Lawbite: BSA 2022 - cladding remediation costs

This important recent decision of the Upper Tribunal (“UT”) considered and clarified the treatment of service charge recovery for “cladding remediation” under the Building Safety Act 2022 (“BSA 2022”).

The case confirms that the service charge protection in paragraph 8 of Schedule 8 BSA 2022 is not limited to cladding related defects which pose a fire risk or “building safety risk” as defined in the BSA 2022. It applies to all defects which render cladding “unsafe”. There is also no requirement for such a defect to have arisen in the 30 years prior to 28 June 2022. In this case the protections were found to apply to defects arising from when the building in question was constructed in the 1960s.

The UT’s findings mean that the leaseholder protection is wider reaching than perhaps originally envisaged.

The decision will be of interest to landlords, tenants, property investors and all who manage building safety risk in affected buildings in England.

The building

The appellants, Almacantar Centre Point Nominee No.1 Ltd and Almacantar Centre Point Nominee No.2 Ltd (“Almacantar”) are the freeholder landlords of Centre Point House, part of the Centre Point estate near Tottenham Court Road, London (“CPH”). The respondents were several leaseholders of CPH.

The case concerned Almacantar’s application to the First-tier Tribunal (“FTT”) made under section 27A(3) of the Landlord and Tenant Act 1985, for a determination that the leaseholders were liable to pay the costs of repairing CPH’s 1960’s original façade through the service charge provisions in their leases. The original façade comprised of a timber-frame and single-glazed windows above spandrel panels and the remediation costs exceeded £6 million.

The decision at first instance

The FTT determined that as the leaseholders held “qualifying leases”, paragraph 8 of Schedule 8 to the BSA 2022 prevented Almacantar from recovering the costs of replacing the façade on the basis that this was “cladding remediation”.

The status of the leases had been in question but the FTT applied the presumption set out at paragraph 13 of Schedule 8 and found that the leaseholders held “qualifying leases” (as defined in s119 of the BSA 2022) and were therefore entitled to the leaseholder protections contained in BSA 2022.   Almacantar had not taken any steps to rebut this presumption i.e. by requesting a leaseholder deed of certificate from those leaseholders in accordance with Regulation 7 of the Building Safety (Leaseholder Protections) (Information etc.) (England) Regulations 2022 (the “Regulations”).

Almacantar appealed, arguing that the defects fell outside of the  scope of the BSA’s leaseholder protections, and also that the respondents did not hold qualifying leases.

The UT’s decision

The UT upheld the FTT’s findings.

One of the key questions for the UT was whether paragraph 8 of Schedule 8 (which provides that no service charge is payable by a qualifying leaseholder in respect of cladding remediation), should be read in isolation from sections 116 and 122 of the BSA 2022 (which state that certain service charge amounts relating to defined “relevant defects” in a relevant building are not payable).

It determined that paragraph 8 of Schedule 8 is a freestanding provision which should be read independently of ss116 and 122.  Therefore, provided that a tenant is a qualifying leaseholder and the remedial works fall within the definition of “cladding remediation”, a landlord cannot recover the costs of remediating the cladding.

This also means that the 30-year timeframe which applies to “relevant defects” under BSA 2022 does not apply to cladding systems and a landlord will not be able to recover the costs of remediating an unsafe cladding system from qualifying leaseholders, regardless of its age, and the reason why it is unsafe.

The UT also found that paragraph 8 is not limited to defects which pose a fire or “building safety risk”. It applies where cladding is considered unsafe but this is to be given its ordinary and natural meaning and does not mean the same as the defined term “building safety risk” in the BSA 2022. In this case the cladding was found to be unsafe due to the risk of components falling from the building causing injury to residents and members of the public.

The UT would not interfere with the FTT’s findings on the “qualifying lease” and “cladding remediation” points.

Key points

• This decision demonstrates how widely the Tribunal will interpret the provisions of the BSA 2022 in order to protect qualifying leaseholders from liability for remediation costs
• It has wide ranging implications for freeholders of relevant buildings with unsafe cladding systems in that they will be unable to recover the costs of remediating the cladding systems from qualifying leaseholders through the service charge and such costs can be significant. The UT repeated its comment from its decision in the Adriatic Land case on BSA and service charge: “what might be seen as unfair results are… simply a reflection of life in the new world of [the BSA 2022]”
• Landlords should remember that it is possible to rebut the presumption as to whether or not a leaseholder is a qualifying leaseholder by requesting a leaseholder deed of certificate from the leaseholders under Regulation 7 and following the steps in Regulation 6 of the Regulations
• This is the second UT decision on the interpretation of paragraph 8 of Schedule 8 to the BSA 2022, the other decision being, Lant Street [2024] UKUT 135 (LC))