The Technology and Construction Court (TCC) has handed down what is understood to be the first High Court finding of a "relevant liability", for the purposes of Building Liability Orders under the Building Safety Act 2022 (BSA). In this article, we discuss the significance of this decision, particularly how it clarifies the grounds for Building Liability Order (BLO) applications. We explore the implications of the court's findings on "relevant liability" and its potential to hold developers accountable for building safety defects.

In 381 Southwark Park Road RTM Company Ltd & Ors v Click St Andrews Ltd & Anor [2024], the Technology and Construction Court (TCC) held that:

  • The defendant, a rooftop developer, had committed fire and structural safety breaches which gave rise to a "building safety risk" under section 130(3)(b) of the BSA;
  • a claim under section 2A of the Defective Premises Act 1972 (DPA) – which is a new provision inserted by the BSA (described in more detail below) – failed.

The finding of a "building safety risk", importantly, means that there is a "relevant liability" which will allow the claimants to seek a Building Liability Order (BLO) against the parent company of the rooftop developer's corporate group. The BLO application is to be heard at a subsequent hearing.

This is of historic significance: as described in our previous insight and further below, BLOs will allow the High Court to 'pierce' the corporate veil and hold developers and associated companies to account for building safety defects, in circumstances where the entity responsible for the project (typically a special purpose vehicle (SPV)) has been wound up or is insolvent.

The judge also observed that the BSA "says little about the procedure to be adopted by a party wishing to seek a BLO". She therefore provided some very welcome clarification on procedure, confirming in particular that the BSA "certainly does not require a party to make [its BLO] claim within existing proceedings" (emphasis in original). To do so would be "surprising", since "the circumstances in which it might be just and equitable to make the order may not arise until after proceedings to establish a relevant liability are concluded and a BLO could be sought against a corporate body that did not even exist at the time of those proceedings ".

Recap: what is a Building Liability Order?

Building Liability Orders are a novel remedy created by the BSA. Their policy intent is to prevent developers from escaping liability for building safety defects by setting up thinly capitalised SPVs to carry out developments. It has been common practice for such SPVs to be wound up following completion, thus allowing their well-capitalised parent companies to avoid long-term liability for any defective works.

BLOs target this scenario, by allowing the High Court, if it considers it "just and equitable", to hold associated companies to account for building safety, and prevent them from avoiding liability by dissolving the SPV responsible for the project.

They do so by extending a "relevant liability" of a body corporate (Party A), so that it will also be a liability of an "associated" body corporate (Party B). In the event that a BLO is made, Parties A and B will then be jointly and severally liable for the relevant liability.

A "relevant liability" is a liability incurred either:

  • under the DPA 1972 or under section 38 of the Building Act 1984 (BA 1984) – if and when this is brought into force; or
  • as a result of a "building safety risk".

The BSA defines a "building safety risk" as "a risk to the safety of people in or about a building arising from the spread of fire or structural failure". This has potentially very broad scope: while claims under the DPA 1972 are limited to dwellings, liability as a result of a "building safety risk" could encompass a wide range of liabilities, including in respect of non-residential buildings.

Background to the TCC decision in 381 Southwark Park Road

  • The claimants are a residents' right to manage (RTM) company, together with 10 individual leaseholders of St Andrews House (the property).
  • The defendants are a special purpose vehicle (SPV), now in liquidation, which owned the freehold and head lease of St Andrews House at the relevant time, and its parent company.
  • The RTM had entered into a Freehold Purchase Agreement (FPA) with the defendants in 2020 for development of the property to create an additional storey of three prefabricated modular units.
  • During the works, following removal of the existing pitched roof, there was water ingress and damage to the flats below, which caused several leaseholders to have to leave their homes. The claimants contended that this was the consequence of the defendants' failure to provide adequate protection to keep the roof structure watertight.
  • The claimants brought claims for breach of contract under the FPA as well as for negligence and nuisance.
  • They also subsequently brought claims for alleged breach of the statutory duty under section 2A of the DPA, in respect of alleged defects of workmanship, including structural and fire safety issues, which had been detected after the claimants engaged experts to carry out investigations
  • Finally, the claimants also sought a BLO pursuant to section 130 of the BSA against the parent company of the insolvent freeholder.
  • The defendants denied breach of any duty of care in tort or any duty under the DPA, arguing that the amount of rainfall had been unprecedented and overwhelmed the waterproofing measures that had been put in place.

What is the duty under section 2A of the DPA?

Prior to the BSA, the DPA was a seldom used piece of legislation in the context of defect claims: a claim under the DPA could only be brought if it related to the "provision" of a dwelling (i.e. the original construction or conversion works).

Section 2A of the DPA, which was inserted into the DPA by the BSA, expands this to cover claims arising out of "any work undertaken on an existing dwelling, provided that work is done in the course of a business".

The duty is owed both to the person for whom the work is done, and "each person who holds or acquires an interest (whether legal or equitable) in a dwelling in the building". The limitation period for claims under section 2A is 15 years for any project which completes on or after 28 June 2022, when the section came into force.

TCC comments on procedure for applying for Building Liability Orders

As noted above, Mrs Justice Jefford DBE observed that the BSA "says little about the procedure to be adopted by a party wishing to seek a BLO". However, she confirmed that it "certainly does not" require a party to make its BLO claim within existing proceedings.

She explained further that:

  • Where it is already within a claimant's contemplation that it might seek a BLO against a particular associated company of the defendant, it would be "sensible and efficient" for that claim to form part of the main proceedings.
  • However, this is not a requirement, and "does not preclude a subsequent claim for a BLO against some other associated company".
  • Indeed, a BLO could be sought "against a corporate body that did not even exist at the time of those proceedings".
  • Furthermore, "the circumstances in which it might be just and equitable to make the order may not arise until after proceedings to establish a relevant liability are concluded".

The TCC's findings on "relevant liability"

In respect of the alleged breaches of contract, the Court found that it was clear that "no adequate protection against even normal rainfall" had been provided. The defendants had breached their obligations under the FPA to carry out the works in a good and workmanlike manner and to use reasonable endeavours to repair any loss and damage.

In respect of "relevant liability", which as noted above would allow the claimants to seek a BLO against associated companies of the freeholder:

  • The judge was satisfied on the basis of the expert evidence that there were fire safety breaches which "give rise to a relevant liability for the purposes of section 130(3)(b)" of the BSA. This is a relevant liability "as a result of a building safety risk", as explained above.
  • She rejected, however, the claim in respect of defective remedial works, which she found was "driven by the desire to be able to allege a breach that fell within section 2A of the DPA". It was impossible to identify anything that was done after the coming into force of section 2A on 28 June 2022, that could give rise to a breach of that section. Accordingly, the claim under s. 2A of the DPA was dismissed.

What does this mean for parties making or defending BLO applications?

This is the first High Court finding of a "relevant liability" which will allow a BLO to be sought under the BSA, on the basis of a "building safety risk". As noted above, the BSA defines "building safety risk" in broad terms. As a result, it could encompass a wide range of potential liabilities and – unlike claims under the DPA – may extend beyond residential buildings. This decision, which related to a residential block, sheds no further light on this point.

Coupled with the extended limitation periods under the DPA 1972, it is clear however that the potential exposure of developers has been significantly broadened by the introduction of Building Liability Orders.

How this will play out in practice – as well as how the Courts will apply the 'just and equitable' test – remains to be seen as BLO applications, including in 381 Southwark Park Road, make their way through the Courts in 2025.

If you have any questions about the issues raised in this article, please get in touch with Jessica Tresham, Louise Smith or Emma Knight.