Section 124 of the Building Safety Act 2022 introduced a new jurisdiction to the First-tier Tribunal (‘FtT’). It enables an ‘interested person’ – a defined term in the Act that includes (amongst others) landlords or leaseholders – to apply for a ‘Remediation Contribution Order’ (‘RCO’).
A RCO is an order that the FtT can make requiring a specified company to make payments to another party for the purpose of meeting costs incurred (or to be incurred in the future) in remedying relevant defects in a building of at least 5 storeys / 11m. Relevant defects will include those relating to most fire safety defects. Companies can be specified only if they are a landlord under a lease of the building (or a part of it) or if they are a developer of the building or (importantly) if they are company ‘associated with’ a relevant landlord or developer.
‘Associated with’ is given a particularly wide meaning under the Act, but will most commonly catch parent / group companies of developers, which is important when you consider that many developers set up new development specific companies for each new development they construct, which company will often be worthless once the development is complete (profits having been taken out the business and distributed). An ability to pursue a group company is therefore essential if a genuine remedy is to be obtained.
The FtT is presently, I anticipate, starting to see a good number of applications for RCOs being issued. Many will take their time to work their way through the system, particularly where the applications raise complex issues as to the remediation required or involve many parties.
We can expect much more guidance on how these applications will be approached by the FtT later in 2023. However, a recent decision of the FtT – Batish v Inspired Sutton Ltd (13 January 2023) - gives us our first glimpse at how they can fall to be decided.
In Batish, the FtT granted 18 leaseholders an RCO. Their block was an office conversion that had been developed by Inspired Sutton in 2017, which was also the freeholder. Materials used in the development included ACM and HPL cladding – both combustible. Remediation was undertaken, part funded by grants, but with leaseholders still paying substantial sums toward the works. The leaseholders had paid £192.6k between them, and wished to be repaid.
The applicants specified 4 respondents to their application. 2 of those were former directors of the developer; the application against them was dismissed, as they are not companies so cannot be subject to an RCO. Another respondent was a parent company to the developer (i.e. a company ‘associated with’ it); unfortunately, that company was in liquidation and the claim against it had to be discontinued.
That left the developer itself, against whom the RCO was made, requiring it to repay to the applicant leaseholders within 14 days the sums they had had to pay out toward the works.
It is obviously promising for both landlords and tenants to see developers being ordered - by way of a fairly straightforward low risk application to the Tribunal - to repay the sums spent on remediation of unsafe locks they have constructed.
However, one must treat the decision with caution.
- Firstly, the developer ultimately did not defend the application – so this is not a fully argued out case.
- Secondly, it is a ‘first instance’ decision – it is not a binding precedent for anything.
- Thirdly, in the absence of any defence, the factors the Tribunal considered when deciding whether it would be ‘just and equitable’ to make an order (the statutory test) were very limited indeed.
- Indeed, the FtT records that the only factor they felt they had to be satisfied about was that the lessees had paid for the cost of the works, which the developer ought to have met, particularly in light of the prohibition on charging remediation costs since the Act came into force (i.e. effectively giving those provisions retrospective effect).
In other cases, particularly where applications are defended, there will be a much wider range of factors to consider.
Unfortunately for the leaseholders, whilst they did secure their RCO, there is no guarantee that the developer will be able to meet the sum it has been ordered to pay – indeed its most recently filed accounts suggest that non-payment is a possibility. The order is enforceable in the County Court if the sums are not paid, but as the saying goes, ‘you can’t get blood out of a stone’; fingers crossed. RCO applications will not be the answer to every situation. Watch this space for further cases!
Simon Allison is a barrister at Landmark Chambers. He specialises in leasehold management and fire safety related work.