What protections does the Building Safety Act give to leaseholders?
The Act contains various “leaseholder protections” aimed at shielding leaseholders in multi-occupied residential buildings from the costs associated with fixing historical building safety defects, which include:
- limits on the amount of service charge costs payable by leaseholders to fix those defects;
- the right for leaseholders to seek a “remediation order” from the Tribunal requiring the landlord to carry out certain works; and
- the right for leaseholders to seek a “remediation contribution order” to require landlords to contribute to costs they have already incurred, or will incur, to fix those defects.
This case involved the leaseholders of 15 flats in a high-rise block in Sutton, who held 999 year leases.
The landlord (who was also the developer of the property), knew that the cladding and balconies on the building were a fire hazard, so appointed contractors to carry out remediation works.
The landlord consulted the leaseholders about the repair costs, but hoped to secure a grant from the local authority for the cost of the works. It successfully secured funding for the remedial works to the cladding, but not the balconies, so claimed the costs for those works from the leaseholders under the service charge.
The leaseholders argued that those costs fell within the service charge limits imposed by the Building Safety Act, and applied for a remediation contribution order to get the money they had already paid under the service charge back.
Remediation contribution order
The Tribunal made a remediation contribution order in favour of the leaseholders, requiring the landlord/developer to repay them for the balcony repair costs claimed under the service charge.
In giving their judgment, the Tribunal considered each element of the Building Safety Act, and concluded that both the building, and the defects claimed for fell within its remit as they gave rise to a fire safety risk.
As the Act expressly states that service charge is not payable for defects which the landlord or its “associates” are responsible for, the leaseholders were entitled to be repaid.
As well as the landlord/developer and its parent company, the leaseholders had also joined two individuals – the directors of the landlord/developer entity – to their application. The Tribunal found that they could not be ordered to repay the leaseholders, as the Act only applies to a “body corporate or partnership”, not to individuals.
What does this mean for landlords and leaseholders?
This is the first example of the Tribunal exercising the powers given to it under the Building Safety Act, which is sure to be the first of many.
The judgment sends a strong message to developers and landlords that attempting to charge leaseholders for remedial works which are only necessary because of their own earlier breaches of fire safety standards will not be tolerated, and may well land them in court.
However, the government is already going beyond the protections in the Building Safety Act, and taking steps to compel developers to fix pre-existing fire safety issues for buildings they are connected with, which may mean the Act is not used as frequently as currently envisaged.
The government has published a "developer remediation contribution contract", and set a deadline of 13 March 2023 for developers to voluntarily enter into that contract, under which they agree to remediate unsafe residential buildings they have been connected with over the last 30 years, and reimburse any tax payer money already spent on doing so.
The framework for such a scheme is already in place under section 126 of the Building Safety Act, and consequences for those failing to join are set out at sections 127 – 129, under which developers could be blocked from carrying out developments, even where planning permission is in place, or prevented from securing building control approval. This means that developers who refuse to sign the contract risk being frozen out of the industry.
If developer remediation contribution contracts are widely entered into, there may be less need for leaseholders to resort to the protections offered under the Act.
Authored by Paul Tonkin, Katie Dunn, and Lucy Redman.