Remediation Contribution Orders – The floodgates will soon be open

The introduction of the Building Safety Act 2022 brought hope to thousands of tenants that the fire safety defects plaguing their high rise buildings would finally be remediated at no cost to themselves.  Two years on there are many thousands of tenants who are still waiting, however s117 Leasehold and Freehold Reform Act 2024 (which comes into effect on 24 July 2024) should swiftly turn that hope into reality (but there is a catch).

Having acted for a great number of Residential Management Companies (RMCs), Right to Manage Companies (RTMs) and tenants in fire safety related matters, I have personally seen the remediation of at least 10 defective buildings stall because of the following:

1. RMCs, RTMs and tenants first take advice from and incur the costs of a fire safety engineer and a solicitor. Usually the RMC or RTM is liable to undertake the remedial works but not to cover the cost of those works;
2. After letters before action are sent to Developers, Freeholders and other third parties, they all understandably point the finger at each other as to who has to pay and in what amounts;
3. The blame game leads to inaction and RMCs, RTMs and tenants are left to take action;
4. Whilst it is correct to consider and apply for one of the Government’s funding schemes, this invariably does not cover the full cost of exterior remedial works and covers none of the interior remedial works. This tends to leave a significant shortfall and the remedial works stall;
5. The RMCs, RTMs and tenants therefore look to apply for Remediation Contribution Orders (again with the help and cost of legal and other professionals);
6. The First Tier Tribunal (Property Chamber), in which such applications must be made, does not have the jurisdiction to make cost awards against Developers and freeholders in most situations. RMCs, RTMs and tenants must therefore cover the cost of such applications, most of which will cost hundreds of thousands of pounds each;
7. For tenants, they must have sufficient wealth to shoulder such a significant cost burden. Even if this is the case, it only takes one of them to either be unwilling or unable to cover their share of the cost burden for the application to stall. This is understandable for the non-participating tenant when the Government promised they would not have to pay for the cost of remediating their building;
8. One solution would be for the RMCs and RTMs to equally share the cost between both participating and non participating tenants via the service charge mechanisms. Unfortunately the Building Safety Act 2022 expressly prevented such costs from being passed on via service charges to most tenants. This would again result in the application stalling; and
9. Due to this funding issue, the building would remain unsafe.

From 24 July 2024 this funding issue will no longer exist as s117 Leasehold and Freehold Reform Act 2024 permits the recovery of professional costs, via service charges, incurred by a RMC or RTM which is considering and / or applying for a Remediation Contribution Order.

I therefore expect the Remediation Contribution Order floodgates to burst open as a torrent of eager RMCs and RTMs, who have patiently been waiting two years, can now fund these applications. Having also acted for Developers, freeholders, contractors and sub-contractors in fire safety matters, this should also act as a warning that they are likely to either be on the receiving end of a significant number of (1) Remediation Contribution Order applications or (2) Part 20 applications where Developers look to shift some or all of their financial liabilities onto third parties.

I did, however, say there would be a catch. Two in fact. These are:

1. Any professional costs incurred by the RMC or RTM before 24 July 2024 cannot be passed on via the service charges. It is highly likely that such costs have already been incurred so the question remains how are these costs to be paid and by whom? It is disappointing that the Government decided not to address the issue of legacy costs as this could lead to service charge disputes in the future (as some RMCs or RTMS may choose to recover the costs via service charges in any event); and
2. I strongly suspect that tenants who are not happy with the change brought about by s117 will look to limit their financial exposure by challenging the reasonableness of the service charges under the Landlord and Tenant Act 1985. This will then divert the RMCs and RTMs attention, time and resources away from the Remediation Contribution Order applications. In a worst case scenario, it could mean the costs of the application again become unaffordable and it again stalls.

An easy fix to both of these issues would be to allow the First Tier Tribunal (Property Chamber) to make cost awards against Developers and freeholders in all applications, however this does not appear to be on the horizon.

To note, there are further changes coming into effect on 24 July 2024 concerning the Building Safety Act which fall outside the scope of this article. Having acted for Developers, freeholders, RTM’s, RMC’s, tenants, contractors and subcontractors on many areas of the Building Safety Act, please feel free to contact me regarding the content of this article or any other issues you may be experiencing on the issue of fire safety – https://www.spencer-west.com/team/ross-wilson/.

Should you have any fire safety construction related issues, please also feel free to contact another excellent partner at Spencer West, Sarah Evans – https://www.spencer-west.com/team/sarah-evans/.