Summary
The First Tier Property Tribunal has granted what we believe to be the first Remediation Contribution Order made under s.124 Building Safety Act 2022 (BSA) against a landlord / developer of a high-rise block of flats, requiring them to repay leaseholders just under £195,000 of service charges paid towards the remediation of building safety defects. A copy of the full decision is available here.
A reminder: what are Remediation Contribution Orders (RCOs)?
RCOs and their close cousins, remediation orders, are new powers granted to the Tribunal in relation to the remediation of certain “relevant defects” in “relevant buildings” (being existing 11m/5 storey+ buildings in England with two or more residential units). These types of order were the focus of our October 2022 Building Safety Update, which followed a DLUHC announcement that it may pursue a freeholder for a remediation order if it did not take steps to fix certain defects.
In summary:
“interested persons” can apply for:
- remediation orders (s.123 BSA), “requiring a relevant landlord to remedy specified relevant defects in a… relevant building ...”; and/or
- RCOs (s.124 BSA), “requiring a specified body corporate or partnership to make payments to a specified person, for the purpose of meeting costs incurred or to be incurred in remedying relevant defects in a… relevant building …”.
“interested persons” include the Secretary of State, a local authority or anyone with a legal or equitable interest in the building;
remediation orders can be made against “relevant landlords” (see the BSA for the definition, but it is in essence the entity with the relevant duty to repair or maintain).
RCOs can be made against certain landlords (either current or who were a landlord as at 14 February 2022); the developer of the relevant building; or an entity “associated with” any of those parties (see s.121 of the BSA for the test for when entities are “associated” for this purpose). Note that RCOs cannot be made against directors, s.124 is clear that the power under it only relates to body corporates or partnerships (a point also confirmed in the Batish decision).
“Relevant defects” are defects that arise out of anything done or not done in connection with relevant works relating to the relevant building and which cause a “building safety risk”. (More detail on what “relevant works” mean is provided in s120(3) of the BSA). A “building safety risk” for the purpose of RCOs and remediation orders defined is a risk to the safety of people in or about the relevant building arising from (a) the spread of fire; or (b) the collapse of the building or any part of it. (See s.120(5) BSA. It is also worth noting that this is a slightly different definition of “building safety risk” than that used under s130 of the BSA relating to Building Liability Orders).
The decision
In Batish, the property’s leaseholders applied for an RCO against, among others, their landlord, Inspired Sutton Limited (ISL), which was the freeholder and also the original developer of the property, to recover service charges that the leaseholders had already paid towards certain remediation works to their block of flats.
ISL had converted the property from an office block into flats in 2017. ISL was an SPV set up by the 2nd defendant (which is in liquidation and no claim for an RCO was ultimately pursued against it), with the intention that ISL would sell the freehold once the development was complete. However, ISL was unable to do so, so still owned the freehold by the time of the application for an RCO.
Relevantly, the property had a number of alleged building or fire safety risks relating (a) to the use of façade materials including ACM, HPL and render, and (b) to the balconies.
An application had been made for building safety fund grant funding relating to the property, and ISL was in due course informed that funding would be available for the cost of cladding replacement, but not the cost of balcony replacement works. In the meantime, the local authority issued a s.11 Improvement Notice to ISL under the Housing Act 2004, which specified, among other things, that works were required to the balconies to remove and replace combustible material in order to reduce fire risk. ISL charged the leaseholders for service charges to cover, relevantly, certain external works relating to the s.11 notice and the balconies.
Findings
The tribunal was satisfied that the conditions were met for a Remediation Contribution Order against ISL:
- The leaseholders were “interested persons” as they had legal interests in the property;
- The property was a “relevant building”
- ISL fell within the definition of a “specified body corporate” as it was the landlord and also the developer
- The costs that the leaseholders sought to recover related to “relevant defects”, noting “[the defects] were assessed as part of the local authority HHSRS exercise as being one of the Category 1 Hazards where work were required to remove or reduce fire risk. We are satisfied that the external defects and balconies constituted a “building safety risk” within the meaning of s120(5) as they constituted a risk to the safety of people in or about the building arising from spread of fire. We find that the remediation costs claimed were incurred in the remediation of the balconies”.
- It was “just and equitable” to make an RCO against ISL because here the lessees had paid for works which ought to have been paid for by ISL as the landlord and developer, given the operation of, relevantly, paragraphs 2 and 10 schedule 8 of the BSA in this case, which now prevent service charges being payable for relevant defects for which a landlord is “responsible” (in this case because the landlord was also the developer).
Comment
It is not known whether the decision will be appealed. While it is not binding on other cases that may come before the First Tier Property Tribunal in future, it shows how the Tribunal approaches matters. (It should also be noted that the Tribunal did not have the benefit of argument from ISL for procedural reasons, and determined the issues on relatively limited information).
The leaseholders were seeking to recover building safety defect costs relating to balconies, which they had already paid for. This suggests that even where leaseholders have already paid out for certain alleged building safety defects under their service charges, then depending upon the circumstances, they may be able seek to recoup those payments using the RCO process.
The tribunal’s consideration of whether it was “just and equitable” to order an RCO was relatively brief: it may have considered this a relatively easy decision to make given that ISL was the landlord and original developer. It will be interesting to see what analysis the Tribunal may apply in future applications under s.124 BSA, where there may be less clear cut lines of responsibility for the works, and/or where consideration is required of claims against “associated” entities.
The Tribunal’s analysis of whether or not the defects constituted a “building safety risk” for the purpose of s.120 BSA was also of interest. It is clear that the tribunal’s primary basis for this conclusion was the local authority’s identification of the balcony defects in question as a “Category 1” Hazard, and the issue of an Improvement Notice relating to them under the Housing Act 2004. This appears to have been a relatively practical assessment, made in the absence of detailed evidence from, say, a fire engineer. Further, it is clear that the Tribunal did not consider that it had to make any particular finding as to, for instance, breach of the Building Regulations at the time of construction, to determine that there was a “building safety risk”. This emphasises that the concept of what constitutes a “building safety risk” for the purpose of remediation orders and RCOs may be construed widely. As we have commented previously, this could give rise to a disconnect where, for instance a landlord is made subject to such orders, but it may then have difficulty recovering remediation costs from other parties (who may be able to put forward defences that the matters to which the works in question related did not in fact breach any legal duties owed by them, such as under a contract or s.1 the Defective Premises Act 1972)).
So far as we are aware, this is the first Tribunal decision using the provisions of the BSA to order payment of remediation costs for building safety defects, and we do not expect this will be the last.
