Building Safety Act 2022: £18m remediation contribution order against developer

Remediation contribution orders (“RCOs”) were introduced by s.124 of the Building Safety Act 2022 (“BSA”) in the wake of the Grenfell tragedy. Currently, they only apply in England, with the Welsh Government yet to enact its own legislation. They shift the cost burden of remediation works for certain building safety defects, most notably unsafe cladding on tall buildings, allowing remediation costs spent doing those works to be reimbursed by another party (usually the original developer or a landlord).

To make an RCO, the Tribunal must be satisfied that it is ‘just and equitable’ to do so.

Whilst there was no doubt that RCOs were introduced for the purpose of placing the responsibility for remediation costs on developers and landlords, it was not clear on the face of the statute whether RCOs could allow for the recovery of:

• Any interim risk-reducing measures undertaken before the works, such as the use of a waking watch and installation of fire alarms; and/or
• Any costs spent on remediation works prior to the commencement of the Building Safety Act 2022 and introduction of RCOs.

In its recent decision, the FTT has now confirmed that both those costs are in principle recoverable under an RCO. This is a much-welcomed decision for leaseholders and management companies who were facing uncertainty about how they may recover costs of interim measures such as waking watch, often mandated by local fire enforcement officers or brigades.

The decision will be equally welcomed by leaseholders in buildings which benefited from external funding from the government’s Building Safety Fund (BSF), a developer under the Pledge or a third-party such as NHBC and had secured funding for remedial works, but where temporary safety measures prior to the remedial works often fell outside the scope of the funding.

Decision

The key issues were:

• 1. Whether a RCO could be made for costs incurred before the commencement of the BSA 2022?
• 2. Whether a RCO could be made for costs incurred for interim fire safety measures or other measures to prevent or reduce the severity of the building safety risks?
• 3. Whether it would be ‘just and equitable’ for the Tribunal to make the RCO?

The Tribunal examined the issues one-by-one.

• 1. Whether a RCO could be made for costs incurred before the commencement of the BSA 2022?

The Respondents argued that RCOs had been introduced when the BSA came into force on 28 June 2022. As a result, making a RCO for costs incurred before that date would give the BSA retrospective effect. The Respondents argued that the BSA was not sufficiently clear to have retrospective effect.

The FTT rejected that argument. It held that the language of s.124 (“incurred in remedying relevant defects”) did allow costs incurred before 28 June 2022 to be recovered. It also referred to the intention of Parliament as stated in the BSA explanatory notes stating that the BSA provides for “wholesale intervention”. Not allowing those costs to be recovered would prejudice leaseholders who had paid costs prior to 28 June 2022 date, defeating the purpose of the BSA.

Costs incurred before 28 June 2022 could therefore be recovered.

• 2. Whether a RCO could be made for costs incurred for interim fire safety measures or other measures to prevent or reduce the severity of the building safety risks?

The Respondents argued  that the language of the statute (“incurred in remedying relevant defects”) was limited, and did not refer to any interim measures relating to the relevant defects, such as the waking watch costs. They argued that remedying defects was confined to carrying out works to permanently remediate the defects (e.g. replacing combustible cladding with alternatives).

The FTT did not agree. Firstly, from a linguistic perspective, it found that the word ‘remedying’ was akin to alleviating the severity of risks or preventing them from arising. Therefore, any measures taken to remedy defects included measures which prevented those defects from materialising, or which reduced their severity.

Secondly, it referred again to the legislative intent of Parliament with the BSA. Parliament had intended RCOs to allow applicants to recover costs of measures that were required and would not now be able to be funded via service charge. It would be incompatible with that intent to interpret the scope of RCOs narrowly.

The Tribunal concluded that RCOs are available for costs incurred “in preventing risks from materialising or in reducing the severity of building safety incidents”. This specifically included the costs of waking watch, fire alarm installation and heat detectors, though the Tribunal suggested it could also cover more involved items of work such as applying fire retardant coating to some of the building components.

This confirms, as many already suspected, that RCOs are wide and were enacted to ensure that cost of all measures taken in the wake of the cladding crisis can be recovered from those responsible.

• 3. Whether it would be ‘just and equitable’ for the Tribunal to make the RCO?

The Tribunal recognised this was a broad test which conferred on it a lot of discretion. It ultimately accepted the argument of the TH that, as a whole, it would be just and equitable to make the RCO where on the facts this was a situation where ultimately the developer was responsible for the defects and should be held responsible for the remediation costs as the BSA intended. The Tribunal also referred to the fact that it was intended that RCOs be a no fault mechanism to allow the cost of remediation to be recovered without arguments as to liability, which would be required in other civil claims (contractual and under the Defective Premises Act 1974, for instance).

RCOs are a swift and more straightforward route for Applicants to recover funds spent on remediation works and the FTT has endorsed that approach..

The FTT also considered that the order should be made for the Respondent developers to pay the cost of remediation rather than the taxpayer paying the cost via the Building Safety Fund.

The FTT therefore made an order that the full cost of remediation and the cost of all interim measures should be paid by the developer to the EVML who would be carrying out the works.

Analysis of the remediation contribution order

This is a significant case and will be welcome to those leaseholders, freeholders and management companies at properties with cladding issues. Both the cost of works and the cost of interim measures implemented prior to remediation works (often imposed by local Fire Brigades or local authorities) can in principle be claimed from the original developer parties or relevant landlords through a RCO.

The FTT has applied a common sense approach, referring back to the purpose of the BSA which was introduced in the wake of the Grenfell tragedy to ensure history did not repeat itself. It sends a clear message that the Tribunal will apply a purposive interpretation to BSA, and will consider the “hierarchy of liability” imposed by the BSA as part of its decision-making process, with developers being at the top of that list. It also highlights that the FTT considers RCOs to be a non-fault based remedy, enacted to avoid lengthy trials on civil liability.

The approach of the Tribunal resolves some of the uncertainties in relation to the BSA and RCOs and makes clear that the FTT intends to interpret the BSA consistently with Parliament’s aims in enacting it: to avoid leaseholders being liable for building safety defects and to allow the cost of remediation to be passed to developers and associated parties.