In what is a test case, laying down some useful precedent, the First-Tier Tribunal (FTT) has ruled that a property company and its subsidiary (the original developer) should contribute approximately £16 million to the cost of remediation work in respect of fire safety defects found in five residential buildings (the Blocks).
The judgment provides useful guidance as to the factors that may be considered relevant in deciding how to apply S.124(1) Building Safety Act 2022 ("BSA") and the "…just and equitable…" test, when making a Remediation Contribution Order (RCO).
The application for a Remediation Contribution Order
The applications to the FTT were made by Triathlon Homes LLP which owned the affordable and social housing in the Blocks. The remaining privately rented units were owned by subsidiaries of Get Living Plc, a real estate investment trust. Get Living was also the owner of the original developer of the Blocks, Stratford Village Development Partnership (SVDP), which was initially incorporated by the Olympic Delivery Authority. In November 2020, the management company for the Blocks (“EVML”), a company owned jointly by Get Living and Triathlon, discovered serious fire safety defects in relation to both the design and the construction of the external cladding. A remediation programme was commenced with the work funded by grants made to EVML from the Building Safety Fund. The total cost of the work was expected to exceed £24.5 million.
Triathlon sought RCOs for £16.03 million (representing Triathlon’s share of the total remediation costs incurred, or to be incurred, by EVML in remedying the defects) together with other additional costs incurred by Triathlon. The applications were made against SVDP and against Get Living, its parent, because it believed SVDP would be unable to comply with such orders from its own resources.
Under s124 of the BSA, the FTT has jurisdiction, on the application of an "…interested person…", to require a current or former landlord or developer, or someone associated with them, to contribute towards the costs of remedying "…relevant defects…" in a "…relevant building…" if it is "…just and equitable…" to do so (a RCO). The requirements of an "interested person" (i.e., Triathlon), "relevant building" and "relevant defect" were met. The key issue was whether it was "just and equitable" for the RCO to be made.
SVDP/Get Living argued that the remedial works were now funded and underway and that the making of a RCO was therefore unnecessary. They argued that Triathlon should be left to its contractual and common law remedies against the contractors and consultants involved in the design and construction of the Blocks, with liability being apportioned by the Court on normal principles.
The decision of the First-Tier Tribunal
The FTT reiterated that the power to make a RCO was discretionary and should be exercised having regard to the purpose of the BSA and all relevant factors. It was important to distinguish between what was relevant and what was not. For example, Triathlon’s motivation in bringing the applications was not relevant to the exercise of the FTT's discretion. Parliament had made RCOs available and Triathlon was entitled to take advantage of them. Nor was it relevant that EVML had not itself made the applications or that other parties could have been the subject of different applications. Further, no weight was attached to the changing identity of the ultimate beneficial owners of SVDP and Get Living. It did not matter that "…the SVDP of today is not the SVDP that designed and built the Blocks…".
The FTT noted that the ability to make a claim for a RCO was a new and independent remedy which was essentially non-fault based. Parliament had not intended that the availability of other fault-based claims should either disqualify an applicant from making a claim for a RCO or delay the making of that claim. An application for a RCO was intended to provide a route to securing funding for remediation works without the applicant having to become involved in, or wait for the outcome of, other potentially complex, expensive and lengthy litigation.
The FTT considered that the key factor in determining that it was just and equitable to make a RCO was the fact that SVDP was the developer of each of the Blocks. The policy of the BSA was that primary responsibility for the cost of remediation should fall on the original developer, and that others who have a liability to contribute may pass on the costs they incur to the developer.
It was also just and equitable to make an order against Get Living, on which SVDP depended for financial support. The purpose behind the association provisions in the BSA, was to ensure that where a development had been carried out by a thinly capitalised or insolvent development company, a wealthy parent (or other associated) company could not evade responsibility for meeting the cost of remedying the relevant defects by hiding behind the separate personality of the development company.
The fact that the future funding of the remediation works by the Building Safety Fund was almost certain was no reason to refuse the application. Further, although there was an intention that EVML would bring claims against the main contractor, the FTT rejected the suggestion that the costs of remediation should be borne for the time being by the public. The public interest in securing reimbursement of the funds paid out by the Building Safety Fund as quickly as possible pointed strongly in favour of making a RCO and no good reason had been shown why SVDP/Get Living should not now be the subject of a RCO.
The FTT rejected SVDP/Get Living's argument that an RCO could not be made in respect of costs incurred before s124 came into force on 28 June 2022. The language used was "…clear and explicit…" and the FTT was "…in no doubt…" that an RCO could be made in respect of costs incurred before 28 June 2022.
The FTT also concluded that a RCO could be made in respect of costs incurred in preventing risks from materialising or in reducing the severity of building safety incidents.
Key points from the decision
- With an abundance of applications underway and looming, the decision of the FTT sheds useful light on the factors that are likely to be considered by the FTT when exercising its discretion and deciding whether a RCO would be "…just and equitable…". From DACB's perspective, what the FTT dealt with are the main/common arguments currently being deployed by parties to applications for RCO's.
- The FTT highlighted that the BSA and related Regulations created a “…hierarchy…” or “…cascade…” of liability with the original developer and its associates at the top. Irrespective of fault, Parliament has decided that it is "…fair for those with the broadest shoulders to bear unprecedented financial burdens…". In that regard, it can be seen that the FTT was following what is in the Explanatory Notes to the BSA.
- Whether or not a party could seek reimbursement of any contribution ordered from the contractors and consultants responsible for the condition of the Blocks was relevant in deciding whether a RCO was just and equitable. However it was not given significant weight as responsibility for the purpose of the BSA was not synonymous with fault.
- On these particular facts, the interests of the leaseholders of the individual units were not given much weight as the works were already funded and underway. However, the FTT made it clear that where the works were being held up by the absence of readily available funding, evidence of the impact on the end leaseholders of the individual units would be of paramount importance in relation to the just and equitable test as the exceptional measures contained in the BSA were intended to provide relief for individual leaseholders.
- Although the purpose of S.124 BSA is to ensure that remediation works can be carried out without delay, the availability of funding and the fact that works are already underway will not be fatal to an application. Further, where the requirements of S.124 BSA are otherwise met, the availability of other contractual remedies will not make the granting of a RCO unfair.
Although each application will depend upon its individual facts, the judgment is likely to assist those seeking RCOs under S.124 BSA in the future.
