Do I Have To Pay For The Remediation Of Cladding To My Building?
We receive a lot of enquiries from both leaseholders and freeholders wanting to understand their rights and obligations after it’s been discovered that the cladding mounted to their building is unsafe.
This is no surprise as cladding remediation can be extremely costly. Scaffolding and access alone can run into the millions of pounds.
There are a number of specific factors that impact the answer to the question as well as there being several potential avenues to pursue claims or contributions from those responsible for fitting the cladding in the first place.
In this article we’ll explain at a high level what those factors are and what hope there may be for those burdened with footing the bill.
If you are a leaseholder or freeholder looking for legal advice to do with unsafe cladding, our specialist property litigation team would love to assist you. If your issue arises out of the construction and/or build environment alternatively our construction team has decades of experience dealing with matters like these. Our litigation teams work nationally and will be happy to help.
The Default Position
The historical or default position is that where there are defects to the common parts of a shared building, the freeholder, or resident management company (RMC) incorporated to handle the repairing and maintenance obligations on behalf of the freeholder, will conduct the section 20 Landlord and Tenant Act 1985 process to raise services charges in accordance with the terms of the leases, and the raised service charges will be used to fund the remedial works i.e. the leaseholders pay for the repairs to the common parts.
The introduction of the Building Safety Act 2022 (“BSA 2022”), a landmark piece of legislation brought in in great haste following the Grenfell Tower tragedy, however, has fundamentally shifted the default position for lucky leaseholders in circumstances where certain criteria are met.
Namely, the position is shifted for leaseholders with “qualifying leases” in “relevant buildings” – we will explain these definitions below but before we do that, we must be clear on what constitutes cladding under the BSA 2022.
How Is Cladding Defined Under The Building Safety Act 2022?
Surprisingly, despite introducing groundbreaking new law in relation to cladding, the BSA 2022 does not actually define what cladding is. This is an anomaly as statute and the legal sector is typically abundant with defined terms. For a broader look at what cladding is, the materials it’s made from and how it’s regulated more generally, see our guide to what cladding is and how it’s regulated.
Disputes naturally sprout from gaps in legislation and so it didn’t take long before the First Tier Tribunal (Property Chamber) (“the FTT”) and then the Upper Tribunal (Lands Chamber) (the “UT”) on appeal (these being forums of dispute resolution akin to courts, but for certain types of property related disputes such as those over service charges), was asked to consider what cladding is within the context of the BSA 2022.
In the case Almacantar Centre Point Nominee No 1 Ltd and another v de Valk and others [2024], rationally, the FTT consulted relevant authoritative texts for their definitions, such as the Oxford Dictionary of Construction, Surveying and Civil Engineering, the most recent Royal Institute of Chartered Surveyors’ (RICS) Advice and Guidance and the British Standards Institution’s (BSI) PAS 9980:2022.
Ultimately the FTT decided that there couldn’t be a one-size fits all definition as buildings are different, but the FTT did arrive at some indicative features that may help identify cladding, namely:
- The existence of a primary structural frame to which a façade is attached;
- The façade being non-load bearing in relation to the building as a whole; and
- The façade serving a weatherproofing or environmental protection function.
The UT agreed with the FTT’s reasoning and findings in the appeal.
What Is A Relevant Building?
A detailed statutory definition for a “relevant building” is set out in section 117 BSA 2022. In simple terms though, a relevant building broadly exists where:
- The freeholder and leaseholder are separate legal entities i.e. the freehold estate in the building is not owned by the leaseholders and there is no tenants’ right of first refusal or any future compulsory acquisition required by the leaseholders; and
- The building is over 11 metres in height or has at least 5 storeys and contains at least 2 dwellings.
At section 118 BSA 2022 is an explanation of how the building is to be measured and what constitutes a “storey”.
What Is A Qualifying Lease?
As per section 119 BSA 2022, a “qualifying lease” is a lease in respect of a relevant building which:
- Was granted before 14 February 2022;
- Has a term of more than 21 years;
- Requires the lessee to pay service charges; and
- On 14 February 2022, was the lessee’s only home, or they did not own more than two dwellings and it was their principal home.
This definition makes sense as you will see, because the legislation is designed to protect leaseholders who can’t necessarily afford to pay the cost of remedial works from being stuck in extreme negative equity.
What Is The New Protection To Leaseholders?
Paragraph 8 to Schedule 8 of the BSA 2022 states the following:
(1) No service charge is payable under a qualifying lease in respect of cladding remediation.
(2) In this paragraph “cladding remediation” means the removal or replacement of any part of a cladding system that—
(a) forms the outer wall of an external wall system, and
(b) is unsafe.
Like cladding, there is no definition of “unsafe” within the BSA 2022. The FTT was also asked to consider the meaning of unsafe within the Almacantar case. The FTT decided that unsafe was to be given its ordinary and natural meaning and did not exclusively refer to a fire safety risk or a risk of structural collapse. The UT agreed in the appeal. Presumably, however, the instances where cladding is unsafe but it’s not due to a fire safety or structural issue are going to be limited in practice.
So, essentially leaseholders in a relevant building who hold qualifying leases do not have to pay service charges that will be used for the remediation of cladding.
Who Pays The Deficit?
The astute reader will have almost immediately realised that if those with qualifying leases no longer need to contribute to unsafe cladding remediation then there will be a shortfall.
Paragraph 11 of Schedule 8 to the BSA 2022 makes clear that other leaseholders i.e. those not holding a qualifying lease do not have to pay an increased share beyond the share stipulated in their lease.
The liability to pay the deficit, the shares of service charges that would have been due by the qualifying leases but for the BSA 2022, falls to the responsibility of the freeholder.
This is somewhat harsh on the freeholder given that they completely innocently purchased the building just as the leaseholders purchased the leasehold title to their dwellings.
However, it does make sense when you consider that the BSA 2022 was introduced in an attempt to shift the liability onto the party with the deepest pockets.
Sometimes this will no doubt result in an inequitable outcome but in general it’s logical to expect a person or legal entity with the resources to purchase the freehold title to a large building to be in a stronger asset and liquidity position to meet remedial costs compared with the individual leaseholders.
All is not necessarily lost though for both the freeholder and the lessees of non-qualifying leases, as they may be able to pursue legal remedies to hold the party responsible for installing the cladding or a party connected to them or one more able to shoulder the cost, liable to pay for the remediation in whole or at least in part.
New Remedies
The BSA 2022 introduced two important remedies designed to address unsafe building defects: Remediation Orders (ROs) and Remediation Contribution Orders (RCOs).
An RO can require a landlord to carry out remediation works within a specified timeframe, while an RCO enables the First-tier Tribunal to require developers, landlords, or associated companies to contribute towards the cost of those works.
As these remedies have become increasingly significant following recent case law, we’ve covered them in more detail in our dedicated article on Remediation Contribution Orders under the Building Safety Act 2022, including who can apply, who may be liable, and the wider implications for landlords, developers, investors and leaseholders.
Where these statutory remedies are unavailable or don’t align with a claimant’s objectives, other routes may still exist, including contractual claims, negligence claims, and claims under the Defective Premises Act 1972, depending on the facts and applicable limitation periods.
Existing and Resuscitated Claims
Where the criteria for applying for an RCO are not met or it does not meet the strategic aims of the prospective claimant, for example because it is not yet settled whether and if so when legal costs are recoverable in RCO applications, litigation can be pursued provided a claim exists.
The freeholder or RMC or potentially leaseholders depending on who contracted the cladding works and whether any collateral warranty or express contractual third party rights exist, may have claims for breach of contract or in the tort of negligence against the developer, contractor or architect/structural engineer (depending on liability) under the relevant contract, deed or collateral warranty provided that the limitation period of the claim hasn’t expired.
The limitation period for claims for breach of contract is 6 years commencing from the date of the breach. This period is longer, 12 years, if the contract meets the requirements of a deed in both form and compliant execution.
For claims in negligence, the limitation period is 6 years from the date that damage starts being sustained as a result of the negligent act or omission, rather than the date of the act itself. Where the damage is latent (i.e., not immediately apparent) and discovered outside the 6-year period, the claimant has three years from the date they first knew, or ought reasonably to have known, the relevant facts about the damage, its attributability to the defendant’s negligence, and the identity of the defendant. Additionally, there is a long-stop of 15 years beyond which claims cannot be brought, even if the damage or knowledge arises later.
The freeholder or leaseholders may also have separate or parallel claims under The Defective Premises Act 1972 (“DPA 1972”) which requires that those taking on work for or in connection with the provision of a dwelling or completing subsequent works to a dwelling owes a duty to the contracting party or any existing or subsequent person who acquires a legal or equitable interest in any of the dwellings to ensure that “the work is done in a workmanlike or professional manner, with proper materials and so that the work the dwelling is fit for habitation when the work is completed”.
The BSA 2022 significantly extended the liability period for these types of claims under the DPA 1972. For DPA 1972 claims in relation to the supply of a dwelling, the limitation period was extended from 6 years to 30 years for dwellings completed before 28 June 2022 and from 6 years to 15 years for dwellings completed on or after 28 June 2022. For DPA 1972 claims in relation to works subsequently completed to dwellings, the limitation period was extended by the BSA 2022 from 6 years to 15 years for claims that accrued after 28 June 2022 – it is prospective only, however there is no retrospective effect on limitation.
In this way, the BSA 2022 brought to life previously expired DPA 1972 claims against developers and contractors. This has profound implications for not only developers and contractors still operating as a going concern but also for the insurance industry that underwrites them.
Summary
Whilst we’ve done our best to make this article comprehensible to the average person on the street – well done if you followed along – what should be clear is that the legislation is new and very complex and there are a range of remedies that can be sought.
In terms of the BSA 2022 specifically, it was pushed through parliament with urgency for political reasons and the drafting wasn’t necessarily fully considered. We expect this Act to be subject to persistent amendments over the forthcoming years and for the FTT, UT and the courts to continue to charter precedent to fill the gaps and temper the inherent ambiguity.
At Helix Law we advise freeholders, RMCs and leaseholders on their rights and obligations in respect of cladding and other fire safety and structural remedial works, and assist our clients to pursue claims in an efficient and cost-effective manner so that where possible they can seek to shift the burden to, or recover from, those responsible or more able to shoulder the cost of the remedial work.
If you are facing a demand to finance or contribute to cladding or other remedial works get in touch with us today to see how we can help. Our property and construction teams have decades experience dealing with similar matters. Our team act nationally, and would love to assist you.
