Batish v Inspired Sutton Ltd: an early application for a Remediation Contribution Order

A number of different sections in Part 5 of the Building Safety Act 2022, including the power to make remediation contribution orders, have been in force since 28 June 2022. The decision of the First-tier Tribunal Property Chamber (Residential Property) (‘the FTT’) in Arjun Batish and other leaseholders v Inspired Sutton Ltd and others (2023) LON/00BF/HY/2022/002 is one of the first to be reached under these new provisions. It therefore gives an early insight into how the FTT is likely to approach such cases. Some caution is required when trying to reach conclusions from this case as that none of the parties were legally represented, and the First Respondent, Inspired Sutton Ltd, was debarred from taking part in the final part of the proceedings. Despite this, the decision demonstrates the potential scope of the new jurisdiction to make such orders.

The facts

The application was made by eighteen leaseholders of fifteen long leases at 9 Sutton Court Road in Sutton. The building itself is a high-rise block of flats that was converted from office accommodation in around 2017. Inspired Sutton Ltd was both the developer who carried out the conversion and the freeholder of the building.

The leaseholders and Inspired Sutton Ltd were aware that the materials used in the development, including ACM and HPL cladding, constituted a significant fire risk. Inspired Sutton Ltd therefore engaged contractors to carry our remediation work. On 27 September 2020, the lessees were served with a consultation under section 20 of the Landlord and Tenant Act 1985 in respect of the works. An application was made for a grant in respect of the works, but while the cladding remediation itself was funded, the works to replace balconies that also constituted a fire risk were not. The works commenced in February 2021. On 3 March 2021, Inspired Sutton Ltd issued invoices to the leaseholders in respect of the balcony remediation works.

There were four other respondents to the application besides the freeholder / developer. A company in liquidation, Inspired Asset Management Ltd, was described as the parent company to Inspired Sutton Ltd and two directors of Inspired Sutton Ltd were also named as respondents to the application.

The legislation

The FTT identified that the main policy drivers behind the Building Safety Act 2022 were the recommendations made by Dame Judith Hackitt in her interim report and her final report into building safety following the Grenfell Tower fire in June 2017.

Section 124(2) of the Building Safety Act 2022 describes that a remediation contribution order is “an order requiring a specified body corporate or partnership to make payments to a specified person, for the purpose of meeting costs incurred or to be incurred in remedying relevant defects (or specified relevant defects) relating to the relevant building” [emphasis added]. In this case, the costs of the remediation had already been incurred by Inspired Sutton Ltd, and the leaseholders had already paid for the parts of the cost of the remediation not covered by the grant through their service charges.

Section 124(1), however, states that the FTT may only make a remediation contribution order “if it considers it just and equitable to do so.” The precise way in which the FTT should apply this test has yet to be clarified.

The decision

At the Case Management Hearing, the FTT made directions requiring comprehensive statements of case; it was spelled out in the directions order that if Inspired Sutton Ltd failed to comply with these directions, then it might be barred from taking further part in the proceedings. Inspired Sutton Ltd did not produce a statement of case, and as a consequence, it was barred from taking part in the proceedings ahead of the final hearing. In fact, at the hearing, one of the directors of Inspired Sutton Ltd attended to confirm that he was not aware of any defence to the claim.

The applications against the two directors were dismissed. The FTT noted that a remediation contribution order is an order requiring a “specified body corporate or partnership” to make payments: as neither director fell within this definition, the application against them was dismissed.

The FTT decided to make a remediation contribution order against Inspired Sutton Ltd. In terms of the qualifying criteria, under sections 117 and 124(2) of the Building Safety Act 2022, the building was a relevant building being structurally detached and at least five storeys high, while the lessees were interested persons holding legal interests in it. Inspired Sutton Ltd was a relevant specified body corporate. The FTT held that the costs did relate to ‘relevant defects’, and in particular, that the defects constituted a ‘building safety risk’ within the meaning of section 120(5) of the Building Safety Act 2022.

At paragraph 45, the FTT noted that, “We can only make a remediation contribution order if we consider it just and equitable to do so.” In this case, the FTT considered (paragraph 48) that, to satisfy this test, they had to be “satisfied that the lessees paid for the cost of works which ought to have been met by Inspired Sutton Limited.”

The FTT referred to paragraph 2 of Schedule 8 of the Building Safety Act 2022: this provides at 2(2) that, “No service charge is payable under the lease in respect of a relevant measure relating to a relevant defect if a relevant landlord— (a) is responsible for the relevant defect”. As Inspired Sutton Ltd was the developer and the landlord under the lease at the qualifying time, by reference to paragraph 10 of Schedule 8, the FTT considered that the costs were not to be regarded as relevant costs to be taken into account when calculating the amount of the service charge. The FTT was satisfied that there were “no mitigations or other matters to be taken into account in the exercise of its discretion”; accordingly, the applicants were entitled to a remediation contribution order.

As for the costs, the Applicants claimed the amounts that they had paid, which was evidenced by the relevant invoices and proof of payment. This was apportioned in respect of each leaseholder. In total, the remediation contribution orders came to £194,680.62.

The company in liquidation which had been named as a party was removed from the proceedings, pursuant to section 130(2) of the Insolvency Act 1986; under this provision, no action or proceedings can be commenced against a company in liquidation save with leave of the court, which had not been obtained.

A narrow view of just and equitable?

It is unclear why the FTT took the view that it would only be just and equitable to make a remediation contribution order if the lessees had paid for works which the freeholder / developer ought to have paid for. Section 124(3) allows such an order to be made against a range of potential respondents, including persons associated with landlords or developers within the meaning of section 121: in many cases, it will not be possible to demonstrate that an associate of such a person is liable as a matter of contract or tort for the cost of remediation. Indeed, part of the purpose of the remediation contribution order regime is to order parties who would not otherwise be liable for the cost of remediation but who, on a just and equitable basis, should be made liable, to make payment. It might well be that the FTT will adopt a more expansive understanding of this test in future cases.

What the case does demonstrate, however, is the retrospective reach of remediation contribution orders. The definition of ‘relevant defects’ in section 120 refers to defects in connection with works that may have taken place as long ago as 30 years prior to the section coming into force on 28 June 2022, that is, in 1992. Subject to the ‘just and equitable’ test, it might well be possible for leaseholders to recover historic service charge demands.

At the moment, remediation contribution order disputes which are being contested on their facts in multi-day hearings are being listed in June or July 2023 onwards. It is likely that we shall begin to see the results of claims under section 123 (remediation orders) and section 124 arriving in the next few months.