Who pays for cladding remediation in high rise buildings? Key takeaways from Redrow’s unsuccessful challenge against the Government

Introduction

In June 2024 the Court of Appeal handed down judgment in the case of Redrow PLC v The Secretary of State for Levelling Up, Housing and Communities (Secretary of State).

The case concerned Redrow’s application for judicial review of the government’s decision to allocate funds from the Building Safety Fund (BSF) to pay for major cladding remediation works to two of Redrow’s high rise developments and seek reimbursement from Redrow in the sum of c.£30m. Given the spotlight on remediation and who should foot the bill for it, the case attracted considerable interest.

Background

Post Grenfell, many high-rise blocks were found to have significant defects requiring remediation, particularly around the widespread use of combustible cladding. But who would pay for this?

Enter the 2020 BSF, designed to “fund the remediation of unsafe cladding systems on high rise residential buildings” and to “meet the cost of addressing life safety fire risks associated with cladding on high rise residential buildings where building owners (or other entities for making buildings safe) are unwilling or unable to afford to do so.” It is the “Responsible Entities” – those with legal obligation or right to carry out necessary remediation works, e.g. freeholder or head leaseholder or management company – who can apply to the BSF for funding.

The BSF guidance referred to a pledge signed by various major residential developers committing them in specified circumstances to remediation measures and agreeing to reimburse the BSF for funded remediation works to buildings they had developed/ refurbished. Among the signatories to the pledge were Redrow.

Facts

Redrow were developers of two high rise developments in Birmingham- Hemisphere and Jupiter 2. Both developments were found to need extensive works to remedy cladding defects. The management companies for the developments applied for funding to the BSF. Separately, some leaseholders made claims to their insurers under their 10-year home warranty policy.

Between May and August 2022 there were extensive communications over the Secretary of State’s approach of allocating BSF funding and requiring reimbursement from Redrow.  Redrow refused to reimburse. Insurers had now accepted liability in respect of Hemisphere and were expected shortly to confirm similar acceptance for Jupiter 2. Redrow argued that any attempt to require them to fund or carry out remediation work in those circumstances would be inconsistent with the approach to funding from the BSF and the principles on which the pledge was based. In particular, Redrow argued that the management companies were under an obligation to exhaust all other avenues of funding before procuring the remedial works. As a third party (here the insurers) had agreed to fund the works, the BSF applications should either be withdrawn or refused by the BSF.

On 26 August 2022, in the face of (as of then) no insurance payment outs and a need to press on with commencement of works, the Secretary of State issued its decision to allocate BSF funds and sought reimbursement from Redrow of all funds paid out, minus any insurance recovery. (In a further twist in October 2022, insurers declined to pay out given the BSF funding and Redrow’s liability to reimburse).

Redrow issued proceedings in November 2022 to judicially review the decision. That application and a subsequent renewed application for judicial review were refused.

The Appeal and outcome

Redrow subsequently appealed on two main grounds- the alleged unlawfulness of the decision and unfairness of the procedure -and lost on both. Court of Appeal judges LJ Dingemans and LJ Stuart- Smith agreed with LJ Coulson’s comments and conclusions on the main issues:

• Lawfulness of the decision
  • The decision was lawful and accorded with the BSF.
    • “I consider that the decision of 26 August 2022 was lawful. To the extent that the BSF guidance was relevant (and I think it was), the decision was in accordance with that guidance. The interested parties had taken all reasonable steps to pursue the insurer, and by the end of August 2022, the urgency of the remedial works was such that a funding decision was required.”
    • Responsible entities were not required under the BSF guidance to “exhaust all other avenues of funding” before being able to make an application for funding under the BSF. “The BSF guidance expressly anticipates that such claims may be ongoing at the time of the application, the allocation and the works themselves, and that whilst this would not affect the allocation of funds from the BSF, the Responsible Entities must pay any sums recovered from the third parties back to the BSF.”
    • The Secretary of State was entitled to conclude that although the insurer had accepted liability, there was no “unqualified promise to reimburse, much less actual hard cash.”
    • “In my view, whilst it may not necessarily be a “trump card” in every situation, the need for speed will be a significant factor in any decision to allocate funding under the BSF. That is because the whole basis for the BSF was the need urgently to address the cladding issues revealed by the Grenfell Tower disaster……… So here, whilst it was never suggested that it was a “trump card”, speed was an important factor for the [Secretary of State] to take into account when considering whether the interested parties had taken all reasonable steps in pursuing others, and when taking the decision.”

• Fairness of the decision
  • The decision was fair:
    •  There were extensive communications in the run up to the August 26 decision. Redrow “were able to (and did) participate in the process and were aware of the reasons why their principal objection to the BSF funding allocation had failed”.

(The case addressed other issues of standing and delay which are outside the scope of this article).

The key takeaways

The Redrow case confirms the following key points:

• The importance of funding decision-makers adhering to the BSF guidance.
• There is nothing to stop an application for funding being made before the outcome of any separate claims from third parties, such as insurers, is known.
• It is crucial for applicants to show that all reasonable steps to pursue those parties have been taken.

A link to the full judgment can be found here Redrow PLC & Ors, R (On the Application Of) v Secretary of State for Levelling Up, Housing and Communities [2024] EWCA Civ 651 (21 May 2024) (bailii.org)

Should you have any queries in relation to this case, any fire safety issues or in relation to other contentious construction or property matters, please contact Sarah Evans in our construction team or Ross Wilson in our real estate litigation team.