Is Schedule 8 of the Building Safety Act 2022 retrospective?: An analysis of the first Upper Tribunal decision under the Act
In the first decision of the Upper Tribunal (“UT”) on the application of the Building Safety Act 2022 (“BSA”), the UT had to consider the interrelationship between the BSA and the dispensation from consultation requirements under the Landlord and Tenant Act 1985 (“the 1985 Act”)). The decision was that of Adriatic Land 5 Ltd v Long Leaseholders at Hippersley Point  UKUT 271 (LC) (“Hippersley Point”).
Adriatic Land 5 Limited (“Adriatic”) was the freehold owner of a 10 storey mixed-use building (a higher risk building in accordance with the BSA) containing a commercial unit on the ground floor and 32 flats on upper floors, let on long leases, at Hippersley Point in Abbey Wood, London.
Section 20 of the 1985 Act requires landlords to consult leaseholders who pay service charges before a landlord can carry out qualifying works or enter into qualifying long-term agreements for the provision of services. The landlord can make an application for an order from the FTT that compliance with all or part of the consultation requirements be dispensed with.
Adriatic made an application for dispensation with the consultation requirements in respect of remediation works required to the external façade of the building and in respect of interim fire safety measures. In December 2021, before the BSA came into force, the FTT granted Adriatic dispensation from the consultation requirements. The FTT also made an order under section 20C of the 1985 Act, whereby Adriatic was prevented from recovering any of its costs incurred in connection with the dispensation application by way of service charges from the leaseholders.
Adriatic sought a review of this decision and the FTT produced a revised decision, reversing the section 20C order and instead imposing a condition to the grant of dispensation that Adriatic should not be entitled to recover its costs of the dispensation application, which changed little in effect. Adriatic appealed to the UT.
The UT held that the costs condition could not be upheld for the following reasons:
- In the original decision, the FTT stated that its decision to grant dispensation was unconditional and the FTT had not given the parties the opportunity to make any submissions on whether the costs condition should be imposed prior to the revised decision. In addition, none of the parties had sought the imposition of the costs condition.
- The FTT had made it clear that the leaseholders had failed to establish any prejudice to them by reason of a failure to consult. Accordingly, the reasoning for imposing the costs condition based on prejudice suffered by the leaseholders was fundamentally flawed.
- There is no general principle that a costs condition should be imposed on any dispensation application.
- The UT held that the FTT's decision could not stand. The reasoning was sufficiently flawed to take the decision outside of the legitimate scope of the discretion which the FTT was exercising.
However, the grounds of the appeal to the UT were widened to consider the point as to whether the costs of the dispensation application were covered by paragraph 9 of Schedule 8 of the BSA. Paragraph 9 of Schedule 8 provides that professional and legal costs relating to a relevant defect cannot be recovered from qualifying leaseholders. The decision in Hippersley Point is perhaps most significant as it provides clarity as to the approach the Tribunal/Courts will take as to the retrospectivity of Schedule 8 of the BSA. As it is an UT case it will bind (unless it is overturned on appeal) the FTT.
Schedule 8 of the BSA contains protections for long leaseholders, or classes of long leaseholder, designed to stop certain service charges relating to building safety defects from being passed to them. These protections only apply where a building is at least five storeys or 11 metres high and contains at least two residential units.
A source of uncertainty since the BSA was enacted, was the extent to which these service charge protections were retrospective and whether they applied to sums incurred or demanded prior to the commencement of the relevant sections of the BSA on 28 June 2022. A further ambiguity was whether service charges for relevant building safety defects which were accrued and paid prior to this date would need to be repaid by landlords.
This point was partially considered in Hippersley Point. At its most basic level, the decision in Hippersley Point confirms that applications for dispensation, relating to relevant building safety defects, will be caught by the restriction on recovering legal and professional fees contained within Schedule 8 of the BSA, where that applies. This must be kept in mind by landlords when pursuing what may be a costly application for dispensation.
However significantly, it was held that the effect of paragraph 9 of Schedule 8 was that relevant costs incurred prior to 28 June 2022, were no longer payable from that date; the introduction of the BSA effectively provided qualifying leaseholders with a defence, even where sums had been due before the commencement of the BSA.
While the UT highlighted that this was not the same as the Schedule 8 protections being retrospective (the language used in this section is not explicit that such a result was intended, in contrast to some other parts of the BSA), the practical effect of the decision is that in certain circumstances landlords will be prevented from recovering sums due and not paid prior to this date.
This has some potentially unfair consequences; landlords who did not enforce the payment of relevant services charges due to the uncertainty as to the position prior to June 2022 cannot do so, while leaseholders who paid promptly, are in a less fortunate position than those who didn’t pay, even where at the time there were no legal grounds for withholding the same.
What the decision does not do however, given the finding that the Schedule 8 protections are not fully retrospective, is provide leaseholders with a route (in addition to those they already have) to challenge sums demanded and paid for relevant building safety measures prior to 28 June 2022.