With the swathe of amendments that have been introduced since the Building Safety Act 2022 (BSA 2022) came into force on 28 June 2022, what elements of remediation can (or more importantly, cannot) be passed to leaseholders?
Paragraphs 8 and 9 of Schedule 8 of the BSA 2022 (amongst the first provisions to come into force) excludes qualifying leaseholders from paying service charges in respect of:
i. cladding remediation; and
ii. save in limited circumstances, the costs of legal or professional services relating to the liability (or potential liability) of a relevant defect.
In the recent decision of Leaseholders of Tower Bridge Road v Assethold Limited (LON/00BE/LSC/2023/0335) the First-tier Tribunal (Property Chamber) (FtT) has given guidance on the scope of paragraph 9, adding to the protective case law emerging in leaseholders' favour.
The leaseholders of 171 Tower Bridge Road, a six-storey, 18.12 metre high building, applied to the FtT for a determination, under section 27A of the Landlord and Tenant Act 1985 (the 1985 Act) that service charges demanded by their landlord, Assethold, in the sum of £42,478.80 were not payable due to the protections afforded by the BSA 2022.
The demand were for costs of a “Hydrock Fire Safety Report and related Investigations” plus associated management fees. The Hydrock report was found to be a Fire Risk Appraisal of External Walls; it recommended significant remedial works relating to fire performance, façade configuration and fire strategy/fire hazards.
The FtT rejected the landlord's submissions that the costs of the Hydrock report did not fall within the scope of paragraph 9 on the basis that they could not have been incurred in respect of the landlord's liability or potential liability. The decision emphasised the breadth of the "potential" liability scope – which encompasses liability under the BSA 2022, civil (including contractual) liability, liability arising from statutory obligations and criminal liability. The decision suggests landlords cannot claim that they do not know they have liability until after relevant defects are identified in a report.
The FtT held the wide scope of the words "in connection with a relevant defect" in paragraph 9(2), as being wider than meaning "for" or "because of" a relevant defect. As summarised by the FtT: "If the report crystalises the fact that there is liability or potential liability because it confirms the landlord’s suspicions that a relevant defect exists, then it is a report obtained ‘in connection with a relevant defect’."
The FtT ordered that the costs of the proceedings were not be to passed to the leaseholders, either through the service charge under section 20C of the 1985 Act, or as an administration charge under paragraph 5A of Schedule 11 of the Commonhold and Leasehold Reform Act 2002. The FtT also noted that paragraph 9 would apply to the legal and professional fees of the proceedings.
This decision is another foothold in the broad judicial and statutory scheme that is establishing itself to limit the costs of remediation from being passed to those who are at risk of the relevant defects, i.e. the leaseholders. In the words of the FtT Schedule 8 "provides what is being called by practitioners a ‘waterfall’ of leaseholder protections" – however, it does not stop there.
The Upper Tribunal's decision in Adriatic Land v Hippersley Point, demonstrated that leaseholders are protected against paying for costs of dispensation in relation to cladding remediation works since 28 June 2022. This complemented the outcome of in Triathlon, which established that costs incurred prior to 28 June 2022 are recoverable under a remediation contribution order. Read our previous articles on both cases here: Adriatic Land 5 Ltd v Long Leaseholders at Hippersley Point [2023] UKUT 271 (LC) and Triathlon Homes LLP v Stratford Village Development Partnership. Permission to appeal both Hippersley Point and Triathlon to the Court of Appeal has been granted and both have been listed to be heard in March 2025.
With the recent coming into force of section 116 of the Leasehold and Freehold Reform Act 2024 on 31 October 2024, inserting section 124(2A) into the BSA 2022, confirming that the list of costs recoverable under a remediation contribution order can be altered or added to by the Secretary of State, the process of "plugging the gaps" is in full swing.
Altogether, this sends a clear message: the cost of remediation is not the financial responsibility of leaseholders, and the scope of protection for leaseholders (hand-in-hand with the recoverability regime in place) is wide.
