The Supreme Court has set out the circumstances in which a local authority must compensate property owners where it forces them to close down their premises. The court has defined for the first time the meaning of ‘default’ for the purposes of section 106 of the Building Act 1984. The decision clarifies when the owner of a building can expect to receive damages.

The case went back to a problem on Hasting Pier in 2006, when a section of tension cord fell off. Hastings Council closed the pier using its emergency powers under the Act, and later obtained a court order prohibiting public access until repairs had been carried out.

Two years earlier, the tenant of a Bingo Hall on the pier had commissioned a structural engineering survey of the pier which advised that there were structural defects in the pier, and work was required urgently to prevent risk to the public. The landlord was responsible for the repairs, but did not take any action, and nor did the council. After the pier was closed, the tenant eventually did the repairs itself.

The tenant claimed compensation from the council under section 106 of the Act for loss of business during the closure. The Council argued that the tenant was in default, and therefore under the Act was not entitled to compensation. What was the default? The Council said the tenant had breached the Occupiers Liability Act 1957, which imposes a duty of care towards visitors, and the Health and Safety at Work Act 1974, which imposes a duty on an employer to ensure the safety of his employees and the safety of the workplace.

When the case came to court (Manolete Partners Plc v Hastings Borough Council [2016] UKSC 50), the Supreme Court rejected the council’s arguments. The reference to “default” in section 78 was limited to default in respect of obligations imposed by the Act itself. The court identified the “matter” in relation to which the council had exercised its powers, and secondly, consideration of whether that was a matter “as to which” the Tenant had been in default. The matter which led the council to take such emergency action was the state of the pier and the fear of collapse. The tenant was not in default of that matter because it was not legally responsible for the repair of the pier. Therefore, the tenant was entitled to compensation under section 106.

Although the facts of this particular case have resulted in the Council being liable for compensation, in its ruling the Supreme Court widened the interpretation of the 1984 Act. This may prevent defences being brought simply on the basis that there has been no default.