Leaseholders protected from costs of replacing unsafe cladding: the first Remediation Contribution Order is granted.

Background

In January 2023 the First Tier Tribunal ("FTT") made what is thought to be the first Remediation Contribution Order ("RCO") following an application by the leaseholders in August 2022 pursuant to s124 of the Building Safety Act ("the Act"). 

The leaseholders living in a high-rise block of flats in Sutton, paid through their service charge payments, for necessary remedial works in relation to defective cladding. They applied for an RCO to be reimbursed for the sum of £192, 635.64 in respect of the remediation of relevant defects under 15 separate leases.

The respondents listed on the application were: Inspired Sutton Limited (the freeholder and developer), Inspired Asset Management Limited (the parent company of the freeholder) and two directors of the freeholder. Inspired Sutton Limited ("the Freeholder") gave notice in 2020 to the leaseholders that remedial works were required to replace unsafe ACM cladding, unsafe balconies, and parts of the render on the façade.

The RCO

The FTT was satisfied of the following and so made the Remediation Contribution Order:

The building is a "relevant building" as it is self-contained and at least 11m high (as defined in s117 of the Act);

The Freeholder meets the definition of 'specified body corporate' (s124(3) of the Act);

The costs were incurred to remedy 'relevant defects' as they were in connection with the relevant works and caused a building safety risk (as defined in s120 of the Act);

It was 'just and equitable' to make the RCO ( as required by s124(1) of the Act , although the phrase is not defined). 

The applicants were successful, and the Freeholder was ordered to repay the amounts claimed on the basis that Schedule 8 (8) of the Act provides that no service charge is payable under a 'qualifying lease'  in respect of 'cladding remediation'. A qualifying lease (defined in s119 of the Act) is a  long lease of a single dwelling where the leaseholder is liable to pay service charge, granted before February 2022.The leaseholders' leases satisfied this condition

For the purposes of this section of the Act, 'cladding remediation' is defined as 'the removal or replacement of any part of a cladding system that – (a) forms the outer wall of an external system and (b) is unsafe.

The FTT took the view that it was just and equitable to make the RCO as the lessees had paid for the cost of the works which the Freeholder/Developer ought to have paid for.  Having reviewed invoices and proof of payments of the amounts claimed, the RCO was made.

The leaseholders, however, were not successful in joining the individual directors of the Freeholder as respondents to the proceedings as the Act clearly provides that an RCO can only be made against a 'specified body corporate or partnership'.

Significance of the Case

The RCO in this case has been used to allow Schedule 8 of the Act containing leaseholder protections  to apply retrospectively so that the leaseholders who have already paid for remedial works within their service charge can recover the monies paid. It is unclear in future cases how the FTT will interpret 'just and equitable' and if the same, somewhat narrow interpretation will be adopted.

It is worth noting that in this case, the Freeholder failed to comply with the Case Management Directions in submitting its full statement of case and so was debarred from defending the proceedings. In RCO applications where both parties are legally represented, it will be interesting to see the view the FTT will take when a Freeholder or Developer properly defends the application brought against them.

This case demonstrates that leaseholders are using the various protections drafted within the Building Safety Act to ensure they are living in safe buildings and are not held liable for the cost of remedial works in relation to any fire safety related defects. Freeholders and landlords should therefore remain alert to any subsequent FTT decisions in relation to RCOs

For more information regarding Remediation Contribution Orders or the Building Safety Act in general, please contact a member of Howard Kennedy's Building Safety Group here.