As fire safety in residential buildings remains a hot topic, we are frequently being asked to consider who is liable to undertake any relevant repairs under the Building Safety Act 2022 (BSA) if the leaseholders have exercised their right to manage (RTM) under the Commonhold and Leasehold Reform Act 2002 ("the CLRA 2002").
If the RTM has been validly acquired, the "management functions" under the lease are automatically transferred from the landlord to the RTM company. Management functions are defined as "functions with respect to services, repairs, maintenance, improvements, insurance and management".
Further, the landlord is not entitled to do anything which the RTM company is required or empowered to under the lease by virtue of the automatic transfer referred to above, save by agreement with the RTM company.
Whilst there is very little judicial determination in respect of the definition of "management functions", the Court has held that the reference to "empowered" suggests that "management functions" can be interpreted more widely than merely "obligations" or "duties" and includes "powers".
The CLRA 2002, therefore, transfers the landlord's power insofar as they relate to management of the block to the RTM company and the landlord is prevented from exercising those powers. It follows that this would include all powers to repair or maintain or improve the building in order to remedy fire safety defects.
Accordingly, if the lease places an obligation upon the landlord to repair and maintain any building and the RTM is validly acquired, those obligations would become the obligations of the RTM company and any other powers to improve the building or remedy any inherent defect would also become obligations of the RTM company.
Further, under the CLRA 2002, the landlord would be unable to exercise any of those powers without the consent of the RTM company.
Therefore, it is for the RTM company to organise, carry out and raise the funds (either through the service charge or the Building Safety Fund) for any remedial works required under the BSA.
Of course, there may be well be a shortfall between the costs of the works and the amount recoverable to undertake those works. At that stage, it is likely that the RTM company would look to the landlord to cover the shortfall via a Remediation Contribution Order (RCO).
The clear policy of the BSA is to shift the financial burden for the remediation of relevant defects from the leaseholders to the developer and, if not the developer, the landlord. As such, it is likely that the Tribunal may be minded to make a RCO against a landlord if it is "just and equitable" to do so, even where the RTM has been exercised.
This could result in a situation where a freeholder could be ordered to contribute towards the costs of remediation works over which it has no say or control.
As such, despite the RTM company having responsibility for remedying the defects, we would recommend that landlords seek to proactively work with the RTM company to ensure some control and visibility over the steps which are been taken, to protect their asset.
