What is likely the first remediation contribution order that has been made under the new Building Safety Act 2022 (the Act) was delivered on 13 January 2023 and the content became available to the public last week (available here).
The case involved an application by the leaseholders of a high-rise self-contained block of flats in Sutton against the freeholder company (who was also the developer), the parent company of the freeholder (in liquidation) and two directors of the freeholder to repay service charge payments made by the leaseholders totalling £192,635.64. The service charges having been used in part to pay for remedial works necessary to remove defective cladding.
The applicants were ultimately successful but only against the freeholder. Some of the interesting features of this case, which could serve as signs of how future applications for these orders will be treated, are highlighted below:
- The freeholder was a special purpose vehicle (SPV) that had been set up for the construction of the property in 2017. It had only continued to be the freeholder at the time of the application because it had been unable to find a purchaser for the property.
- There was no dispute that the cladding materials/design was unsafe. It was the freeholder who had initiated the remedial works.
- The freeholder had carried out other works to improve the property that were not related to removing the combustible materials and had included these in one service charge to the leaseholders. The applicants were only entitled to recover that part of the service charge which related to the fire safety works.
- The joint liquidators for the parent company relied upon provisions in the Insolvency Act 1986 that prevent any legal action being taken against the company without first obtaining the leave of the court. The applicants opted not to seek this permission and the liquidators lodged a successful application to be removed from the proceedings, although the tribunal did not go so far as to award the liquidators their legal costs.
- Neither of the two directors named as respondents put in a position statement, although one did attend the hearing to assist the tribunal. Despite no defence being put forward on behalf of the directors or freeholder, the tribunal dismissed the application against the directors as Section 124 (2) of Act states that a "remediation contribution order" can only require a body corporate or partnership to make payment, not an individual.
- The tribunal's decision was largely one by default as no defence was advanced, nevertheless it confirmed that it still had to satisfy the following before making the order:
- The property in Sutton was a relevant building under the Act
- The applicants were all interested parties with legal interests in the property
- The freeholder was a relevant specified body corporate
- The costs claimed related to the remediation of external defects and balconies that constituted a "building safety risk" as defined in the Act
- The freeholder (as landlord) was the party responsible for these defects
- The Act provides that no service charge is payable for defects that are the landlord's responsibility
- Lastly, that it was just and equitable to make the order. Although there was no explanation on how the tribunal came to this view, the written decision simply stating that the tribunal thought it just on this occasion
In summary, this seems to have been a relatively straightforward exercise for the tribunal in that it did not have to deal with many of the issues that commentators have highlighted may arise if an application for such an order were to be defended or if parties other than the current landlord were added to the roster of potential respondents. The tribunal did not have to concern itself with some of the powers that the new Act is meant to provide to enable claims to be pursued against parties who no longer have a direct interest in the property.
It is also uncertain whether the leaseholders will actually recover the money awarded given the red flags the case revealed about the freeholder's capacity to pay. However, the order would at least be useful as proof of debt if the freeholder entered insolvency.