First remediation contribution order made by First-tier Tribunal
We have waited in anticipation for the first decision of the First tier Tribunal (Property Chamber) (the FTT) following the commencement of certain provisions in the Building Safety Act 2002 (BSA) which are often collectively referred to as the 'leaseholders protections'. Sections 116 to 125 and Schedule 8 of the BSA protect certain qualifying leaseholders who own residential properties within qualifying buildings from having to pay the costs associated with remedying historical safety defects in the building.
One such protection relates to 'Remediation Contribution Orders' under Section 124 of the BSA. The FTT now has the power to order the return of certain payments made by leaseholders towards the costs of remediation of relevant safety defects in a building, or to require specified persons to pay the amounts instead of leaseholders, "if it considers it just and equitable to do so".
In this case, an application was issued in August 2022 by the leaseholders of 15 flats within a block at 9 Sutton Court Road, Sutton (the Block) under Section 124 of the BSA for a Remediation Contribution Order. The first Respondent was the landlord and developer, Inspired Sutton Limited (ISL). Although there were two other two Respondents, the second was later removed from the proceedings and the application against the third was dismissed. ISL took no part in the proceedings (save for the appearance of Mr Friis to apologise for failure to comply with directions) and therefore were debarred from taking any further part in the proceedings after an initial case management hearing in October 2022.
There was no dispute that the Block was a qualifying building for the purpose of Part 5 of the BSA and the Applicants sought an order for the return of contributions made by them in relation to the cost of remediation of relevant defects.
Section 20 major works consultation notices were served in September 2020 in relation to three elements of work:-
- The replacement of unsafe cladding and render on parts of the façade;
- Necessary rectification and replacement of balconies which were deemed a fire safety hazard;
- Repair to the communal heating system (although not relevant to the application itself).
In November 2020, an Improvement Notice was served on ISL which confirmed that certain work was required to the balconies to limit the fire risk.
The replacement of the cladding was covered by grant funding, but the funding did not cover the cost of the balcony replacement. Therefore, the application at the FTT focussed on the cost of replacing the balconies. The work to the balconies was carried out in 2021 with the costs being recovered through the service charge.
The final determination was made without an oral hearing. The President of the FTT, Judge Siobhan McGrath, found that the conditions for making of a Remediation Contribution Order had been met. The Block was found to be a relevant building under the BSA, the Applicants were interested persons as they held long leasehold interests and ISL was a relevant specified body corporate. The costs were also found to relate to relevant measures, being costs associated with remedying relevant defects, as the balconies constituted a risk to the safety of people in or about the building arising from the spread of fire.
The FTT took the view that in order to be satisfied that it was just and equitable to make a Remediation Contribution Order against ISL, it needed to be satisfied that the lessees paid for the cost of works which ought to have been met by ISL.
Paragraph 2 of Schedule 8 of the BSA states that no service charge is payable in respect of defects that the landlord is responsible for, and "responsible for" includes circumstances where the landlord is the developer. In this case, ISL were the developer and had always been the landlord. The FTT found that the conditions in the BSA were therefore met and with reference to paragraph 10 of Schedule 2, the balcony remediation costs should not be included in the service charge levied on the Applicants.
Consequently. ISL were ordered to refund to the Applicants the sum of £194,680.62, being the costs incurred and levied against the Applicants in respect of the remediation works to the balconies.
It is unfortunate that ISL were debarred from taking part in the action as this may have led to arguments which are now yet to be heard in future cases regarding the recoverability of the cost of remedying relevant defects. However, with many leaseholders and landlords facing complex and costly remedial works to relevant buildings, there are likely to be many more applications made to the FTT going forward.
A key issue raised by this decision is that the Tribunal ordered the landlord to repay sums that had been demanded before the BSA 2022 came into force, thereby raising the question of whether a remediation contribution order can be used retrospectively to order landlords to repay sums that were (or may have been) lawfully demanded at the date of demand.
The BSA has various different protections and limitations on costs recovery, as well as various circumstances in which costs can be payable by specified persons, and most of these have yet to come before the FTT for a decision and commentary on reasoning. However, subject to any appeal that may be made, there appears to be a firm and clear position set by the FTT that where a landlord or developer (or an associate) was responsible for relevant defects then a Remediation Contribution Order is likely to be granted to avoid the costs of remediating such defects being paid for by leaseholders via the service charge.