The Building Safety Act 2022: Remediation Orders and Remediation Contribution Orders

Quick re-cap

Five years in the making, the 254-page landmark Building Safety Act (BSA) received Royal Assent on 28 April 2022. As widely reported, the BSA forms a central and core pillar of the Government’s response to the Grenfell disaster in June 2017 and is set to bring about the largest statutory intervention ever seen in the built environment in England.

In a new series of briefings that are focused on the BSA, our Built Environment Team considers the features of the proposed new framework. More than two months have passed since:

• the BSA came into force 
• the tax measures that will underpin it
• the important new (and expanded) causes of action (and extended limitation periods)
• recent changes to the Building Regulations 

A new rectification regime

Given the genesis of the BSA, it is no surprise that a new rectification regime is also set to be introduced in order to remedy building safety defects for certain residential buildings in England. Sections 116-125 of the BSA are particularly newsworthy, given the new provisions that are aimed at protecting leaseholders and also introducing a cascade principle of liability pursuant to which developers and cladding manufacturers are expected to pay first, followed by freeholders: leaseholders are expected to be the very last payees, rather than the first.

Whilst the commencement date for this part of new regime is yet to be confirmed (and likely still some way off in the future), the first of many new regulations concerning its operation can be passed into law from 28 June 2022. 

In this briefing, we analyse the new rectification regime and how it is set to change fundamentally the nature and liability of building safety defects for certain residential buildings in England. 

28 June: the gateway to a new future of building safety defects liability

From 28 June 2022, the BSA will introduce two new concepts into English law:

• the remediation order (S123) and 
• the remediation contribution order (S124). 

These concepts and their supporting provisions were introduced at a very late stage of the parliamentary approval process for the BSA, so currently the legal framework is very light on detail as to how these forms of orders are to operate. Nonetheless, it is clear from the wording of the BSA that these orders will have significant and widespread implications.  

Many of the practical elements concerning how remediation orders and remediation contribution orders will work are reserved for supplemental regulations. At the time of publication of this briefing, only one regulation has been issued in draft for further consultation (The Building Safety (Leaseholder Protections) (Information etc.) (England) Regulations 2022). 28 June 2022 is nonetheless significant: from this date, the Secretary of State will be authorised to pass further regulations in connection with SS123-124, so expect the rectification landscape to evolve considerably as further details of the regulations become clear. 

Remediation orders

Under S123 BSA, the First-Tier Tribunal (FTT) will be able to make, on the application of an interested person, an order requiring a relevant landlord to remedy specified relevant defects in a specified relevant building by a specified timeframe. A remediation order is set to be enforceable (subject to the permission of a county court) in the same way as an order of a county court. Each of these highlighted terms are defined by the BSA and are explored further below.

Remediation contribution orders

Another new form of order that may be made by the FTT under S124 BSA – if it considers it ‘just and equitable to do so’ on the application of an interested person – is an order requiring a specified body corporate or partnership to make payment of a contribution towards the costs of remedying relevant defects. In this context, the body corporate or partnership can be any of the current landlord (or the former landlord at the qualifying date of 14 February 2022 if the building has subsequently been sold), the developer or a person or company associated with either of them. 

In addition to the ability to pursue landlords through remediation orders and remediation contribution orders, the BSA amends the laws of insolvency so that if, in the course of winding up a company which is a landlord, it appears it is under an obligation to remedy any relevant defects or liable to make a payment relating to the costs of remedying any relevant defects, then on the application of an insolvency practitioner in relation to the company, the court (having jurisdiction to wind up the company) can make an order requiring an associated company to make such contributions to that liability as the court considers ‘to be just and equitable’. 

The aim in relation to this significant development is to increase the extent of the financial pot available to distribute to creditors. 

Interested persons who may commence an application

An application for either a remediation order or a remediation contribution order can be brought by any interested person, in respect of which ss123(5) and 124(5) BSA set out a finite list, being: 

• the Secretary of State¹;
• the Health and Safety Executive;
• the Local Authority for the area in which the relevant building is situated;
• any fire and rescue authority for the area in which the relevant building is situated; and 
• any person with a legal or equitable proprietary interest in the relevant building. 

The BSA anticipates that further groups or individuals may be added to this prescribed list through further regulations. 

The relevant building

The new rectification regime does not apply to every building in England. 

Sections 117-118 of the BSA introduce the concept of a ‘relevant building’. In order to be the subject of either a remediation order or remediation contribution order, the relevant building in question must be a self-contained building or self-contained part of a building which contains at least two dwellings and is either:

• at least 11 metres high (measured from ground level to the finished surface of the floor of the top storey of the building); or 
• at least 5 storeys tall. 

However, the relevant building cannot include a self-contained building or self-contained part of a building which is effectively already leaseholder-owned as a result of one of the various statutory leaseholders rights having been exercised previously, namely: 

• tenants’ right of first refusal under Part 1 of the Landlord and Tenant Act 1987 (LTA 1987); or 
• compulsory acquisition by tenants of landlord’s interests under Part 3 of the LTA 1987; or
• collective enfranchisement under Part 1 of the Leasehold Reform, Housing and Urban Development Act 1993.

Relevant Defect

The definition of relevant defect is noticeably wide. Under s120, a relevant defect means a defect in the building that arises as a result of anything done (or not done) or anything used (or not used) in connection with relevant works and that causes a building safety risk i.e. a risk to the safety of people arising from the spread of fire or the collapse of the building or any part of it. 

Relevant works are works relating to the construction or conversion of the building or works undertaken or commissioned by a relevant landlord or management company and completed in the last 30 years (i.e. dating back to 28 June 1992), or works undertaken after that period to remedy a relevant defect. Again, the definition is noticeably wide and the retrospective limitation period (dating back to a time period when many documents may have been lost or destroyed), is likely to prove a constantly recurring problem.

Remediation Costs and Service Charges

Aside from remediation orders and remediation contribution orders, new protections relating to certain remediation costs are also introduced for certain leaseholders under section 122 and Schedule 8 of the BSA , which also impose imposing corresponding liabilities on certain landlords. 

Any tenant of a qualifying lease will not be liable to pay a service charge in respect of cladding remediation, or in respect of legal or other professional services relating to the liability (or potential liability) of any person incurred as a result of a relevant defect. The intention of these provisions is clear – to protect leaseholders from being worse off as a result of unsafe cladding fitted to the exterior of their flats through no fault of their own. 

A qualifying lease is any long lease (more than 21 years) of a dwelling within a relevant building that was granted before 14 February 2022, so long as at the beginning of 14 February 2022 the dwelling was the relevant tenant’s only or principal home and the tenant either (1) did not own any other dwelling in the United Kingdom or (2) did not own more than two dwellings in the United Kingdom apart from their interest under the lease. If there are two or more leases in relation to one dwelling which qualify based on the above criteria, then the superior lease does not qualify.

Otherwise, the BSA provides that no service charge will be payable in respect of a relevant measure relating to a relevant defect in a number of different instances (see below).

These provisions cover not just the costs of remedying the relevant defect, but all costs incurred for the purpose of preventing a relevant risk from materialising, or reducing the severity of an incident resulting from a relevant risk materialising. This is clearly intended to include consequential costs such as waking watch and temporary alarm costs and the like.

1. Firstly, under paragraph 2 of Schedule 8, no service charge will be payable under a qualifying lease in respect of a relevant measure relating to a relevant defect where the relevant defect is one for which their landlord is responsible or for which an associate of the landlord (i.e. broadly a developer associated with the landlord) is responsible. 
2. Secondly, under paragraph 3 of Schedule 8, no service charge will be payable under a qualifying lease in respect of a relevant measure relating to a relevant defect if at the qualifying time (being 14 February 2022) the landlord’s group’s net worth was more than N x £2mn, where N is the number of relevant buildings owned by the group. 
3. Thirdly, under paragraph 4 of Schedule 8, no service charge will be payable in any event under a qualifying lease in respect of a relevant measure relating to a relevant defect if the value of the lease is less than £325,000 in London and £175,000 elsewhere. 

Further, where a service charge would otherwise be payable under a qualifying lease in respect of a relevant measure relating to any relevant defect, the BSA also imposes a cap under paragraphs 5 and 6 of Schedule 8. The permitted maximum is £15,000 in London and £10,000 elsewhere, increasing nationally to £50,000 for premises valued between £1,000,000 - £2,000,000, and to £100,000 for those above £2,000,000. Notably, contributions by the same tenant in the 5 years before commencement of paragraph 5 of Schedule 8 count towards these totals and provision is made for an annual cap on recovery going forward of one tenth of the permitted maximums.  

Impact of the changes

Clearly, the BSA contains extensive provisions aimed at improving building safety, with significant provision to protect some lessees from cladding remediation and other building safety costs and by imposing on their landlords obligations to obtain grants or recover costs from third parties where possible. 

Whilst it remains to be seen what effect further regulations have on the legal framework of remedial orders and remedial contribution orders, the Government’s intention for these sections of the BSA has always been distinctly clear:

“It is unfair that innocent leaseholders, most of whom have worked hard and made sacrifices to get a foot on the housing ladder, should be landed with bills they cannot afford to fix problems they did not cause. We are clear that we want those responsible for building defective buildings – developers and construction products manufacturers – to pay the bulk of costs for remediation.”

To that end, remediation orders and remediation contribution orders are set to change significantly the construction sector and those who operate within the English residential property market.  

One of the most important elements is the FTT’s power to order the rectification works to be completed within a certain timeframe.  Whilst the primary aim is clear; to make mid-rise and higher-rise residential blocks safe as quickly as possible; it remains to be seen (from the as-yet-unpublished regulations) if and how the FTT will have the ability to fast-track an order, allowing decisions to take practical effect urgently and resolve the existing significant issues faced by leaseholders. 

The concept of a 30-year limitation period is also unprecedented and will cause concern for developers, contractors and design professionals.