A significant recent decision concerning the Olympic Village development in Stratford has demonstrated the reach of “remediation contribution orders” made under the Building Safety Act 2022.

The decision requires the original developer and its parent company to contribute circa £18 million towards the costs of major cladding remediation works and associated costs, even though the ultimate beneficial owners of the developer have changed since the buildings were constructed. The case is notable as the application was made by a leaseholder who was not liable to contribute to the cost of the major works via the service charge, where funding for those works had been secured from the taxpayer funded “Building Safety Fund”.  That funding will now, no doubt, need to be repaid.

What is a Remediation Contribution Order?

The Remediation Contribution Order, or “RCO” is a creation of the Building Safety Act 2022 (“the Act”). An RCO can require the current landlord, former landlord (as at 14 February 2022) or developer of a building, or someone associated with them, to meet costs incurred or to be incurred in remedying relevant defects. The Act allows the First-Tier Tribunal (“FTT”) to grant an RCO in relation to a relevant building (i.e. a self-contained building or part in England that contains at least 2 dwellings and is at least 11 metres high or has at least 5 storeys) if it considers it just and equitable to do so.

The Olympic Village Application

The Olympic Village case concerned five residential buildings that were originally developed by Stratford Villa Development Partnership (“SVDP”) to provide accommodation for athletes and officials taking part in the London 2012 Olympic Games. The freehold is still owned on trust for SVDP, although the beneficial owners have changed since the buildings were first developed. Notably Get Living Plc (“Get Living”), which is known to be well financed, is now SVDP’s parent company but was not involved with the original development.

Beneath the freehold, a headlease of the buildings is in place to a management company (“EVML”), which has the responsibility to repair and maintain the structure and common parts. In this case, EVML is jointly owned by subsidiaries of Get Living as well as an affordable housing provider, Triathlon Homes LLP (“Triathlon”), who both, in turn, have underleases of various parts of the buildings. Those underleases provide for the underlessees to pay a service charge to EVML.

Following the Grenfell Tower fire, work was undertaken by EVML to identify the materials used in the construction of the building. Serious fire safety defects were discovered, relating to both the design and construction of the cladding systems used for the external facades. In response to the discoveries, a waking watch and other temporary measures were implemented.  A programme of works to remedy the defects is now ongoing. 

Although some of the costs associated with the waking watch and investigatory work were demanded via the service charge, the costs of the major works were not.  Instead, EVML secured circa £24.5 million of funding for those works from the Building Safety Fund. 

Triathlon made an application for SVDP (the original developer) and Get Living (in its capacity as SVDP’s parent company):

• to reimburse the costs which Triathlon had already paid via the service charge as undertenant (and to pay service charges demanded from, but not yet paid by, Triathlon to EVML); and
• to pay what would otherwise have been Triathlon’s share of the cost of the major works and professional fees to EVML.

It was acknowledged that the cost of the major works could not be recovered from Triathlon as an underlessee via the service charge (presumably due to the leaseholder protections in the Act). In view of this, one of the more interesting aspects of the case was that the application was still brought by Triathlon, in a context where public funding for the work had been secured. Triathlon explained its position by saying that it was concerned that funding for the works via the Building Safety Fund was not necessarily guaranteed, and that there may be a shortfall between the cost of the works and the funding secured.

The decision

The FTT granted the RCO, compelling SVDP and Get Living to pay EVML the total sum of around £18 million in respect of the cost of remediation works, professional fees, other remedial measures and additional costs. 

The FTT found Triathlon’s concerns regarding the availability of funding via the Building Safety Fund to be fanciful (saying that there was no good reason to believe that the remedial works would founder for lack of money), but the certainty of funding was not a reason to refuse the RCO. The Act provides a set hierarchy of liability for relevant defects, and it is not necessary for someone to be at fault in order to be liable. The FTT said that, in view of this, it would be difficult to see how it could ever be just and equitable for a party falling within that hierarchy, who is able to fund the relevant remediation works, to be able to claim those works should instead be funded by the public purse.

Much of the argument in the case concerned the question of whether it was “just and equitable” for the RCO to be made. Ultimately, it was relevant (and supported the making of the RCO) that SVDP was the original developer, and that Get Living is the entity on which it relies on for financial support. The FTT held that it was not relevant that the ownership of the developer had changed hands since the buildings were constructed.

The FTT also commented that it is possible for it to be just and equitable for an RCO to be made even where costs were incurred before the relevant parts of the Act came into force (28 June 2022). There might be a case where a person against whom an RCO is sought, in respect of costs incurred prior to 28 June 2022, could say that they had acted to their irretrievable prejudice, in the belief that they could safely expend the relevant funds as service charges validly demanded and received. In such a case there might be traction for an argument that it was not just and equitable to require that person to fund the relevant costs itself. That was not the case here. 

Implications for developers and building owners.

EVML will now recover circa £18 million from SVDP and Get Living. EVML will, no doubt, be liable to reimburse the Building Safety Fund and may look to pursue a claim against the original contractor.

Each RCO decision will turn on its own facts, as what is “just and equitable” will differ from case to case. That said, this decision was given by the President of the Lands Chamber and his Deputy, following argument by expert Counsel on both sides. As such, it provides significant insight into how the FTT will approach these applications, and the factors that are likely to be relevant. 

The decision itself will make worrying reading for some, however. That the FTT made this order even though the beneficial owners of the original developer had changed since the building was constructed will be unwelcome news to many who have purchased buildings containing defects. The decision clearly demonstrates that entities may still be liable for remediation costs, even where they did not have any involvement with the building at the time it was redeveloped or where they have secured funding from the Building Safety Fund. Anyone contemplating the share purchase of a real estate company will now be well advised to carry out due diligence on all properties previously developed or owned by that entity, as well as existing ones.  

The decision also makes clear that funding from the Building Safety Fund can not be relied upon as a permanent solution. The grant funding agreements entered into when Building Safety Fund monies are allocated require monies to be repaid where they can be recovered from a third party. This decision demonstrates that the RCO route has significant teeth and makes it more likely that the Building Safety Fund will expect these applications to be made. 

It also remains to be seen whether the Building Safety Fund will now ask for RCO applications to be pursued before monies are granted. It is possible that they may now view an RCO as a viable alternative method of securing short term funding for necessary works, given the relative speed with which these applications can be brought compared with High Court litigation.

Key Takeaways

• The taxpayer should be the last resort for funding to remediate defective buildings. 
• An RCO can be made against the current landlord, former landlord (as at 28 June 2022) or developer of a relevant building, even if the shareholders have changed since the building was developed.
• An RCO can still be made in respect of works carried out prior to 28 June 2022, which were funded via the BSF. If an RCO is made in such circumstances, the BSF will need to be repaid.
• It remains to be seen if the Building Safety Fund’s approach to granting funding will now change.