BUILT ENVIRONMENT JOURNAL

What does the first remediation order mean?

Comment: Earlier this year, the first remediation contribution order was made under the Building Safety Act 2022. Will this set a precedent when it comes to resolving historic defects?

Author:

  • David Greenwood
  • Arpan Gupta

10 August 2023

Crane in front of flats

Since the Grenfell Tower fire in 2017, many leaseholders have found themselves facing high service charge payments to cover the costs of remediating building safety defects.

Remediation contribution orders (RCOs) were therefore introduced in the Building Safety Act 2022 (BSA), to protect leaseholders in multi-occupancy residential buildings from the costs associated with what are mostly historical defects.

The First-tier Tribunal (FTT) made its first RCO under the BSA earlier this year, in Batish and others v Inspired Sutton Limited and others. This is widely predicted to be the first of many such orders the FTT will make.

How the RCO regime works

Under section 124 of the BSA, the FTT may, on the application of an 'interested person', make an RCO in relation to a 'relevant building' if it considers it 'just and equitable' to do so.

The resulting order may then require a 'specified entity' to make a payment towards the remediation costs that have been incurred, reimbursing the party that paid for the works originally; or towards costs that are to be incurred, provided the works are necessary to remediate a 'relevant defect' in a 'relevant building'.

A specified entity can be a body corporate or partnership, provided it is:

'(a) a landlord under a lease of the relevant building or any part of it

(b) a person who was such a landlord at the qualifying time

(c) a developer in relation to the relevant building, or

(d) a person associated with a person within any of paragraphs (a) or (c).'

The definition of 'associated' is broad, and includes subsidiaries, parent companies and sister companies in a group structure, as well as companies that share directors or have shared directors in the five years prior to 14 February 2022, being the date that is known in the BSA as the 'qualifying time'.

A 'relevant defect' is meanwhile defined under section 120 of the BSA as one that arises 'as a result of anything done (or not done), or anything used (or not used), in connection with relevant works', and which causes a building safety risk.

A 'relevant building' is defined as a self-contained building or part of a building containing at least two dwellings, which is at least 11m in height or has at least five storeys.

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Leaseholders seek to recover service charge payments

Batish concerned an application for an RCO by 18 leaseholders of a high-rise self-contained block of flats in Sutton, Surrey. The application was made against the landlord, namely Inspired Sutton Ltd, as well as its parent company, namely Inspired Asset Management Ltd (in liquidation), and two of its directors.

The landlord was a special-purpose vehicle that had been set up to develop Sutton Court and sell the freehold on. The freehold was never sold, however, and defects were identified that required the replacement of unsafe cladding and render on part of the facades, along with rectification and replacement of balconies.

The leaseholders sought reimbursement of £192,635.64 of service charge payments made for these remedial works. They applied to the FTT for an RCO on the basis that:

  • service charge payments fell under the provisions of the BSA and were made for the remediation works
  • it was just and equitable to make an RCO.

Tribunal focuses on landlord responsibilities

The case raised several interesting procedural matters.

  • The landlord did not comply with the case management directions and was thus barred from taking part in the proceedings.
  • The joint liquidators of the landlord's parent company relied on the Insolvency Act 1986 to argue that the leaseholders could not bring any legal action as there was an automatic stay in place. The leaseholders would need to obtain leave through an application to the Companies Court to do so, which they did not. The FTT therefore agreed with the joint liquidators and removed Inspired Asset Management Ltd (in liquidation) from the proceedings.
  • FTT dismissed the application in respect of the two individual directors on the basis that they were not covered by section 124(2) of the BSA as they were not a body corporate or a partnership.

In terms of the case against the landlord, the FTT ran through the tests in the BSA and decided:

  • the property was a relevant building under the legislation
  • the leaseholders were all interested parties
  • the landlord was a relevant specified body corporate
  • the costs relating to the remediation were incurred in association with 'relevant defects' that constituted 'a building safety risk'; the FTT determined that only costs relating to fire safety works could be recovered, and any improvements not relating to removal of defective cladding could not
  • the landlord was responsible for these defects
  • paragraph 2 of Schedule 8 of the BSA provides that no service charge is payable for defects that are the landlord's responsibility
  • it was just and equitable to make the RCO.

'The FTT determined that only costs relating to fire safety works could be recovered'

Circumstances prevent case proving authoritative guidance

The first RCO decision provides a helpful steer in terms of understanding how the FTT will interpret the statutory definitions of the BSA.

However, interested parties should not put too much store by this particular case – and keep an eye out for further decisions to identify trends in approach and interpretation.

This is because no party was legally represented, no expert evidence was presented, and the landlord was debarred from defending the proceedings. Furthermore, the decision did not provide any significant clarity on the meaning of 'just and equitable'.

In this sense, relevant stakeholders may feel slightly short-changed by the FTT's first decision in that it does not provide the clarity that they were seeking. In addition, unlike court decisions, the FTT's decisions do not create legally binding precedents, so there is always the potential for a tribunal to take a different approach in the future in any event.

 

David Greenwood is a senior associate at Pinsent Masons
Contact David: Email

Arpan Gupta is an associate at Pinsent Masons
Contact Arpan: Email

Related competencies include: Conflict avoidance, management and dispute resolution procedures, Fire safety, Legal/regulatory compliance

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