First out of the gate: what can we learn from the First Tier Tribunal’s first remediation contribution order?

The First Tier Tribunal (FTT) recently published its first decision on an application for a remediation contribution order, in the case of Arjun Batish and other leaseholders v Inspired Sutton Limited (1) Inspired Asset Management Limited (2) Tommy Lyons and James Friis (3).

The decision provides a helpful indication of how the FTT will approach other similar applications, but some unanswered questions remain.

Background

The Building Safety Act 2022 (BSA) allows leaseholders (amongst others) to apply for a remediation contribution order. The relevant provisions came into force on 28 June 2022. If such an order is made, an entity can be required to contribute to the remediation costs of “relevant defects” that have been incurred or will be incurred in future. The BSA provides that remediation contribution order applications have to be made to the FTT (rather than the High Court).

In this case, 18 leaseholders of a block of flats with cladding issues applied for a remediation contribution order. They were seeking a total of just under £200,000 to cover sums invoiced to the leaseholders in 2021 for remediation works to external cladding on the property. The leaseholders applied for orders against (1) the freeholder and developer of the building, Inspired Sutton Limited (“ISL”), (2) ISL’s parent company, which was in liquidation, and (3) two individuals who were directors of ISL. 

The FTT’s decision

The starting point for the FTT’s analysis was to identify all the relevant sections of the BSA concerning remediation contribution orders. The FTT then used these provisions as the framework for its analysis. 

Two key aspects considered by the FTT were:

• whether the costs incurred by the leaseholders fell within the scope of the remediation contribution order regime. The FTT considered whether the costs related to remedying “relevant defects”. The FTT concluded that they did, because the cladding defects constituted a “building safety risk”. This is defined in the BSA to include “a risk to the safety of the people in or about the building arising from the spread of fire”; and
• whether it was just and equitable to make an order in this case. The FTT indicated that the applicants had to show that these costs ought to have been met by the respondent.  On the basis of the BSA restrictions on the costs leaseholders can be charged as part of the service charge, the FTT concluded that they were not responsible for the costs they had paid.  In particular, the new restrictions provided that the costs of remedying relevant defects are not to be taken into account when calculating the service charge.  It was, therefore, just and equitable to make an order.

As a result, the FTT decided that the applicants were entitled to the order sought. 

However, this order was only made against ISL. The FTT stayed the proceedings against the second respondent because it was in liquidation. The FTT also decided that an order could not be made against either of the individual directors of ISL, as the BSA only allows for remediation contribution orders to be made against bodies corporate or partnerships, not individuals.

Comment

Landlords should now be warned that tenants are making use of the new rights introduced in the BSA to seek remediation contribution orders. It is inevitable that more applications will follow as parties (and their advisers) digest this decision and consider their options.

As the first decision published by the FTT regarding remediation contribution orders, it provides a helpful indication of the legal framework the FTT will follow in considering such applications. It is important to note, however, that FTT decisions do not create legally binding precedents. As such, there is certainly the potential for different approaches to be adopted in future cases.

The decision itself dealt with the legal analysis quickly, and did not consider underlying legal principles. No doubt that is a reflection of the unusual circumstances of this application: the applicants did not have legal representation, and none of the respondents challenged the substance of the application.

Important unanswered questions remain following the FTT’s decision. For example:

• in principle, it seems the question of whether a defect is a “building safety risk” is one on which expert evidence may be appropriate. Here, the FTT did not consider any expert evidence but that may be different in future cases;
• are there are any other factors that should be considered when deciding whether it is just and equitable to make a remediation contribution order? We think there potentially are a wide range of factors that will be relevant, but only one was expressly considered in this decision; and
• do the restrictions in the BSA on costs that the landlord can charge to leaseholders as part of the service charge apply to charges applied before 28 June 2022? This was an important step in the FTT’s analysis, but was not expressly discussed. The FTT’s decision implicitly assumed that they do. Given that this will be a point of some interest to the industry, it will be helpful to have a detailed and reasoned analysis of it following full argument.

No doubt there will be further such decisions (and appeals) in future, which will answer some of these questions. In the meantime, landlords, leaseholders and their advisers will need to pay close attention to developments.