Real estate

First-Tier Tribunal rules against building owner in first contested remediation contribution order

Published on 21st Feb 2024

'Just and equitable test' when requiring a party to contribute to remediating costs under the Building Safety Act 2022

Apartment building facade with balconies

The First-Tier Tribunal has handed down its decision on the first contested application for a remediation contribution order (RCO) under section 124 of the Building Safety Act 2022, providing guidance on when a RCO may be granted and the relevant remediation costs that can be subject to an order.

The tribunal determined that it was "just and equitable" to make a RCO for approximately £18 million against Get Living Plc regarding incurred and estimated future costs of defects at the development known as East Village in London. While funding through the Building Safety Fund is largely limited to cladding and waking watches, this decision clarifies that RCOs can extend to costs of works more broadly that help alleviate a relevant defect and can be made against a party that was not the original "wrongdoer". Get Living have appealed the decision.

Dispute background

The Athletes Village was originally owned and developed by a special purpose vehicle called Stratford Village Development Partnership (SVDP), which was wholly owned by a government entity. After the London 2012 Olympic Games, SVDP retrofitted the Athletes Village and sold it into the private sector.

The development is currently owned by Get Living Plc, the build-to-rent operator, and the development is known as East Village. Triathlon Homes was established to provide affordable housing at East Village and it is the headlessee of a number of blocks at East Village.

The case concerned five blocks at East Village, known as N26, with some of the flats within these blocks held under shared ownership leases granted by Triathlon, and others rented out via subsidiaries of Get Living.

Building safety defects

Following the Grenfell tragedy, building inspections were carried out by the management company for the development, East Village Management Limited (EVML). This identified building safety defects in N26 including combustible insulation in the cladding and combustible timber decking on the balconies.

This led to a waking watch being put in place temporarily for safety and then a remedial scheme was designed and tendered. Triathlon's share of the likely costs for the project are estimated at around £27 million in total covering:

  • remedial works and associated professional fees (known as the "major works"),
  • costs for fire evacuation offers and temporary fire alarm servicing and decommissioning (known as the "future costs"), and
  • costs incurred for the waking watch, evacuation staff and other interim safety measures (known as the "additional costs")

What is a remediation contribution order?

A RCO is a relatively new remedy for interested parties in relevant buildings to require a company to make payments in connection with the remediation of relevant defects. A relevant building is one with at least two dwellings being over 11 metres or five storeys high and a relevant defect, in short, is one that causes a building safety risk arising from possible collapse or the spread of fire.

Application to the tribunal

Triathlon issued an application to the First Tier Tribunal for a RCO under section 124 against SVDP (as original developer), Get Living (as its landlord), and EVML (as the management company involved).

A point of interest in Triathlon's application is the breadth of the respondents named, essentially covering all bases and joining as many identifiable entities that could fall within the remit of section 124 as possible. A significant element is that Get Living acquired the developer entity, SVDP, when it acquired the East Village, and therefore both parties are considered "associated" for the purposes of the Building Safety Act 2022.

Triathlon sought its share of the major works costs and future costs to be paid by SDVP and Get Living to EVML (the entity that will be incurring those costs) with historic additional costs being paid to Triathlon to reimburse them.

The majority of funding for the works had already been committed by the Building Safety Fund, which is the taxpayer funded pot that interested parties in relevant buildings have been able to apply to over the last couple of years to fund investigative works and remedial works to replace combustible cladding. Triathlon's application for a RCO was essentially to protect them from having to contribute, should other avenues of funding not materialise.

The tribunal was asked to consider whether a RCO should be made and if so, against which entity.

Tribunal grants RCO

In its detailed judgment, the tribunal worked through three main issues put before them:

  • Can a RCO be made in relation to costs incurred before the commencement of section 124 on 28 June 2022?
  • Can a RCO be made in relation to costs of measures taken to try and prevent or reduce the risk of a building safety risk from materialising and not just costs incurred remedying the defect itself?
  • On the facts of this particular case, would it be "just and equitable" for a RCO to be made and if so, against who?

The tribunal decided in the affirmative for all of the questions posed and decided that a RCO was appropriate here and that it was Get Living who would bear the brunt of the order, namely because SVDP did not have the means to discharge any order and Get Living was the ultimate parent company.

The tribunal confirmed that RCO's would be made against Get Living (one for each of the blocks at N26) for the full sum of the major works to EVML, the future costs and the additional costs. This requires Get Living to pay back approximately £18 million in total, to the sums advanced by the public fund.

No need for a 'wrongdoer'

In its judgment, the tribunal grappled with an important point, namely that responsibility under the Building Safety Act 2022 is not synonymous with fault and a party may be responsible for the costs of rectifying relevant defects caused by others.

It carried out an exercise of considering who was best placed to take the pain of the costs of remedial works, in what is being termed as a "hierarchy" of liability starting from the developer at the top, through to the building owner and subsequent landlords.

Osborne Clarke comment

The matters in this case are very fact specific. However, what is abundantly clear is the intention behind the complicated provisions of the Building Safety Act 2022, which is that leaseholders should be sheltered from paying to remediate buildings wherever possible. It is for this reason that the decision will not come as a surprise to many. With approximately 200 leaseholders at East Village unable to sell their leasehold properties since the fire safety defects were discovered in 2020 – it demonstrates the far reaching scope of the remedies available under the legislation.

The wording of section 124 is very broad, particularly with reference to the parties who can be subject to a RCO. This decision sends an important message to building owners and landlords that were not involved in the construction but acquired a relevant building subsequently.

Equally important is the dismissal of the "public purse argument" – i.e. the public funding of the work through the Building Safety Fund – which demonstrates that taxpayers should not be left with costs where a party is well able to fund the remediation works itself.

This case continues to be in the spotlight with Get Living lodging an appeal on 16 February publicly stating that the decision is "fundamentally flawed" to hold it responsible for faulty construction of a building that it acquired in good faith and was not party to the original development. Get Living believes that the government's Olympic Delivery Authority, as the original developer should be liable, alongside the contractors who designed and undertook the works. The progress of this appeal and any satellite claims against contractors will be of interest to many.

As we are starting to see the impact of the Building Safety Act on the property industry, it is clear that developers, building owners, contractors and litigators are going to be very busy in the coming years.

"What next for Building Safety Disputes?", will be explored by Rebecca Francis and Emily Clements in a webinar on 20 March at 9am, as part of Osborne Clarke's Disputes Week. There is a great line up from our disputes and risk team of events, webinars, podcasts and insights looking at emerging trends and best practice in disputes for businesses and their in-house legal teams, so please sign up and join us.

Follow

* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

Connect with one of our experts

Interested in hearing more from Osborne Clarke?