Emma Knight is a principal associate and Brett Mason is an associate at law firm Gowling WLG
The Upper Tribunal (Lands Chamber) recently handed down judgment in Adriatic Land 5 Limited v The Long Leaseholders at Hippersley Point, considering the effect of paragraph 9 of schedule 8 of the Building Safety Act 2022.
Contractors and design consultants should be aware of the judgment’s potential practical effect, as Building Liability Orders (BLOs) may be sought against them under the Building Safety Act. Historical losses arising from a building-safety risk may be caught by the ‘retrospectivity’ interpretation, and consequently potentially recoverable under a BLO.
Paragraph 9 provides that no service charge is payable under a qualifying lease 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.
This protection only applies to ‘qualifying leaseholders’ (s.119 Building Safety Act – individual leaseholders of residential units who hold the leasehold as their primary residential home).
Overview
The appellant/applicant was the freehold owner of a mixed-use building containing long-lease residential flats. The respondents were the long leaseholders.
The original application for dispensation from consultation requirements in section 20 of the Landlord and Tenant Act 1985 was made to the First Tier Tribunal due to the urgent need for facade remediation works and interim fire-safety measures.
The tribunal granted the application, and made a section 20C order of the 1985 Act, preventing the appellant from recovering its costs of the dispensation application from the respondents by their lease service-charge provisions (the ‘costs’).
The tribunal reversed its section 20C order on appeal, and instead made it a condition of the grant of dispensation that the appellant should not be entitled to recover the costs from the respondents (the ‘costs condition’).
In granting an appeal on the costs condition, the Upper Tribunal considered whether the costs were, regardless, affected by paragraph 9, such that no service charge was payable in respect of the costs by any qualifying leaseholder.
The Upper Tribunal’s decision centred on two questions:
- Could the Upper Tribunal uphold the costs condition? (‘Question 1’)
- Regardless of question 1, does paragraph 9 affect recovery of the costs? (‘Question 2’)
This article focuses on question 2, as it is likely to have an effect on understanding ‘retrospectivity’ within the realms of schedule 8 of the Building Safety Act. Regarding question 1, the Upper Tribunal decided it could not uphold the costs condition on both procedural and substantive grounds.
Question 2
The appellant’s case (ie, paragraph 9’s protections should not apply) was twofold:
1. Retrospectivity
At the time of the original application, the Building Safety Act was not in force. As the costs were incurred before it came into force, Paragraph 9’s protections could not apply.
Alternatively, if the costs were caught by paragraph 9, they still could not be afforded paragraph 9’s protection, as they were already demanded/payable before schedule 8 came into force.
2. Paragraph 9 is not applicable to the costs
The appellant submitted that the costs were not incurred “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 costs are not concerned with the underlying liability of an original wrongdoer (say the developer/contractor), but rather are a standard cost forming part of a service charge.
The Upper Tribunal’s decision
Applicability of paragraph 9 to the costs
The Upper Tribunal concluded that the ‘liability’ referred to in paragraph 9 includes any person and assumed the appellant’s liability to carry out works could arise both from leasehold obligations as well as from the Building Safety Act’s provisions (exemplifying s.123 of the Building Safety Act). Therefore, it determined that the ‘liability’ applied to paragraph 9.
Regarding identification of the paragraph 9 ‘services’, the key point was that they must be services ‘relating to’ the liability. The Upper Tribunal found that such a relationship exists between the costs of a dispensation application made by a landlord (and by extension the services) relating to works required to remedy a relevant defect, and the landlord’s liability to remedy that defect.
Therefore, the costs applied to paragraph 9, subject to the applicant’s retrospectivity argument.
Retrospectivity
The Upper Tribunal ultimately concluded it does not matter when the costs were incurred, as paragraph 9 is not framed by reference incurring the costs, it relates to the liability/potential liability where there is a qualifying lease.
It also found that the alternative retrospectivity argument does not fit with the language of paragraph 9.
Conclusions
- The costs apply to paragraph 9, notwithstanding the date paragraph 9 was brought into force.
- The costs are therefore not recoverable from the respondents who are qualifying leaseholders, regardless of when they were incurred and/or became due for payment.
At the time of writing, permission to appeal has been granted.
