The First-tier Tribunal (FTT) has made what is understood to be the first Remediation Contribution Order under the Building Safety Act 2022 (BSA) in connection with the remediation of building safety defects at a high-rise residential block at 9 Sutton Court Road, in London.
We outline below the relevant provisions of the BSA concerning Remediation Contribution Orders, as well as Remediation Orders, before examining the recent FTT decision in more detail.
What is a Remediation Contribution Order?
Remediation Contribution Orders are a new type of order that the FTT may make under the BSA, if it considers it "just and equitable" to do so, related to the funding of remedial works in respect of defects that cause a building safety risk.
Together with Remediation Orders, they form part of what are collectively referred to as the "leaseholder protections" established by the BSA. As set out in the explanatory notes to the Act, these are aimed at protecting leaseholders in multi-occupied residential buildings from the costs associated with remediating historical building safety defects.
Remediation Orders
A Remediation Order is an order that the party with responsibility for repair of the external facade must undertake repairs. A Remediation Order may be made by the FTT under section 123 of the BSA on the application of an interested person, requiring a "relevant landlord" to remedy specified "relevant defects" in a "relevant building" (see below for further details on these definitions) by a specified time.
Remediation Contribution Orders
Remediation Contribution Orders are concerned with the funding of those remedial works. Under section 124 of the BSA, the FTT may, on the application of an interested person – and if it considers it "just and equitable" to do so – make a remediation contribution order in relation to a "relevant building", requiring a company to make payments in connection with the remediation of relevant defects.
Such an order may be made against a landlord, a person who was a landlord at the qualifying time (i.e. the start of 14 February 2022), or the building's developer, as well as any person "associated" with any of these parties. "Associated" parties are broadly defined and encompass, for example, both parent companies, subsidiaries, and sister companies within a group structure, as well as companies that share or have shared a director in the five years leading up to 14 February 2022.
What is a "relevant building"?
A "relevant building" for these purposes is a self-contained building or part of a building containing at least two dwellings which is at least 11 metres in height, or which has at least five storeys, but excluding leaseholder-owned buildings. This differs from the definition of "higher-risk buildings" under Parts 3 and 4 of the BSA, which as we reported in this insight has recently been confirmed in draft regulations published in December 2022.
What is a "relevant defect"?
Section 120 of the BSA defines a relevant defect as a building defect that arises "as a result of anything done (or not done), or anything used (or not used), in connection with relevant works" that also causes a building safety risk. A "building safety risk" is widely defined as a risk to the safety of people in or about the building arising from the spread of fire, or the collapse of the building or any part thereof.
What does "just and equitable" mean?
The BSA does not define the meaning of "just and equitable". Accordingly, as we noted in this insight, its meaning will be a question of judicial interpretation in each case. The explanatory notes to the BSA comment that the "just and equitable" test is "intended to ensure fairness in proceedings while giving the Tribunal a wide decision-making remit" within which it may take all appropriate factors into account, including "wider public interest in securing the safety of buildings", when determining whether an order should be made.
Background to the application to the FTT
The application in this case was made by Mr. Arjun Batish, on behalf of the 18 leaseholders of Sutton Court. There was no dispute that Sutton Court fell within the definition of a "relevant building" for these purposes.
The first respondent named in the application was Inspired Sutton Limited (the freeholder), a special purpose vehicle (SPV) which had been set up to develop Sutton Court and to sell on the freehold. However, the freehold was never sold and in around 2020, defects were identified which required the replacement of unsafe ACM and HPL cladding and render on part of the facades, and rectification and replacement of balconies that were deemed unsafe or a fire safety hazard.
The freeholder served notices on the leaseholders under section 20 of the Landlord and Tenant Act 1985, and following commencement of remediation works, invoices in respect of those works were also served and paid by the leaseholders.
The leaseholders applied for a remediation contribution order on the basis that:
- they had made service charge payments for the remediation of relevant defects, and sought to have those payments returned;
- the service charge costs fell within the provisions of Schedule 8 of the BSA; and
- it was just and equitable to make a Remediation Contribution Order in their favour.
FTT decision
The FTT agreed and made a Remediation Contribution Order against the freeholder, ordering it to pay £194,680 to the leaseholders within 14 days of the order. Amongst other things, the FTT found that:
- the costs that the lessees sought to recover in respect of the remediation of external defects and balconies related to "relevant defects";
- the external defects and balconies constituted a "building safety risk" within the meaning of section 120(5) of the BSA, since they constituted a "risk to the safety of people in or about the building arising from the spread of fire";
- in order to satisfy the "just and equitable" test, the FTT needed to be satisfied that the lessees paid for the cost of works which ought to have been met by the freeholder;
- paragraph 2 of Schedule 8 of the BSA provides that no service charge is payable in respect of a relevant defect for which a relevant landlord, or a person associated with a relevant landlord, is responsible; and
- accordingly, since Inspired Sutton was the developer and the landlord at the qualifying time, and was responsible for the relevant defect, the costs were "not to be regarded as relevant costs to be taken into account" in calculating the service charge, and the leaseholders were entitled to a Remediation Contribution Order in their favour.
The leaseholders' application had also named two further respondents: (i) the parent company of the freeholder (which was now in liquidation); and (ii) two of the individual directors of the freeholder. However, the FTT removed the parent company as a party to the proceedings since there was an automatic stay in place against it pursuant to section 130(2) of the Insolvency Act 1986 and the applicants had made no application to the Companies Court to lift such stay.
The FTT further dismissed the application in respect of the individual directors, observing that section 124(2) of the BSA provides that Remediation Contribution Orders mean orders requiring a "specified body corporate or partnership" to make payments to a specified person – and the individual directors did not fall within this definition.
Commentary
Given the legal novelty of Remediation Contribution Orders (as well as Remediation Orders), the handing down of the first judgement is a helpful first step in understanding how the FTT will interpret the various statutory definitions within the BSA. However, as with all litigious matters, each will turn on its own facts and precedents set by a tribunal will only assist to a certain extent.
In particular, Sutton Court was ultimately decided by the FTT without a hearing and a number of matters concerning interpretation were not subject to any legal argument before the Tribunal. That being the case, the judgment offers no further clarity as to what is considered to be "just and equitable". However, as more cases work their way through the system it is expected that the various statutory definitions will be subject to detailed legal argument which will assist all involved with better understanding how the BSA will be applied in practice.
If you have any questions about this article, please get in touch with Sue Ryan, Rob Bridgman or Sean Garbutt.