Test Case: enforcing legal protections for leaseholders

New leaseholder protections in the Building Safety Act 2022 came into force on 28 June 2022, with new financial protections for leaseholders in buildings above 11 metres or five storeys, those with historical safety defects.

The new Building Safety Act 2022 was introduced following the Grenfell Tower disaster in 2017 which killed 72 people. It is one of several pieces of legislation and guidance being implemented by the Government to enhance Building Safety following the May 2018 Hackitt Review, containing recommendations on fire safety and building regulations by Dame Judith Hackitt.

Secondary legislation accompanying the Act came into force on 21 July 2022, providing further detail and guidance on how the measures in the Act will work and ensuring that the full range of leaseholder protections have their full effect.

The guidance provides leaseholders with a plain English explanation of the implications of the leaseholder protections in the Building Safety Act.

The government says it is committed to protecting leaseholders from the “unfair burden of remediation costs” to make their units safe. The Act ensures that those who built defective buildings take responsibility for remedying them, that the industry contributes to fixing the problem, and that leaseholders are protected in law from crippling bills for historical safety defects.

The Act makes it clear that developers must pay to fix buildings they had a role in developing or refurbishing, even where they no longer own the building. The Act also ensures that building owners who are or are associated with the developer must pay for the remediation of historical safety defects.

The courts have been granted new powers to extend liability to associated companies. This, the government says, ensures that civil cases for claims against defective buildings can be brought against companies associated with a developer, preventing the use of complex corporate structures to avoid liability.

New legal protections for leaseholders

The Act contains various new leaseholder protections aimed at leaseholders in multi-occupied residential buildings, preventing them having to bear the costs involved in remediating historical building safety defects.

The Act limits the amount of service charge costs payable by leaseholders to repair defects and gives leaseholders the right to seek a “remediation order” from the Property Tribunal requiring the building owner landlord to carry out certain works.

Leaseholders will also have the right to seek a “remediation contribution order” requiring landlord owners to contribute to costs that they may already have incurred, or will incur in the future, to repair building safety defects.

An early test case

The First Tier Tribunal (The Property Chamber) has made the first remediation contribution order under the Building Safety Act 2022. The Tribunal ordered a landlord to repay amounts paid by the leaseholders of a multi-let building under the service charge, which were used to fix historic fire safety defects.

This case involved a high-rise block in Sutton containing 15 leaseholders in flats with 999 year leases. The landlord – also the developer of the building – was aware that the cladding and balconies on the building were fire hazards and appointed contractors to carry out the necessary remediation work.

The landlord kept the leaseholders informed about the costs of the works but planned to apply for a grant from the local authority to cover the costs of the work. The landlord subsequently successfully secured funding for the remedial works to the main building cladding, but the balconies were excluded from the grant. Subsequently the cost of this work was claimed from the leaseholders under the annual service charge.

Property Tribunal

The leaseholders took the matter to the Property Tribunal arguing that the cost for the balcony repairs came within the service charge limits specified in the Building Safety Act. The leaseholders’ representation to the Property Tribunal applied for a “remediation contribution order” to get back the money they had already paid under their service charges.

A remediation contribution order

The First Tier Tribunal (Property Chamber) made out its first “remediation contribution order” under the Building Safety Act 2022 in this case, likely to be the first of many. The Tribunal ordered the landlord to repay the amounts it had charged to the leaseholders of the multi-let building under their service charges.

The remediation contribution order was made out in favour of the leaseholders. It required that the developer-landlord to repay the leaseholders for the balcony repair costs billed under the annual service charge.

According to the judgment, the Tribunal had considered the full details of the Building Safety Act, and had agreed that both the building and the defects claimed for by the leaseholders fell within the Tribunal’s remit as they relate to a fire safety risk.

The Tribunal concluded that the defects involving the balconies were the responsibility of the landlord or its “associates” and not payable under the service charges. So the leaseholders were entitled to be repaid.

As part of their claim on developer-landlord and its parent company, they had joined in to their application two individuals: two directors of the developer-landlord organisation. In this respect the Tribunal found that individuals could not be joined in the action as the Act only applies to a “body corporate or partnership”, and not to individuals.

The lessons in this case:

This case is perhaps the first of several expected resulting from the safety remedial actions in relation to high rise blocks. In this case the claims brought by the leaseholders were successful, seeing the Tribunal exercising its powers under the Building Safety Act for the first time.

The judgment sends out a clear message and warning to developers and landlords that charging leaseholders for remedial works, work brought about by their own omissions and previous breaches of safety standards, will not be tolerated.

A remediation contribution contract

The government has published a “developer remediation contribution contract” with a deadline of 13 March 2023 for developers to voluntarily enter into that contract. Under this contract they will agree to remediate unsafe residential buildings that they have been connected with over the last 30 years, and further, reimburse any tax payer money already spent on doing so.

The developer remediation contract requires developers who sign it to “identify, assess and remediate and/or mitigate buildings as soon as reasonably practicable, and to report to the department on progress quarterly. It also requires developers to take steps to keep residents informed about the progress of the works.”

It is said that if developers enter into remediation contribution contracts on a wide scale there may in future be less need for leaseholders to resort to The Property Tribunal to enforce the protections offered under the Building Safety Act.

The government has estimated that under the remediation contract developers will commit £2 billion to fix buildings they have developed or refurbished over the past 30 years. This is additional to the Building Safety Levy payable by developers and will be chargeable on all new residential buildings in England requiring building control approval. The government has estimated that the “remediation contract” and Building Safety Levy will raise £5 billion to make buildings safe.