Life in the new world of the Building Safety Act 2022
On 13 November 2023, Mr Justice Edwin Johnson, the Chamber President, handed down judgment in Adriatic Land 5 Ltd v The Long Leaseholders at Hippersley Point [2023] UKUT 271 (LC) (“Hippersley Point”). The case is the first time the Tribunal has considered the Building Safety Act 2022 (“2022 Act”). In this article, Sarah Salmon and Olivia Davies of Cornerstone Barristers explore the key points landlords need to be aware of.
Hippersley Point concerned an appeal from the First-Tier Tribunal as to whether its decision to impose a costs condition, as a condition of the grant of dispensation from the consultation requirements under the Landlord and Tenant Act 1985, was wrong. In granting permission, however, a further issue was identified by the Deputy President: whether the costs were covered by paragraph 9 of Schedule 8 to the 2022 Act, so that no service charge was actually payable in respect of such costs by any leaseholder whose lease was a qualifying lease, within the meaning of section 119 of the 2022 Act: see judgment at [8].
Background to the 2022 Act
The 2022 Act marked an overhaul of building safety regulation. The Act brings with it a raft of new requirements for landlords in relation to making buildings safe. It also creates new causes of action: for private individuals where they suffer harm through breach of duty imposed by building regulation; and, for leaseholders and landlords through the expansion of the Defective Premises Act 1972 to allow clams for refurbishment and rectification works that render dwellings unfit.
Of particular relevance to landlords are the new duties that Part 4 of the 2022 Act imposes in relation to taller buildings. These duties only apply in relation to “higher” risk buildings, which are those that are at least 7 storeys high. This makes being well-acquainted with the Act’s provisions of particular importance for landlords of high-rise buildings. The increased regulatory burden on landlords in relation to higher risk buildings will also be closely supervised – the Act makes the HSE (Health and Safety Executive) the new “Building Safety Regulator” whose role it is to enforce the duties under Part 4.
The new duties in relation to higher risk buildings are complex and resource intensive. They include: the need for continuing assessment of safety risks; the requirement to take all reasonable steps to prevent a risk materialising (including by carrying out works); and producing a residents’ engagement strategy.
Just as important as knowing what actions must be taken in relation to building safety under the 2022 Act is understanding the new rules on the extent to which the cost of remediation works for “relevant defects” in “relevant buildings” can be recovered. Where there is a “relevant building” and a “relevant defect”, schedule 8 of the 2022 Act prescribes how, and in what circumstances, certain service charges are payable by lessees.
A “relevant building” is one at least 11 metres high or at least 5 storeys (s.117). A “relevant defect” is one arising as a result of anything done (or not), or used (or not) in connection with:
(a) works to construct or convert the building (if completed in the 30 years from 28 June 1992);
(b) works undertaken or commissioned by or on behalf of the landlord (if completed in the same 30-year period); or,
(c) works undertaken after 28 June 2022 to remedy a relevant defect (s.120).
In all cases, to be a “relevant defect” the defect must cause a building safety risk arising from the spread of fire or the collapse of the building. “Relevant defects” are therefore those created after 28 June 1992.
The protections against service charge recovery in Schedule 8 mostly only apply to “qualifying leases”, which are:
(a) long leases of a single dwelling;
(b) where the tenant is liable for the service charge;
(c) the lease was granted pre-14/02/22; and
(d) at the beginning of 14/02/22,
(1) the dwelling was the tenant’s only/principal home;
(2) the tenant did not own any other dwelling in the UK; or
(3) the tenant owned no more than 2 dwellings in the UK apart from their interest under the lease (s.119).
Schedule 8 sets out circumstances in which there is either an absolute prohibition on recovery or where the contribution is limited.
Absolute prohibitions apply to recovery for:
- cladding remediation (paragraph 8);
- the cost of undertaking a “relevant measure” ( e. a measure taken to remedy a relevant defect; prevent a building safety risk; or, reduce the severity of an incident resulting from such a risk) where the landlord is responsible for the defect by virtue of having undertaken or commissioned works in relation to it (paragraph 2); and,
- the cost of legal or professional services relating to liability (potential or actual) of any person incurred as a result of a relevant defect (paragraph 9). For these purposes, “professional services” include services provided in connection with:
(a) obtaining legal advice;
(b) any proceedings before a court or tribunal;
(c) arbitration; or
(d) mediation
It is the last of these examples – the recovery of the cost of legal or professional services – that led to the first consideration of the meaning and application of the 2022 Act by the Upper Tribunal in the Hippersley Point decision.
Hippersley Point
As set out in the introduction to this article, this case did not start out its life as being a case about the 2022 Act; rather this was an issue identified by the Upper Tribunal when permission was granted. It is worth, however, setting out some background to the appeal.
Hippersley Point comprises land and buildings. The building comprises a 10 storey mixed-use building (a “higher risk” building under the 2022 Act). There are 32 residential flats, let on long leases, above commercial premises on the ground floor. The height of the building exceeds 18 metres. There are service charge provisions within the leases. Following investigations, it was discovered that the building was in an unsatisfactory condition in relation to fire risk and substantial remedial works were required (as well as interim fire safety measures): see judgment at [19]-[21].
The works were “qualifying works” under section 20ZA(2) of the Landlord and Tenant Act 1985 (“LTA 1985”).[2] As such, unless consultation requirements were compiled with or the tribunal grants dispensation (absent agreement that consultation is dispensed with) under section 20 of the LTA 1985, contributions from the leaseholders are limited to £250 per flat. The Appellant landlord in Hippersley Point made an application for dispensation from the consultation requirements to the First-Tier Tribunal (“FTT”) which was granted. The FTT decided, however, that the landlord be precluded from pursuing any costs in relation to the application from the leaseholders: see judgment at [27]. The costs part of the decision was reviewed but the original determination was replaced with the following cost condition:
“Accordingly, the Tribunal has no hesitation in confirming that dispensation should be given in this case. The Tribunal does however consider that the Applicants should be precluded from pursuing any costs in relation to this application from the leaseholders themselves. This is because dispensation is essentially a forbearance by the Tribunal and it would be unfair for the landlord to recover costs from any of the leaseholders living at Hippersley Point in the present case… Accordingly, the dispensation is given on condition that the Applicants are prohibited from seeking their costs of this application from the leaseholders at Hippersley Point.”: see judgment at [31]-[32].
The landlord appealed the cost condition to the Upper Tribunal and, as set out above, a further issue – as to whether or not the costs fell within paragraph 9 of Schedule 8 of the 2022 Act – was identified by the Deputy President of the Tribunal on granting permission.
Having found – for both substantive and procedural reasons – that the cost condition imposed by the FTT could not be upheld, the President of the Tribunal went onto consider the 2022 Act.
How paragraph 9 takes effect
After an extremely detailed analysis considering alternative arguments put forward by the landlord as to the effect of paragraph 9, Mr Justice Edwin Johnson concluded at [170]:
“(1) The effect of Paragraph 9 is that, as from 28th June 2022, no service charge is payable
in respect of Qualifying Services,[3] regardless of when the costs of those Qualifying Services were incurred, and regardless of when the relevant service charge actually became due for payment.
(2) Accordingly, Paragraph 9 is capable of applying to the Costs [in this case], notwithstanding the date when Paragraph 9 was brought into force.”
He continued at [171] of the judgment to make it clear that the costs of a dispensation application are, as a matter of language, capable of falling with the terms of paragraph 9 of schedule 8 of the 2022 Act. This meant that the landlord’s ability, in Hippersley Point, of recovering the costs of remedial work by way of service charge was affected by paragraph 9. Where a leaseholder had a qualifying lease within the meaning of section 119 of the 2022 Act (it is understood that not all the leaseholders in the case had a qualifying lease), the costs were not recoverable by the service charge.
The Tribunal remade the FTT’s review decision on costs in the following terms:
“(1) The Reviewed Decision should take effect as a decision to grant dispensation on an
unconditional basis, with the decision to impose the Costs Condition excised.
(2) The Reviewed Decision should also take effect as a decision that, by virtue of Paragraph 9, the Costs are not recoverable, by the Service Charge, from those of the Respondents who hold qualifying leases within the meaning of Section 119”: see judgment at [184].
Comment
The Upper Tribunal’s decision is particularly important for its analysis of whether the fact that the relevant costs were incurred prior to 28 June 2022 – i.e. before the 2022 Act came into force (and, in Hippersley Point, the 2022 Act came into force after the application for dispensation was made) – meant that to apply paragraph 9 of schedule 8 would be contrary to the general presumption against legislation being given retrospective effect.
The Upper Tribunal found that the “liability” referred to in paragraph 9 is the liability or potential liability incurred as a result of the relevant defect, not the liability to pay the costs of the relevant services. Thus, if the services qualify as those “relating to” the relevant liability, then the services are relevant services for the purposes of paragraph 9, regardless of when the costs of them were incurred: see judgment at [151].
Noteworthy in its analysis is the Tribunal’s emphasis of the need to view schedule 8 in context as part of a self-contained code concerned with “relevant defects”. In this light, the Tribunal did not consider it surprising that paragraph 9, or indeed other provisions of schedule 8, could apply to costs incurred before the schedule came into force.
Going forward it will be interesting to see if parties to 2022 Act proceedings attempt to make similar arguments about unfair retrospectivity in relation to other provisions of schedule 8. Such arguments are unlikely to be warmly received given the Upper Tribunal’s view that so-called ‘retrospectivity’ is not “unfair”, but simply the “new world” [158] imposed by the Act and its “one-off intervention designed to deal with the current serious problems with historical building safety defects in medium and high-rise buildings”.[4]
Learn more about the authors here: Sarah Salmon and Olivia Davies
[1] Adriatic Land 5 Ltd v The Long Leaseholders at Hippersley Point [2023] UKUT 271 (LC) at [158].
[2] Section 20ZA(2), LTA 1985 provides that “qualifying works” means works on a building or any other premises.
[3] The Judge used the expression “the Qualifying Services” to refer to services of the kind referred to in paragraph 9 of schedule 8: see judgment at [124].
[4] Waite and others v Kedai Limited (LON/00AY/HYI/2022/0005 & 0016) at [67] as cited at [142]-[143] of Hippersely Point.
