Building Safety Act Update – Tribunal makes its first Remediation Contribution Order

March 23, 2023

By Brynmor Adams 

The Property Chamber of the First-tier Tribunal has published its first decision making a remediation contribution order pursuant to the Building Safety Act 2022.

The relevant parts of the Building Safety Act 2022 came into force on 28 June 2022. Sections 116 to 125 of the Act and Schedule 8 contain what are described as the “leaseholder protections”. There are three types of protection for leaseholders in the Act:

(i) a protection against liability to pay service charges;

(ii) the ability to obtain a remediation order requiring a landlord to carry out certain remediation works; and

(iii) the ability to obtain a remediation contribution order requiring a specified body corporate or partnership to contribute to remediation costs.

The case brought by the leaseholders of apartments at 9 Sutton Court Road, resulted in the Tribunal making a remediation contribution order pursuant to s. 124 of the Act. It is the first published decision of its kind. The Tribunal usually consisted of two Tribunal judges including the President of the Property Chamber, reflecting the novel nature of the application.

Inspired Sutton Limited (the first respondent) was a special purpose vehicle (SPV) created for the purposes of developing Sutton Court and then selling on the freehold. Following the Grenfell Tower tragedy, the second purpose was never achieved and it remained the freehold owner. It later transpired that works costing a total sum of some £3.7m would be required to replace cladding and balconies on the building.

Inspired Asset Management Limited (the second respondent) was a property investment business and the holding company for a number of special purpose vehicle subsidiaries including the first respondent. By the time of the proceedings it was in liquidation. The leaseholders had also named two directors of Inspired Sutton as respondents.

The first respondent did not put forward a substantive defence to the application, acknowledging frankly that it did not have one. It was debarred from defending. The second respondent was removed from proceedings as permission had not been sought by the Companies Court to bring the application against it. The two individual respondents were also removed as respondents, as a remediation contribution order can only be made against a body corporate or a partnership.

The Tribunal went on to conclude that the conditions for making a remediation contribution order were met. They were satisfied that the requirement that it be just and equitable to make an order was met. The reasoning for their conclusion was brief: paragraph 2 of Schedule 8 provides that no service charge is payable for defects for which the landlord is responsible. Inspired Sutton was the developer and landlord at the relevant time. It ought to have been responsible for the costs of remedying the building safety defects. There was no relevant mitigation or other considerations put forward.

The amount of the remediation contribution order was calculated simply by reference to the amount that each leaseholder demonstrated that they had paid. The total order was for over £194,000. Whether the leaseholders will ever recover that sum from a special purpose vehicle is another question!

This decision breaks new ground in the sense that it is the first published decision of the FtT where a remediation contribution order has been made. It is however potentially of limited value to practitioners. The applicant leaseholders were self-represented and the relevant respondent took no active role in defending the application. The guidance as to the key principles is therefore of potentially limited value.

The critical question for practitioners is how tribunals will approach the question of whether it is “just and equitable” to make an order. In paragraph 48 the Tribunal held: “We take the view that in order to satisfy the condition in this case we must be satisfied that the lessees paid for the costs of works which ought to have been met by Inspired Sutton”. This might be read as the Tribunal reading a limitation into s. 125, so that its application is limited to cases where leaseholders have paid service charges that they would not have had to pay after the Building Safety Act came into force. I do not however read the decision in that way. The Tribunal to my mind were simply concluding that the fact that such service charges had been paid, was sufficient in the immediate case to satisfy the justice and equity  test. Notwithstanding that it is a first instance case, this decision should not be read as precluding a wider application of s. 125 in the future. What will be more interesting is how the tribunal deal with contested applications of this type. We are likely to find out in the near future.