

3. Even if argued on the basis that a fire would be a low probability but high impact event, did the probability of a fire occurring justify spending £13,000 a week on waking watch plus £200,000 on a new fire alarm? What good is mitigating a fire risk if it imposes serious financial consequences, up to and including bankruptcy, on the people living in the building? The same may be said in relation to the many billions of pounds said to be required to remediate tens of thousands of buildings. Again, does the probability of fire occurring justify the cost in every case?

4. Conflicts of interest. In this case, the residents were in charge of decision-making and directing discussions with the enforcing authority. They had a measure of control, including the ability to appeal under Article 35. As discussed below, in many cases the interests of the responsible person and the person paying the bill are different. The responsible person’s interests normally prevail at the bill payers’ expense. Put another way, it is very easy to address a risk when you can spend someone else’s money to do so.

5. Failure to mitigate moral hazard. The particular species of conflict of interest at play here is sometimes known as moral hazard. That can be described as a change in behaviour arising from knowledge that the cost of that behaviour will not be borne by the individual in question. More simply, it is when someone can take your money without being responsible for it. A common example of moral hazard is the provision of insurance. Drivers drive differently knowing they have cover if they have an accident. They park differently knowing they are insured if the vehicle is stolen. Insurers mitigate the risk of this change in behaviour by requiring drivers to pay the first part of the claim (the excess). Would fire and rescue authorities be so keen to issue enforcement notices if some of the costs of waking watches came from their own budgets?

6. Is waking watch really the best we can do where the assessment of risk appears to have changed? There is no empirical evidence to support waking watch being any more effective than a policy of stay-put. The anecdotal evidence from buildings that have experienced fires where waking watches have been imposed is that waking watches did not perform their intended primary function of alerting residents to evacuate or assisting with evacuation. Yet more than 1,000 buildings in London are currently subject to these expensive arrangements.

Is the judgment binding on other Fire and Rescue Services?

No. This is a first instance decision. It is not binding on anyone except Cherrydown and Essex Fire and Rescue Service.

Any other appeal under Article 35 of the FSO would involve a determination of the facts related to that specific building. A different court could reach a different conclusion, even on similar facts.

Why has this not happened before?

Perhaps for three reasons.

First, decisions in the magistrates’ court are often not reported or published. Similar decisions may have been made in the past without anyone being aware.

Secondly, enforcement notices can be withdrawn or varied where the fire and rescue service and responsible person reach agreement. There may have already been other cases where additional time was granted without the need to appeal under Article 35.

Thirdly, in this case the responsible person was under the control of residents. Not all developments are like this. Where the management is imposed by a third-party freeholder, leaseholders may not be told about any enforcement action until the time the waking watch begins work. By that time, the 21 day period allowed for appeals may well have passed.

Article 35 only gives a right of appeal to the responsible person. Where management is imposed by a third party freeholder, that responsible person is typically the managing agent.

In such cases, the managing agent will usually look to mitigate any liability it has by spending leaseholders’ money on complying with the enforcement notice by introducing a waking watch and / or installing a new permanent or temporary fire alarm.

It may argue that this approach is justified on the basis that the managing agent would have to spend leaseholders’ money on legal fees to raise an appeal under the FSO, which may not be successful.

The structure of Article 35 means that the people paying the bill – the leaseholders – may not have any control over the decision making process of the responsible person.

What steps can leaseholders who do not control the responsible person take?

Leaseholders who do not control the responsible person but who are aware that a notice under the FSO is coming can try to persuade the responsible person to negotiate with the fire authority. That is unlikely to achieve a positive result in most cases.

The only legal option to leaseholders who do not control the responsible person is to seek a judicial review of the decision to issue the FSO notice in question. That would involve issuing a claim in the High Court.

Issuing a claim in the High Court is not a step to be taken lightly. It is a costs jurisdiction, meaning that if the claim were to be opposed and it failed – and many judicial reviews do fail – the leaseholders would have to pay costs to the fire and rescue service. It is not unusual for costs in the High Court to reach many tens of thousands of pounds, if not more.

Bringing a judicial review would also require the applicant to show grounds to challenge the decision. This is also not an easy task. The applicant would have to demonstrate that there was either something wrong with the decision making process and / or the decision reached was not one any reasonable decision-maker could have reached in the same circumstances.

The mere fact that the notice imposes costs on leaseholders would not be enough. Lack of adequate time to comply – as in this case – may also be arguable. If any such judicial review were brought, it would not be on the same basis as Article 35 of the FSO, which allows the notice itself to be varied. The High Court would be looking at whether the decision to issue the notice should be quashed (overturned), which may not be a hurdle a challenge would be able to overcome.

It may also be argued that someone who is not the responsible person has no right to seek judicial review. That may be because they lack the standing to bring a challenge. The FSO provides a route of appeal only to the responsible person. That may be taken as meaning that someone other than the responsible person lacks sufficient interest to challenge a notice. The argument has never been tested.

In any event, seeking a judicial review is something that requires specialist legal advice tailored to the facts of an individual case.

What more can be done?

The government could reform the FSO to give residential leaseholders the same rights of appeal as the responsible person.

Another reform would be to make the issue of FSO notices to responsible persons of residential buildings explicitly consider the financial impact on residents versus the likely risks of fire.

Both changes could be achieved by amending the FSO as part of the Building Safety Bill currently going through Parliament.

Both changes could potentially focus minds in fire authorities on whether these enforcement notices are required in all cases. Currently these notices can be handed out without considering the enormous financial consequences.

Full court ruling is here