The First Tier Tribunal has made its first Remediation Contribution Order (‘RCO’)’ pursuant to the Building Safety Act 2022 (‘BSA’).
The BSA introduced a raft of new tools to force remediation of buildings with fire safety defects. Such measures include the making of Remediation Orders and RCOs.
What is a RCO?
Pursuant to section 124 of the BSA a RCO is an order requiring a body corporate to make payments towards the cost of remedial works which have been or will be incurred and are required to remedy “relevant defects” relating to a “relevant building”.
A relevant building means a self-contained building or part of a building containing at least two dwellings and that is at least either 11 metres or five storeys high.
A relevant defect is defined in section 120 of the BSA as a building defect that arises ‘as a result of anything done (or not done) or anything used (or not used) in connection with relevant works that also causes a building safety risk’. Building safety risk is widely defined as a risk to the safety of people in or about the building arising from the spread of fire or the collapse of the building or any part of it.
Examples of what a RCO can be used for include the ability to require a developer or landlord to make payments in connection with remedying relevant defects or to ensure that leaseholders are reimbursed for costs already paid out for remediation works – as seen in the case the First Tier Tribunal has recently dealt with for the first time.
Who can apply for a RCO and who can it be made against?
Any “interested person” can apply for a RCO. An interested person can be the Secretary of State, the Building Safety Regulator, the local fire service, local authorities or anyone with a legal or equitable interest in the building (such as a leaseholder of a flat for example).
A RCO can be made against a landlord (current or historic so long as they were the landlord as at 14 February 2022), freehold owners, developers who undertook or commissioned the construction of the building (with a view to granting or disposing of interests in the building or parts of it) or any person associated with a landlord or developer. The definition of associated persons is wide but includes group companies, beneficiaries of a trust that holds the interest in the relevant building and partnerships, as well as companies sharing a director.
When will a RCO be ordered?
A RCO can be made pursuant to section 124 of the BSA if the FTT considers it ‘just and equitable’ to do so. The BSA does not define just and equitable and as such each case will turn on its own specific facts and will be subject to judicial scrutiny. The BSA’s explanatory notes confirm that the FTT is expected to take into account all appropriate factors when determining whether a RCO should be made.
Once a RCO has been made, if payments are not made in the specified timeframe, the RCO is enforceable in the County Court and the body corporate who is subject to the RCO can be held in contempt of court with sanctions including a fine or conviction.
Case facts – Arjun Batish and other leaseholders v Inspired Sutton Limited (1) Inspired Asset Management Limited (2) Tommy Lyons and James Friis (3)
18 leaseholders pursued Inspired Sutton Limited (‘Inspired’), the freehold owner of the building, for an RCO. Inspired was a Special Purpose Vehicle (SPV) established with the purpose of developing Sutton Court and then selling it on. Inspired did not however sell on the freehold interest after its development. Sometime after its development a number of defects were identified including unsafe ACM and HPL cladding and the presence of combustible materials on the balconies. Inspired served section 20 consultation notices pursuant to the Landlord and Tenant Act 1985 on the leaseholders for the remedial works and the leaseholders paid their share of the invoices.
The leaseholders subsequently applied for a RCO on the basis that the service charge costs they had paid fell within Schedule 8 of the BSA. Schedule 8 provides that no service charge is payable in respect of a relevant defect for which a relevant landlord (or associated person) is responsible. The leaseholders argued that it was ‘just and equitable’ for the FTT to grant the order.
The FTT made a RCO against Inspired for payment within 14 days of the total costs set out in the schedule provided with the application i.e. the service charges paid by the leaseholders.
Points from the FTT’s findings
It was clear that the costs incurred were to fund remediation of ‘relevant defects’ and that the defects caused a building safety risk.
With regard to the ‘just and equitable test’, the FTT determined that this was satisfied as the cost of the remediation works ought to have been met by Inspired. There was however very limited judicial commentary on the relevant legal test.
The FTT heard this case without legal argument as to interpretation of various provisions of the BSA from either party and without an oral hearing. Further the case provides little clarity as to what is meant by ‘just and equitable’. Each case will therefore turn on its own distinct facts and legal arguments raised.
This case does however show that the FTT is making use of powers granted by the BSA to ensure protection for leaseholders from payment of remediation works.