Playing it safe

Just prior to the recent general election, the Leasehold and Freehold Reform Act (the act) became one of the final pieces of legislation passed in the previous parliament, receiving royal assent on 24 May 2024.

Alongside a raft of provisions relating to leasehold reform – including a ban on the sale of new leasehold houses (save in exceptional circumstances) but notably not including the abolition of ground rent – the act seeks to further amend and clarify the Building Safety Act 2022 (BSA) (which was also rushed through parliament). The BSA has been amended several times since enactment and is supplemented by a lot of secondary legislation.

Remediation of defects

Rights of recourse

The BSA introduced several ‘new’ rights of recourse relating to building safety defects, including remediation orders (ROs) and remediation contribution orders (RCOs), the purpose of which was to allow ‘interested persons’ (principally leaseholders) to compel ‘relevant landlords’ and other ‘specified persons’ to remediate and/or contribute to the cost of remediating ‘relevant defects’ within their buildings.

The first remediation order was awarded by the First-tier Tribunal (FTT) in August 2023. Since then, practitioners, leaseholders, landlords and developers alike have sought to understand how the FTT will interpret its new powers, the scope and reach of ROs and RCOs, and when the FTT will consider it ‘just and equitable’ to award an RCO.

Unsurprisingly, landlords and developers have argued for a more limited scope – limited to remediation of ‘relevant defects’ only (as opposed to interim measures such as waking watch) and, in the case of an RCO, to those costs incurred after enactment of the BSA.

As illustrated by the recent case of Triathlon Homes LLP v Stratford Village Development Partnership (1) Get Living plc (2) East Village Management Limited (3) [2024] UKFTT 26 (PC), however, the FTT has, so far, taken a rather expansive interpretation of the scope of ROs and RCOs. This is not unexpected given the Grenfell Tower tragedy.

Amendments

Part 8 of the Leasehold and Freehold Reform Act 2024 goes some way to codifying this expansive interpretation with its amendments to part 5 of the BSA and the introduction of a new definition of ‘relevant steps’.

A ‘relevant step’ is defined as a step which has as its purpose:

“(a) preventing or reducing the likelihood of a fire or collapse of the building (or any part of it) occurring as a result of the relevant defect;

(b) reducing the severity of any such incident; or

(c) preventing or reducing harm to people in or about the building that could result from such an incident.”

The scope of both ROs and RCOs would therefore be extended beyond simply remedying relevant defects / recovering the costs of the same, to encompass not just interim measures, but also investigations to understand the extent of any defects present at a ‘relevant building’.

Remediation orders

The grounds on which the FTT may make an RO are extended accordingly, to cover both remedying relevant defects (as per the original drafting) and taking steps in relation to relevant defects. An application could theoretically be made both for a relevant landlord to remedy the relevant defects and, in the meantime, to introduce a waking watch as a ‘relevant step’ to reduce the severity and/or prevent or reduce harm to people.

The FTT may also direct that a relevant landlord provides or produces an expert report or survey, which may save leaseholders the costs of commissioning the report themselves, although the corresponding amendments to RCO provisions have ensured a ‘dual protection’ for leaseholders seeking recovery of the cost of expert reports.

Remediation contribution orders

Amendments to section 124(4) of the BSA provide that an applicant for an RCO may request payment for either a specified amount or the reasonable cost of specified things done or to be done – meaning applicants will not need to have established a finalised valuation of costs before making an application.

Perhaps most interesting for those exploring the new rights of recourse introduced by the BSA, is section 116 of the act, which further particularises the remediation to include:

“(a) costs incurred or to be incurred in taking relevant steps in relation to a relevant defect in a relevant building;

(b) costs incurred or to be incurred in obtaining an expert report relating to the relevant building;

(c) temporary accommodation costs incurred or to be incurred in connection with a decant from the relevant building (or from part of it) that took place or is to take place.”

It is clear from the act that the above is not an exhaustive list. However, in the absence of further secondary legislation prescribed for by new section 124(2B) of the BSA, which permits the Secretary of State to make further regulations specifying further costs to be included (or not), we anticipate it will be applied narrowly. That leaves some unanswered questions about the scope of recovery of costs (particularly in relation to insurance).

The amendments to both ROs and RCOs apply to both future applications and any applications in progress as at the date the amendments come into force.

Insolvency of a ‘responsible person’

Somewhat confusingly, for those of

us accustomed to advising on the Regulatory Reform (Fire Safety Order) 2005, the act also introduces a new definition of ‘responsible person’ in the context of duties on an (insolvent) accountable person.

A ‘responsible person’ within the meaning of the BSA now encompasses:

(a) in relation to a higher-risk building – an accountable person; and/or

(b) in relation to a ‘relevant building’ – a person who would have been an accountable person had the criteria for a higher-risk building been satisfied (had the relevant building been at least 18m high or seven storeys, and contained two or more dwellings, rather than being 11m high or five storeys).

An insolvency practitioner appointed in relation to a ‘responsible person’ is obliged to give the ‘required information’ set out in the act to:

• the local authority
• the fire and rescue authority, and
• the Building Safety Regulator (as applicable),

within 14 days of its appointment. This adds yet another layer of information provision to the extensive existing requirements of the BSA and its secondary instruments.

The obligation to share information does not, as yet, extend to leaseholders of the buildings in question and is limited to brief information about the building, the insolvency practitioner’s appointment and the information set out in rule 1.6 of the Insolvency (England and Wales) Rules 2016.

The provisions relating to duties following insolvency of a ‘responsible person’ came into effect on 24 July 2024. However, the substantive amendments to the BSA dealing with ROs and RCOs are still to be enacted at a date to be prescribed by the Secretary of State.

The recent King’s speech in July 2024 made clear that leasehold reform continues to be a key item on the agenda of the new government, with associated briefing documents indicating an intention to quickly implement parts of the act. However, with the focus being on leasehold reform, the extent to which the government will implement further legislation (including the amendments to the BSA included within the act) and at what speed, remains to be seen.

In the short term, this potentially means further uncertainty for entities seeking to use ROs and RCOs to compel their landlord (or superior landlord) to remediate or recover costs relating to relevant defects. It also means further uncertainty for landlords and developers assessing potential liability. The amendments imposed by the act suggest that the original (or current) scope of the BSA did not extend to the ‘relevant steps’ or the costs included in section 116 of the act – hence the need for amendment.

Whether the FTT will continue to adopt an expansive interpretation, buoyed by the proposed amendments, or whether it will adopt a more restrictive approach pending enactment of the same, will be borne out by future decisions.

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