FTT makes first contested Remediation Contribution Order under the Building Safety Act

The First Tier Tribunal (“FTT”) has published its decision in the first contested application for a Remediation Contribution Order (“RCO”) under section 124 of the Building Safety Act 2022 (“BSA”). In granting orders against the original developer and its parent company, the FTT has clarified the extent of the power to grant RCO’s and the way in which its “just and equitable” discretion will be exercised in the future. The FTT’s decision will be required reading for any parties involved in bringing or responding to applications for RCOs.

Background

The case concerned 5 residential buildings in Stratford which were originally developed by Stratford Village Development Partnership (“SVDP”) as accommodation to be used by athletes and officials participating in the London 2012 Olympic Games. After the conclusion of the Olympic Games, the development (now known as ‘East Village’) was redeveloped as a residential estate comprising both private rented and affordable housing.

The Applicant, Triathlon Homes LLP (“Triathlon”) was established to provide affordable housing at East Village and owns all of the social and affordable housing. The Second Respondent, Get Living Plc (“GL Plc”) is a property company specialising in the private rental market and owns all of the private housing at East Village. GL Plc also now owns SVDP, although it did not at the time the property was originally developed.

The Third Respondent., East Village Management Limited (“EVML”) is the management company and is responsible for the repair and maintenance of the structure and the common parts of the development. EVML is jointly owned by GL Plc and Triathlon.

As a result of the Grenfell Tower fire, EVML undertook investigations into the materials used in the construction of the blocks at the development. These investigations established that ACM was present as well as other materials and defects which caused fire safety risks. A waking watch was therefore implemented until an additional alarm and heat detection system was installed as a temporary measure.

Ultimately, the cladding was to be removed and replaced at a cost of more than £24.5million. This was initially to be funded by the Building Safety Fund (a successful application was made and the works were being implemented).

The Application

Triathlon applied for RCOs under section 124 of the Building Safety Act 2022 (“BSA”) requiring SVDP and GL Plc to reimburse:

1. service charges already paid by Triathlon to EVML relating to the investigations and interim measures put in place;
    
2. further service charge liabilities demanded by EVML but not yet paid (and costs anticipated but not yet demanded); and
    
3. £16.03million, being Triathlon’s share of the total remediation costs.

As a leaseholder, Triathlon constituted an ‘interested person’ for the purposes of the BSA and it was therefore entitled to make an application for a RCO. There was no dispute over whether the blocks were relevant buildings for the purposes of the BSA or whether the defects discovered were relevant defects.

The FTT considered the following questions:

1. Can a RCO be made in relation to costs incurred before the commencement of the BSA?
   Yes. Section 124 of the BSA clearly states RCOs can be made for the purposes of meeting costs incurred or to be incurred and this is supported by the Explanatory Notes. It is also consistent with the way in which the FTT interpreted the Schedule 8 protections in Adriatic Land 5
    
2. By whom must the costs have been incurred?
   Although it wasn’t necessary to decide this, the FTT said it would have been minded to find it was necessary for costs to be incurred by the person who remedied the relevant defect.
    
3. Can a RCO be made in respect of the costs of preventing risks or reducing the severity of risks or only in respect of the cost of remedying relevant defects?
   Yes. The FTT stated that any measure which either eliminates a defect altogether or reduces it to a point where it not longer presents a risk to the safety of people in/about the building from fire/building collapse would cause it to cease to be a relevant defect. In that case the relevant defect would have been ‘remedied’.
    
4. Is it ‘just and equitable’ to make a RCO against SVDP and GL Plc?
   There is no guidance in section 124 on how the FTT is to exercise its ‘just and equitable’ discretion. However, the FTT considered a number of factors as part of its analysis of whether it was ‘just and equitable’ to make the RCO. 
   
   Those factors of particular importance included:

• SVDP was the developer – the policy of the BSA is that primary responsibility for the cost of remediation should fall on the original developer and that others who have a liability to contribute can pass on the costs their incur to the developer;
   
• SVDP depends on GL Plc for financial support – the purpose of the association provisions under the BSA is not to enable wealthy parent companies to evade responsibility by hiding behind a separate development company with limited means;
   
• The fact that funds for the remediation works had already been obtained from the BSF was not a reason against making a RCO. The public interest in securing reimbursement of those funds as quickly as possible so that they could be used to remediate other buildings pointed strongly in favour of making an order. Further, the FTT did not consider it would ever be just and equitable for a party well able to fund remediation works to be able to claim that the works should instead be funded by the ‘public purse’.
   
• Evidence of hardship by individual property owners particularly where this is caused by remedial works being delayed by a lack of funding (although it is of much less weight where funding has been secured).

By contrast, the following considerations were found to be of little or no weight in the exercise of the discretion:

• Changes of beneficial ownership in SVDP and GL Plc. Parties which acquire development vehicles rather than purchasing land and buildings were said to accept the risk that the development vehicle will incur liabilities in relation to the development.
   
• The source or extent of SVDP’s and GL Plc’s assets or liabilities.
   
•  The ability of SVDP or GL Plc to pursue third-parties in respect of the costs of remediation.
   
• The ability of Triathlon, as applicant, to pursue third-parties in respect of the costs of remediation. Section 124 is an independent remedy which is essentially non-fault based and which seeks to avoid an applicant having to become involved in, or to wait upon, the outcome of other claims in relation to the defects.
   
• Existing contractual relationships involving Triathlon, SVDP and/or GL Plc. Parties cannot contract out of the BSA.

Conclusion

The FTT granted RCOs against SVDP and GL Plc (with provision for contributions/repayment in the event that litigation against other members of the design and/or construction team were successful). The RCOs required the money to be paid to EVML, who were the party ultimately incurring the cost of the works.

The FTT’s decision provides a great deal more clarity over the circumstances in which RCOs will be granted and, in particular, as to how the “just and equitable” test will be applied. The decision emphasises the irrelevance of fault-based arguments as to whether or not an RCO should be granted, prioritising the BSA’s policy aim of holding developers and their associated entities responsible for remediation costs in the first instance pending the recovery of those costs through any fault-based proceedings.

References: Triathlon Homes LLP v Stratford Village Development Partnership [2024] UKFTT 26 (PC)