A landmark decision on remediation contribution orders under the Building Safety Act 2022

This is the first substantive decision relating to remediation contribution order (RCO) under section 124 of the Building Safety Act 2022 (BSA) and provides a valuable insight on the interpretation of Section 124 of the BSA and how tribunals may approach the 'fair and reasonable' tests under the BSA generally.

Background

Triathlon made an application before the First Tier Tribunal (FTT) relating to the cost of rectifying fire related defects at East Village, the former Athletes Village for the London 2012 Olympic Games (the Site).

The Site was owned and developed by Stratford Village Development Partnership (SVDP), a special purpose vehicle. Following completion of London 2012, SVDP was sold and is now a subsidiary of Get Living plc (Get Living). Triathlon is the long leaseholder of all or part of 5 blocks of apartments within the Site (the Properties). The Properties were subsequently leased to individuals.

Following the Grenfell Tragedy, East Village Management Limited (EVML), the management company of the Site, carried out several inspections. Those inspections identified a number of building safety defects. As a result, a waking watch was implemented while the remedial scheme was designed and carried out.

Triathlon's share of the remedial works and professional fees was estimated at some £16 million (the Remedial Works Cost). In addition, Triathlon sought reimbursement of expenditure already incurred through services charges paid to EVML in respect of interim fire safety measures and investigative and preparatory works, in the sum of £1.058 million. Triathlon also sought an additional £153,538 in respect of service charges previously demanded by EVML, which Triathlon had not yet paid, and £613,899 in respect of costs and anticipated costs which had not yet been the subject of service charge demands (the Additional Cost).

Triathlon applied for RCOs against SVDP (in its role as developer) and Get Living plc (in its role as the parent company of SVDP) for both the Remedial Works cost and the Additional Costs.

The Decision

The Court agreed with Triathlon and made five RCOs (one in respect of each of the Blocks effected by the fire safety issues) against SVDP and Get Living in respect of:

• £16 million to EVML in respect of the Remedial Works Cost;
• £767,438 to EVML in respect of the costs of other remedial measures including the future servicing and decommissioning works; and
• £1 million to Triathlon in respect of the Additional Costs.

We consider a couple of the key points to take away from this case in turn below.

An RCO can be made in relation to costs incurred before the commencement of Section 124 of the BSA (i.e., before 28 June 2022).

SVDP and Get Living argued that Section 124 could not apply to costs incurred before the enactment of the BSA because to do so would give retrospective effect to Section 124.

Triathlon argued that the intention of the BSA (and Section 124) were backward looking and that was reflected in the Parliamentary Explanatory Note which confirmed that the intention was to enable leaseholders to recover sums already paid out before enactment.  Triathlon argued that it would be nonsensical to limit the scope of Section 124 by reference to the date the remedial works were done or paid for, rather than applying it generally to the defects which caused the BSA to be enacted. Therefore, it was entitled to recover costs incurred before the enactment of Section 124.

The Court agreed with Triathlon and confirmed that the intention of Section 124 was to apply to all costs incurred and included those cost incurred before 28 June 2022 (the enactment date) and that was evident from the plain express language used in Section 124 and the Parliament Explanatory Note. The court also noted that:

"[the BSA] provides for wholesale intervention in and beyond normal contractual relationships in order to transfer the potentially ruinous cost of remediation from individual leaseholder to landlords, and to distribute it between landlords and developers and their associates according to criteria which Parliament has decided are necessary and fair"

The meaning of "just and equitable" within Section 124 of the BSA

Given the infancy of the BSA and indeed, Section 124, the test of "just and equitable" had not previously been considered by tribunals. In fact, there is little guidance at all, in the BSA or otherwise beyond stating the power to order an RCO is at the discretion of the tribunal.

In Triathlon, the Court stated that in deciding what is just and equitable it is to be decided upon the specific facts of each case. In this case, relevant considerations were:

1. The policy of the BSA is that the primary responsibility should fall to the developer and others who have liability to contribute may pass on that cost to the developer (para 265).  Therefore, there was a strong argument that it was just and equitable to make an order against SVDP given the fact that it was the developer of each of the Blocks and was ultimately responsible for the presence of the relevant defects. This was in accordance with the hierarchy liability created under the BSA.
2. As Counsel for the Respondents recognised in his submissions; it is not an attractive proposition that the public should pay for the remedial works in circumstances where a "well-resourced commercial entity" could be made liable under the BSA (para 270). The fact that funding is or maybe available via the Building Safety Fund is not a "good reason why SVDP and/or Get Living should not be subject of an RCO" (para 276). By ordering an RCO against Get Living it would essentially guarantee the funding for necessary remedial works.
3. The BSA permits RCOs against Developers and "those associated with developers" and therefore an RCO against Get Living was prudent. It was also supported by the fact that SVDP relied on Get Living entirely for finance and therefore allows an RCO to reach the deepest pockets (para 266).
4. The Court did acknowledge that "the BSA erodes and elides corporate identity and deprives it of some of its main advantages, but it does so for specific purposes within specific limits" (para 252). A RCO can, within limited bounds, circumvent the protection a limited company or group structure is intended to be afforded where it is required to ensure leaseholders are properly protected as envisaged by the BSA.
5. The motivations of Triathlon (or any claimant) – argued to be escaping their only obligation to make payment - need not be considered, and the court confirmed that "we do not need to make any findings about why it seeks these orders. Parliament has made them available, and Triathlon is entitled to take advantage of them" (para 246). This principle coincides with the effect of paragraph 2 of Schedule 8 of the BSA, that leaseholders are fully protected against any remedial costs if the responsibility of the defects rest with the landlord or superior landlord.
6. The fact that Triathlon had possible recourse directly against third parties (by virtue of direct agreements, collateral warranties or otherwise) did not need to be considered. Section 124 is a new independent remedy and is not fault based which cannot be contracted out of by the parties. Therefore, any other potential remedies available to Triathlon should not disqualify or delay it from claiming an RCO (Para 261).
7. The intention of Parliament (and therefore the BSA) is that Triathlon should not need to become embroiled in complex, multi-handed, expensive, and lengthy litigation before it can obtain a remedy and undertake the necessary remedial works.

Further Key Points

• The case highlighted that despite the complexity and significance of the case, Section 124 of the BSA allows RCOs to be made by the FTT alone and does not need to transfer to the Upper Tribunal.
• It is noted that any interpretation of the BSA which goes away from the very purpose of the BSA (i.e., to fully protect leaseholders) would create inconsistencies in the operation of the legislation. As such, the courts will seek to give effect to the intention of the BSA.

Conclusion 

The Tribunal's discretion to order an RCO is evidently wide reaching and can, in certain instances, sidestep corporate structures to ensure "those associated with the Developer's" are held accountable. Equally, an RCO can apply to all costs incurred and includes those cost incurred before 28 June 2022. While confirmed in the above case, neither should come as a surprise given the express wording of Section 124 of the BSA.

As to what is just and equitable, that is to be determined of the specific facts of each case. However, a developer is still considered primarily responsible, and liability is unlikely to be avoided even where the claimant/leaseholder has alternative claims against third parties, access to the Building Safety Fund or has improper motives.