Building Safety Act 2022: retrospectivity by the back door?
Remediation Contribution Orders
The tragedy at Grenfell Tower in 2017 was a leading contributory to the birth of the Building Safety Act 2022 (“the BSA”). Part 5 of the BSA – in short – creates wide-ranging restrictions on the ability of owners and landlords of relevant buildings to charge leaseholders for the cost of remedying, or mitigating against the impact of, 'relevant defects'. It also provides for various other mechanisms for both ensuring that relevant work is undertaken as well as the recovery of charges incurred (or to be incurred) from other (in some cases responsible) parties.
A Remediation Contribution Order (“RCO”) is an order created by section 124 of the BSA. It requires a “specified body corporate or partnership” to contribute towards the costs of carrying out remediation works to a “relevant building” where it is considered "just and equitable" to do so.
RCO's are at least partly retrospective in effect, having a 30 year limitation period, meaning that potentially any relevant costs incurred since the end of June 1992 might be within the potential scope subject to the question of the meaning of "just and equitable".
Until the very first RCO had been made by the First Tier Tribunal ("FTT"), there was no real guidance as to the circumstances in which an Order might be made given that the key service charge restrictions currently in force are not specified by the BSA as having retrospective effect.
The First FTT RCO case
The application was brought by 18 leaseholders of properties within a high-rise self-contained block of flats, who sought an RCO against the freeholder and developer (the First Respondent) of the building, for the sum of £192,635.64. (The Second Respondent was the parent company of the First Respondent and was removed from the proceedings in December 2022; the application was dismissed against the Third Respondents as they did not fall within the definition of a party against whom an RCO can be made.)
Under Paragraph 2 of Schedule 8 to the BSA, no service charge is payable by the leaseholders for remedial works to remedy or mitigate against the potential impact of relevant defects for which the landlord is responsible (or is "associated with" the party responsible).
The application was made on the following bases:
- The applicants had made service charge payments for the remediation of relevant defects prior to 28 June 2022 (i.e. before the coming into force of the relevant service charge restrictions), and sought to be reimbursed for those payments.
- The service charge costs fell under Schedule 8 to the BSA.
- It was just and equitable for an order to be made in their favour.
Notably in this case, the First Respondent did not defend the claim. As a result, the Applicants applied to the Tribunal for the First Respondent to be debarred from further taking part in the proceedings, and the Tribunal allowed the application.
The Applicants were successful and the FTT made a Remediation Contribution Order against the First Respondent for £192,635.64.
The Tribunal reached this decision (without having heard any legal argument, the decision being made on paper and without any defence opposing the application) for the following reasons:
- All of the relevant definitions contained within the Act were met.
- The costs of the remediation works were factored into the service charge and paid by the Applicants but should not have been per Paragraph 2 of Schedule 8 to the Act.
- It was just and equitable to make the order.
As the First Respondent was debarred from further engagement in the proceedings, an appeal of the Tribunal’s decision is unlikely (if possible at all).
With this being the first decision to come through the FTT, the landscape of RCO's is yet to be fully shaped.
This case throws up at least two interesting points.
Firstly, the service charge for the remediation works was incurred and paid prior to 28 June 2022, when the relevant provisions of the Act came into force. By allowing the application and making the RCO against the First Respondent, the FTT in effect retrospectively applied the BSA to the service charge payments. This despite the wording of Schedule 8 to the BSA not stating that (a) it was designed to have retrospective effect and (b) landlords are required to refund service charges paid before the coming into force of the relevant provisions of the BSA where they fall foul of the new service charge restrictions.
Second, it is still unclear when it will be "just and equitable" to make an RCO against a landlord or associated entity. At paragraph 48 of its decision, the FTT stated:
"We can only make a remediation contribution order if we consider it just and equitable to do so. We take the view that in order to satisfy the condition in this case we must be satisfied that the lessees paid for the cost of works which ought to have been met by Inspired Sutton Limited".
However, whilst clearly not establishing a general rule for all RCO cases, we are not at all sure that this is right given that, at the time the charges were raised, the service charge restrictions created by the BSA were not in force. At that time, could it really be said that the cost of the works should have been met by the First Respondent? It must therefore be at least arguable that the wrong test was applied (or if the right test were applied then the result reached was wrong).
It will clearly be necessary for there to be properly argued and fully heard cases before a pattern can be properly established and before conclusions can really be reached about whether the FTT is intent on allowing, in effect, retrospectivity into the service charge restrictions 'by the back door' and without Government having clearly legislated that effect.
In the meantime, Landlords should therefore be wary of the potential applications that may be brought against them, where service charge has been paid prior to 28 June 2022 and used for "relevant measures" relating to "relevant defects" for the purposes of the BSA.