LANDMARK JUDGEMENTS FROM THE COURT OF APPEAL
Court of Appeal clarifies leaseholder protections and remediation contribution orders under the Building Safety Act 2022
The court of appeal has recently delivered two landmark judgements interpreting the Building Safety Act 2022 (BSA), providing crucial guidance on the scope of leaseholder protections and the operation of remediation contribution orders (RCOs). These decisions, arising from the cases of Triathlon Homes LLP v Stratford Village Development Partnership and Adriatic Land 5 Ltd v Long Leaseholders at Hippersley Point, have significant implications for developers, landlords, leaseholders and those involved in the management and transaction of residential buildings affected by historic safety defects.
In Triathlon Homes LLP v Stratford Village Development Partnership, the court of appeal considered the ability of the First-tier Tribunal (property chamber) (FTT) to grant RCOs against developers and their associates for costs incurred both before and after the commencement of section 124 of the BSA. Section 124 empowers the FTT to require developers, landlords, and their associates to contribute to the costs of remedying relevant building safety defects, provided it is just and equitable to do so. The developer, SVDP, and its parent company, Get Living, challenged the FTT’s decision to grant RCOs covering costs incurred prior to the BSA’s enactment and questioned the tribunal’s application of the just and equitable test. The court of appeal dismissed the appeal, upholding the FTT’s approach and confirming several key points:
The court reinforced that the BSA’s policy is to place the primary burden of remediation costs on developers and their associates, regardless of whether a respondent was involved in the original works or acquired the developer at a later stage.
The BSA’s policy is to place the primary burden of remediation costs on developers and their associates, regardless of whether a respondent was involved in the original works or acquired the developer at a later stage.
The fact that remedial works had already been funded by the Building Safety Fund did not preclude the granting of an RCO. The fund is intended as a last resort and there is a public interest in ensuring that the fund is reimbursed as quickly as possible. Recipients of such funding are contractually obliged to use all reasonable endeavours to recover costs from third parties and to reimburse the fund.
The court clarified that the motive and identity of the applicant for an RCO are not relevant, provided the statutory criteria are met and there is no evidence of malice or bad faith.
There is no obligation to pursue other contractual or tortious claims before seeking an RCO. The RCO regime is designed to ensure that funding is available promptly, pending the resolution of more traditional claims.
Importantly, the court held that RCOs can be made in respect of costs incurred before section 124 came into force. This ensures that leaseholders who have already paid for remediation works, or management companies left with unrecoverable costs due to the operation of schedule eight, are not left without a remedy. The just and equitable requirement acts as a safeguard against unfairness in such cases. The court drew support for its conclusions on retrospectivity from the supreme court’s decision in URS Corporation v BDW Trading, further solidifying the legal basis for retrospective RCOs.
In Adriatic Land 5 Ltd v Long Leaseholders at Hippersley Point, the court of appeal examined whether the BSA prevents landlords from recovering service charges for costs incurred before the relevant provisions of the Act came into force. The dispute centred on paragraph nine of schedule eight to the BSA, which restricts the recovery of legal and professional costs relating to building safety defects from leaseholders with qualifying leases.
Adriatic Land sought dispensation from the consultation requirements under the Landlord and Tenant Act 1985, which is necessary when a landlord intends to carry out major works for which a service charge is payable.
Adriatic Land sought dispensation from the consultation requirements under the Landlord and Tenant Act 1985, which is necessary when a landlord intends to carry out major works for which a service charge is payable.
The FTT initially granted dispensation but imposed a condition that Adriatic Land could not recover its costs.
On appeal, the upper tribunal found this condition to be legally incorrect but concluded that, following the commencement of the BSA, such costs were nevertheless irrecoverable from leaseholders of qualifying leases under paragraph nine of schedule eight.
The court of appeal upheld the upper tribunal’s decision, providing the following clarifications:
The court confirmed that paragraph nine is wide-ranging, covering legal and professional costs incurred by landlords in relation to their liability (or potential liability) for relevant defects. This includes costs associated with applications for dispensation from consultation requirements where those applications relate to works addressing relevant defects.
The majority of the court held that paragraph nine does not operate retrospectively to extinguish landlords’ rights to recover service charges for costs incurred before 28 June 2022 (the commencement date for the relevant BSA provisions). If a landlord had already incurred costs and issued a service charge demand before that date, the right to recover those sums is unaffected by the BSA. However, from 28 June 2022 onwards, no service charge is payable under a qualifying lease for such costs, regardless of when the underlying costs were incurred, provided the charge had not already been paid.
The court addressed arguments under article 1 of protocol 1 to the European Convention on Human Rights (A1P1), concluding that the BSA’s approach – while interfering with landlords’ contractual rights – was a proportionate response to the building safety crisis and did not violate A1P1.
The court of appeal’s judgements provide much-needed clarity on the operation of the BSA, reinforcing the act’s policy objectives and offering guidance on the allocation of liability for building safety defects.
These judgements make clear that the central policy of the BSA is to provide substantial protection for leaseholders from the financial consequences of historic building safety defects, allocating responsibility to those best placed to bear it – namely, developers, landlords, and their associates.
The court’s approach to the just and equitable test in RCO applications signals that developers and landlords will face significant challenges in resisting such orders, especially as defences based on the availability of grant funding or ongoing claims against contractors are likely to carry little weight. For those involved in property transactions, the decisions highlight the need for rigorous due diligence on historic projects, as contractual provisions seeking to limit liability or reallocate risk may be overridden by the statutory requirements of the BSA.
The lack of sympathy for arguments based on changes in ownership is expected to result in increased scrutiny during corporate transactions involving development companies, with parties needing to consider the risk of RCOs in respect of buildings completed up to 30 years ago.
The court of appeal’s judgements provide much-needed clarity on the operation of the BSA, reinforcing the act’s policy objectives and offering guidance on the allocation of liability for building safety defects. Developers, landlords and their advisors must be proactive in managing potential exposure to RCOs and ensure compliance with obligations to recover contributions from liable parties, while leaseholders can take comfort in the robust protections now confirmed by the courts.