By Nick Pinder, Partner, Real Estate Litigation
The Building Safety Act 2022 (the “BSA”) provides occupants with a swift and effective means to rectify building safety defects, without having to pay additional costs, by using Remediation Orders. These can be applied for under the First Tier Tribunal (the “FtT”), which is a court for resolving property disputes.
However it is possible that subsequent “flow down” claims – deciding who will ultimately pay for repairs – will be decided in the Technology and Construction Court (the “TCC”).
The challenge is that the two courts make take different views. This in turn could mean delays, and uncertainty over whether landlords or developers can recover the ultimate costs from third parties. So what are the issues?
Remediation Orders – will they be watertight?
A Remediation Order requires a landlord to remedy building safety defects, within a specified time, at a property which contains at least 2 dwellings and is at least 11 metres, or five storeys, high. An application can be made by anyone with a legal or equitable interest in the property. So this is a key way in which occupants can require their landlord to take effective measures.
To make an application for a Remediation Order it is necessary to know what the defects are. The BSA considers that a defect is anything that causes a “building safety risk”, i.e. a risk to people either from the spread of fire or the collapse of a building. But ‘a defect’ is not strictly defined according to industry guidance, meaning this can give rise to subjective and varying interpretations.
Crucially, the applicant does not need to specify the remediation works required. A Remediation Order is effectively a mandatory injunction, enforceable in the County Court, for the landlord to remediate the defects, but there is no clear guidance on what works the landlord is to carry out.
It is possible that even after the landlord has carried out the works required (under the Remediation Order), there remains a “building safety risk” which requires further work. It is not clear whether there will be any follow up to check the works have been carried out (if this is possible) and if the requirements of the Remediation Order have been fulfilled.
Therefore, it is possible not only that the safety risks are prolonged, but that additional work, expense and disruption is required for a second wave of repairs.
Finally, all these issues are exacerbated when considering who ultimately pays for such remediation works.
Remediation Contribution Orders – who pays?
Under the BSA one of the ways in which a landlord can recover monies from a third party for the cost of building safety rectification works is by way of a Remediation Contribution Order[1] (“RCO”). The landlord can apply for a contribution from the developer or any party “associated” with the developer and specify the sum it seeks in a draft order.
But it remains to be seen how the FtT will assess what costs are payable. To help it decide, it will be able to give case management directions and require: (a) a statement of case from the applicant for the RCO, (b) provision of all documents relied upon, (c) the statement of case in reply and (d) expert evidence.
However, given the complexities involved, the FtT may find itself in unfamiliar territory. FtTs were not designed to deal with such specialist issues, which are the more natural territory of a TCC judge, and the reason why the High Court has the TCC as a specialist division for dealing with these types of disputes.
Therefore, the lack of detail and transparency may store up problems for the TCC, who will be the court dealing with the subsequent ‘flowdown’ claims.
Flow down claims – who ultimately pays?
If a developer, or one of its associated persons, receives a RCO it will want to ascertain how and to what extent it is able to recover costs from its contractor and consultants. Any of these ‘flow down claims’, potentially stemming from FtT orders, are likely to be dealt with by the TCC. This is because the TCC is a specialist court which deals with construction and engineering claims that are often high value (usually over £500,000 in London) and technically complex.
If the claim originated in the FtT, then key issues on the nature of the defect, the timing of the works, and the cost that is being claimed may have already been determined.
However, such matters are likely to have been dealt with at a high level in the FtT. And it is possible that when these claims are considered at length in the TCC, inconsistencies may arise. The potential differences in approach between the two courts could well create a mismatch in key decisions.
In other words, landlords and developers may find themselves on the hook to remedy and pay for building safety defects under a Remediation Order or RCO in the FtT, but face an uphill struggle to recover the cost from other liable parties, such as the contractor and consultant, in the TCC. They might well find themselves out of pocket, in whole or in part. So what can they do?
In order to avoid such issues, landlords and developers should be proactive in trying to resolve building safety issues before Remediation Orders or RCOs are considered necessary. By doing this, they may be able to establish the full scope of their liability earlier on and recover a fair and proportionate contribution from other liable parties, such as the contractor and consultants, without being hamstrung by an earlier FtT order and then having to seek flowdown claims. The alternative is both uncertain and potentially very costly.
