The first remediation contribution order under the Building Safety Act has been issued by a tribunal, requiring a landlord to repay leaseholders £195,000.
The ruling indicates that many leaseholders can expect to be able use these orders, made possible under the 2022 law, to recover historic remediation costs – whether they relate to fire or other safety issues.
Lawyers told Construction News that this clear example could persuade some homebuilders to repay costs without taking cases to a tribunal.
However, in this case it is not clear whether the landlord holds sufficient funds to pay the full amount of the claim, as its parent company is in liquidation.
The application was made by holders of 15 long leases at a high-rise block of flats in Sutton, south London, which was converted from offices in 2017. They made a claim against freeholder Inspired Sutton Limited, a special purpose vehicle that developed and converted the building.
In 2020, defects were identified that required unsafe cladding and render on the building’s facades to be replaced. Some balconies also needed to be adapted or replaced.
The leaseholders paid to fund the work after being served a notice under section 20 of the Landlord and Tenant Act 1985, and later invoiced for it.
At the time, Inspired Sutton said it was applying for a government grant to fund the work. But it later said that this would not cover the costs to adapt or replace the balconies.
The leaseholders were also informed that Inspired Sutton was pursuing a claim against ARJ Construction, which was involved in the building’s design and construction.
In its judgement, the tribunal decided that the building and defects met the criteria for a remediation contribution order set out in the Building Safety Act. They also ruled that the claim was “just and equitable”, because the leaseholders had paid for costs that ought to have been met by the freeholder.
Inspired Sutton was ordered to pay £194,680 to the applicants within 14 days. But the company’s latest accounts show that in August 2021 it held only £82,652 in net assets.
Its parent company, Inspired Asset Management, is in the process of being wound up. It was removed from the claim due to a provision of the Insolvency Act that prevents legal action against a company without specific permission from a court.
Eric Johnstone, a senior associate at Brodies solicitors, told CN that he suspected the judgement may help persuade freeholders to repay costs without going to a tribunal.
“They’re probably going to look at the statute, look at decisions like this and say, ‘Well, the writing’s on the wall – really we should be refunding that service charge’”, he said.
“I don’t think it’s the only case we’ll see. But I suspect there might not be a flood of them. Each case has to be looked at on its own merits, but certainly the strong indication is that any service charge that’s been deducted in terms of these works should be refunded.”
Sue Ryan, a partner at law firm Gowling WLG, said: “Our expectation is that in most circumstances, the tribunal will find a way of giving effect to the intent of the legislation, which is to ensure that leaseholders don’t pay for life-critical fire-safety defects.”
She said that it “certainly will be the case in certain circumstances” that freeholders decide to repay costs without going to a tribunal. “But there will also be a lot of heavily contested applications.”
Ryan added that it was still not clear how tribunals would interpret the act’s requirement that the issuing of a remediation contribution order should be ‘just and equitable’.
She said this question could become particularly complex if a claim is made against an associated company, as the legislation permits, rather than the landlord itself. This could include a parent, subsidiary or sister company, as well as companies that share or have shared a director in the five years leading up to 14 February 2022.
Despite providing more clarity on responsibility for remediation costs, Ryan said she did not expect the ruling to lead to an acceleration of remediation work.
“I’m not sure it will have a huge effect because one of the big problems in the sector at the moment is that there isn’t the supply of labour and materials in order to do this work. Trying to get a contractor to tender for work to remediate a building is really difficult at the moment because they’re just absolutely overrun,” she said.
She also pointed out that the act had a broad application in many different respects. This includes widening the scope of the Defective Premises Act 1972 to cover any work undertaken on a dwelling that may make it unfit for habitation, which can apply retrospectively for up to 30 years.
“It’s much wider than just fire safety. And I think local authority housing providers and many others are going to see the effect of this as well,” she said.
In a blog for the University of Oxford’s faculty of law, barrister David Sawtell of 39 Essex Chambers, who was instructed for the freeholder in the tribunal case, pointed out that the ruling demonstrates “the retrospective reach of remediation contribution orders”.
He wrote that under the Building Safety Act’s definition of ‘relevant defects’, it may be possible for leaseholders to recover historic service charge demands going as far back as 1992.
Johnstone agreed that “there’s definitely going to be a lot of historic works being looked at in this regard”.