The First tier Tribunal has recently delivered the first judgment directly examining regulation 3 (“Regulation 3”) of the snappily named Building Safety (Leaseholder Protections) (Information) etc Regulations 2022. The decision provides important guidance for landlords navigating the remediation funding landscape under the Building Safety Act 2022 (“BSA”).
Most people active in that landscape will be familiar with the developing jurisdiction on remediation contribution orders, under which previous landlords, developers and associated entities can be made liable for the costs of remediating building safety defects. However, the route for recovering remediation costs from previous landlords under Regulation 3 has been much less widely discussed.
Regulation 3 provides a mandatory recovery mechanism for current landlords undertaking remediation works against certain other current and former landlords (known as the “responsible landlord”). A requirement for Regulation 3 to apply is that the remediation costs cannot be recovered from leaseholders under a service charge because of the restrictions in the BSA. It can be used against a person who was on 14 February 2022 (when the BSA came into force) the landlord or any superior landlord and who was either responsible for the defects in question or associated with a person responsible for those defects. However, it can also be used against any previous landlord or superior landlord who acquired their interest after 14 February 2022. Current superior landlords who acquire their interest from a superior landlord who was responsible for the defects can also be held liable.
Unlike Remediation Contribution Orders , there is no “just and equitable test” in relation to claims brought under Regulation 3. Once the statutory conditions are met and a valid claim notice in the prescribed form is served on the previous landlord, that landlord is automatically liable to pay the costs claimed, subject to any appeal. Regulation 3 itself only specifies two grounds of appeal: that the remediation amount does not represent the cost of the relevant measure; or that the person sent the notice is not a responsible landlord within the meaning of the regulation.
The case concerned Regulation 3 notices served by East Village Management Ltd (“EVM”) on Stratford Village Property Holdings No.1 Ltd and No.2 Ltd (“SVPH”). The Tribunal was asked to decide a number of specific issues relating to (i) its jurisdiction to determine the validity of the notices; (ii) the interrelation between Regulation 3 and the recoverability of remediation costs from leaseholders; and (iii) the recoverability of costs incurred before Regulation 3 came into force on 21 July 2022 and of future or contingent costs.
The Tribunal held that it did have jurisdiction to deal with questions of validity. It had to be able to decide “all matters” necessary to determine liability under Regulation 3 to give effect to the policy of the BSA. Requiring parties to issue separate County Court proceedings would contradict the statutory objective of the BSA - speed and simplicity. The short 30 day appeal period for Regulation 3 also reinforced Parliament’s intention for all issues to be resolved under one roof.
EVML was in receipt of Building Safety Fund funding under which it had agreed not to seek to recover the remediation costs from leaseholders. Somewhat creatively, SVPH argued that because this meant that EVML could not recover costs from leaseholders solely because of the BSA Schedule 8 protections, Regulation 3 was not engaged. Probably unsurprisingly, the Tribunal did not agree. The relevant test requires consideration only of Schedule 8, and not of separate arrangements. The simple question is whether, without Schedule 8, the costs would have been recoverable under the lease as a service charge.
Finally, the Tribunal held that retrospective pre-July 2022 costs were recoverable but contingent / future costs were not. The recovery of pre-July 2022 costs goes to the very purpose of the BSA, which is aimed at addressing historic building safety defects that have only come to light in recent years. This approach has already been endorsed in the context of RCOs by the higher courts, including the Court of Appeal in Adriatic Land. By contrast, the wording of Regulation 3 makes it clear that recoverable costs are ones which the responsible landlord has paid or is under a current obligation to pay.
The decision is in line with the general approach taken by the Tribunal to BSA claims – it shows an emphasis on a practical approach intended to make sure the BSA achieves its purpose of ensuring that defective buildings are remediated and that those responsible for the defects (or in some cases those who were not responsible for them but arguably should have remedied them before selling the building on) bear the burden of remediation. However, permission to appeal has been given in relation to the Schedule 8 point and retrospectivity and it will be interesting to see whether the Upper Tribunal takes a different view.
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