On 13 January 2023 the First-tier Tribunal (Property Chamber) (‘the FTT’) made the first remediation contribution order in the case of Arjun Batish and other leaseholders v. Inspired Sutton Limited and others.
The law
The Building Safety Act (‘the 2022 Act’) enables an application to be made to the FTT by an interested person for a remediation contribution order in relation to a relevant building. Interested persons include:
- the Building Safety Regulator
- the local authority for the area in which the building is located.
- the fire and rescue authority for the area in which the building is located
- the Secretary of State
- any person with a legal or equitable interest in the building or any part of it – a person with a legal or equitable interest in the building will include, for example, leaseholders of flats within the building, as well as the freeholder and other building owners for the building
This is an order requiring a company to make payments in connection with the remediation of relevant defects.
A ‘relevant defect’ is defined as “a defect as regards the building that (a) arises as a result of anything done (or not done) or anything used (or not used), in connection with relevant works and (b) causes a building safety risk.”
A ‘building safety risk’ is defined as “a risk to the safety of people in or about the building arising from –
- the spread of fire, or
- the collapse of the building or any part of it.”
An application can be made against a number of different parties including the developer or any party “associated” with the developer.
Anyone who undertook or commissioned the works would fall within the definition of the developer.
The FTT may only make a remediation contribution order if it considers it just and equitable to do so.
The facts
Inspired Sutton Limited (ISL) had been established as a special purpose vehicle in order to develop 9 Sutton Road, Sutton in 2017 (a high-rise self-contained block of flats converted from an office) and then sell on the freehold. Residential leases of the flats were granted for a term of 999 years.
The freehold sale did not happen and so ISL continued to be the freeholder and was so at the time of the application to the FTT.
The leaseholders and ISL were aware that the materials used for the development and its design amounted to a significant risk and therefore ISL engaged architects and contractors to undertake remedial work.
A consultation notice under section 20 of the Landlord and Tenant Act 1985 was served regarding works to the building included the replacement of unsafe ACM and HPL cladding and render on part of the façades as well as rectification and replacement of unsafe balconies.
Grant funding was sought in respect of these works. However, when they began it was known that funding would be available for the cladding replacement but had been refused for the balcony replacements.
The work had commenced in February 2021 and in the following month ISL issued individual invoices to the leaseholders in respect of the balcony remediation works.
In August 2022, an application was made to the FTT for a remediation contribution order by 18 leaseholders owning 15 long leases of flats in the building. The respondents to the application were as follows:
- ISL, the freeholder/landlord of the building; and
- Inspired Asset Management Limited (‘IAML’) in liquidation and described as the parent company to ISL
- Two directors of ISL
The basis for the leaseholders’ application to the FTT was-
- Service charge payments had been made by them for the remediation of relevant defects and they were seeking the return of those payments;
- The service charge costs were not payable by the leaseholders by virtue of the 2022 Act; and
- It was just and equitable for the remediation contribution order to be made in their favour.
The applicants claimed the amounts they had paid and which they could evidence from the relevant invoices and proof of payment.
What did the FTT decide?
A remediation contribution order, consisting of the amounts the leaseholder had paid as service charges, was made against ISL.
- The building was a relevant building as it was structurally detached and at least 5 storeys high.
- The applicant leaseholders were interested persons holding legal interests in the building.
- ISL was a relevant specified body corporate.
- The costs related to relevant defects.
- Those defects did constitute a building safety risk since they were a risk to the safety of people in or about the building arising from the spread of fire.
The FTT were satisfied that the ‘just and equitable’ test had been met as they were satisfied that the leaseholders paid for the cost of works which ought to have been met by the freeholder. This is because the 2022 Act provides that no service charge is payable under the lease in respect of a relevant measure relating to a relevant defect if a relevant landlord is responsible for the relevant defect.
Since ISL was both the landlord and the original developer and was responsible for the relevant defect, the FTT considered that the costs were not to be taken into account when calculating the amount of the service charge.
Regarding IAML, as they were in liquidation they were removed as a party to the proceedings.
In respect of the two directors, the FTT dismissed the application against them as the order could only be made against a specified body corporate or partnership.
Points to note.
- The leaseholders were able to recover payments made under historic service charge demands.
- There was no detailed argument heard on what is meant by ‘just and equitable’.
- Each case depends on its own facts and legal arguments presented to the FTT.
- Decisions of the FTT are not legally binding precedents and this one does not therefore rule out alternative approaches in other cases. However, it is worth reading to see how the FTT may deal with such applications in the future.
- The leaseholder applicants were not legally represented and no defence was put forward by the landlord. However, the FTT had to satisfy itself that it was ‘just and equitable’ before making the remediation contribution order.
