9 Sutton Court Road, Sutton, Surrey (LON/00BF/HYI/2022/0002)

The application was made in August 2022, a couple of months or so after Part 5 of the Building Safety Act 2022 came into force, by 18 leaseholders, who between them held 15 long leases at 9 Sutton Court Road, in Sutton, Surrey.

It was made against three respondents:

• Inspired Sutton Ltd, which was both the freeholder and developer.
• Inspired Asset Management Ltd. By the date of the application, it was in liquidation.
• The third respondent was actually two individuals: James Friis and Tommy Lyons. They were directors of Inspired Sutton Ltd.

The leaseholders sought an order against all of the respondents for the combined amount of £192,635.64 on the grounds that those costs related to the remediation of “relevant defects” that their leases otherwise required them to pay.

The decision, dated Friday, 13 January 2023, was made in the FTT by its President, Judge Siobhan McGrath, and Judge Timothy Powell.

They began by considering the stated purpose of the Building Safety Act 2022, which is:

“to make provision about the safety of people in or about buildings and standard of buildings”.

The judges reminded themselves that the policy behind the Act was driven by the Grenfell Tower fire in 2017, and the recommendations subsequently made by Dame Judith Hackett.

The Building Safety Act has not come into force all at once.

Part 5 of the Act, with which the FTT was concerned here, came into force on 28 June 2022. Schedule 8 to the Act, which is intended to provide certain protections to leaseholders, came into force on the same date.

This application arose from a very specific set of facts.

By the time that they made the application, the leaseholders had already made service charge payments towards remediation works.

They argued however that they were entitled to the protections of Schedule 8, and therefore that they should not have had to pay.

The FTT agreed that a remediation contribution order should be made, but it granted an order against only the first respondent, Inspired Sutton Ltd.

It dismissed the applications against Inspired Asset Management Ltd on the one hand, and against Tommy Lyons and James Friis on the other.

In 2017, Inspired Sutton Ltd converted the building from offices to residential accommodation let on 999 year leases.

It had planned to sell the freehold after the conversion, but, in the absence of purchasers, it remained had the freehold owner of the building, as well as its developer.

When it became apparent that the building required remediation works, Inspired Sutton Ltd engaged architects and contractors. It gave stage 1 consultation notices under section 20 of the Landlord and Tenant Act 1985 to the leaseholders.

Those notices informed the leaseholders that there was a plan to carry out three sets of works. For current purposes only two are relevant:

• Replacing all of the unsafe aluminium composite material (ACM) and high pressure laminate (HPL) cladding, and the render on part of the facades.
• Rectifying and replacement any and all balconies that were now deemed to be unsafe or a fire safety hazard.

The third set of works were repairs to the communal heating system.

The notice said that the cladding and balconies were deemed unsafe under current building and fire regulations.

The leaseholders were informed that the works were

“currently proposed as being funded via a grant currently being assessed provided by the Ministry of housing communities and local government. Any works that are excluded from the grant will be funded under the agreement.”

It was that last sentence that caused Inspired Sutton Ltd to give the section 20 notice.

If certain works were not directly concerned with the cladding, and not covered by the grant, the leaseholders were going to find those costs in their service charges, because the works would fall within the meaning of “qualifying works” and result in a service charge of more than £250 per leaseholder.

When works began in February 2021, it was known that:

• Funding would be available for the cladding replacement.
• Funding for balcony replacements had been refused.

 Inspired Sutton Ltd informed the leaseholders that they were:

• Appealing the refusal of funding for balcony replacements, and
• Pursuing a claim against ARJ Construction Ltd, the company that had been involved in the original design and construction of the building.

Overall, in February 2021, Inspired Sutton Ltd estimated that the cost of the works, including overheads, professional fees, preliminaries, VAT and other costs, was £3,716,593.68.

Whilst all that was going on in the private law sphere, the London Borough of Sutton took action under the Housing Act 2004.

The FTT summarised the relevant part of the Housing Act 2004 thus:

“The Housing Act 2004 introduced a new scheme for the assessment of risk in residential buildings, and for the enforcement of standards by local housing authorities.

“Risk is assessed by reference to housing, health and safety rating system [“the HHSRS”]. Enforcement action is mandatory where the level of risk to health is high enough to be categorised as category one and can include the service of an improvement notice under section 11 of the 2004 Act.”

On 09 November 2020, the local authority served a detailed improvement notice on Inspired Sutton Ltd.

The notice referred to “numerous” – the FTT’s word, not mine – category one hazards, including problems with the internal common parts and balconies, which comprised composite decking laid onto timber joists, and were adjacent to areas of ACM and HPL cladding and render.

The improvement notice required any combustible material used in the balcony construction to be replaced with a non-combustible material.

The FTT gave a whistlestop tour of the Building Safety Act.

Relevant to its decision were:

• (Obviously) section 124, on remediation contribution orders;
• Section 119, which states that “the qualifying time” is the beginning of 14 February 2022;
• Section 120 which defines a relevant defect;
• Section 122, which refers to the reader to schedule eight, and
• Schedule 8 itself.

Of particular interest to the Tribunal was paragraph 2 of Schedule 8, which broadly provides that no service charge is payable for a defect for which the landlord or associate is responsible.

The tribunal also cited paragraph 10 of Schedule 8, which precludes the inclusion in a service charge – or the drawing from a reserve fund – of any costs incurred or to be incurred in relation to any thing for which Schedule 8 provides that a service charge is not payable. 

Part of the interest of this case is in the way that the various respondents – erm – responded to the application.

When an application is made to the FTT, a case management hearing – a CMH – is normally arranged, at which the parties and the Tribunal can identify the issues and set a timetable for an application to progress towards a determination.

Before the first CMH in this case, the respondents were directed to provide a brief position statement, including:

• Whether they agreed that the building was a “relevant building” as defined in section 117 of the Building Safety Act, and
• whether the service charges that were specified in the application, were costs in respect of “a relevant measure relating to relevant defect” as defined in paragraph 1 of Schedule 8 to the Building Safety Act.

The leaseholders provided a position statement.

Inspired Sutton Ltd (the freeholder and developer), did not provide a position statement, but Mr Friis, who was both one of its directors and a respondent himself, attended the hearing. It transpired that he and Mr Lyons, his co-director, were not on friendly terms. Mr Friis had no contact with Mr Lyons.

Inspired Asset Management Ltd, which, you will remember, was in liquidation, did not attend the CMH.

Instead, on behalf of the joint liquidators of the company, a letter was sent to the FTT to remind it that under section 130(2) of the Insolvency Act 1986, “no action or proceedings could be commenced against the company for its property, save with leave of the court, which had not been obtained.”

And anyway, it was said, the company had no direct interest in the building:

• It was a shareholder in Inspired Sutton Ltd,
• But it was not a party to the leases, and
• It should not be named as a respondent (I suspect that they may not have been familiar with s.121 of the Building Safety Act)

The liquidators asked that the company be removed from the proceedings.

Even though the parties gave a detailed outline of the background to the application, the FTT directed that the parties should provide more comprehensive statement of case before it would give any further directions leading to a final hearing.

The first directions included the following warning:

“(b) If the Applicant fails to comply with these Directions the Tribunal may strike out all or part of their case pursuant to rule 9(3)(a) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 (“the 2013 Rules”).

“(c) If the Respondent fails to comply with these Directions the Tribunal may bar them from taking any further part in all or part of these proceedings and may determine issues against it pursuant to rules 9(7) and (8) of the 2013 Rules.”

The leaseholder applicants duly provided a statement of case.

Inspired Sutton did not.

The leaseholders therefore applied for an order that inspired Sutton should be debarred from taking any further part in the proceedings.

Inspired Asset Management Ltd also applied to the FTT in advance of the reconvened hearing in December 2022, asking for a direction that unless the leaseholders applied to the Companies Court within 21 days to lift the automatic stay against it pursuant to section 130(2) of the Insolvency Act 1986, it should be removed as a party from the proceedings without further notice.

At the reconvened case management hearing in December 2022, the leaseholders represented themselves. Mr Friis attended.

Inspired Asset Management Ltd was represented by Counsel.

Inspired Asset Management Ltd

The FTT dealt with Inspired Asset Management Ltd’s application to be removed from the proceedings.

It was satisfied that:

• “There is an automatic stay in place against the Second Respondent;
• “It is arguable that the stay should extend to the proceedings as a whole, in summary because of the possible future prejudice to the holding company (see Ince Gordon Dadds LLP v Tunstall [2019] B.C.C. 1109)
• “The stay operates unless and until the Companies Court grant permission to proceed.”

The leaseholders confirmed that they did not intend to apply for an order from the companies court lifting the stay, and therefore Inspired Asset Management Ltd was removed as a party to the proceedings.

It is worth noting that Inspired Asset Management Ltd applied for an order for costs against the leaseholders, but the FTT declined, saying “we do not consider that the criteria for an award of costs is met in this case”.

Mr Lyons and Mr Friis

The FTT also removed Mr Friis and Mr Lyons from the proceedings.

In order to be a respondent to an application for a remediation contribution order, a person must be a body corporate or a partnership.

They cannot be an individual.

Mr Friis and Mr Lyons were individuals.

Inspired Sutton Ltd

Having removed those parties from the application, the FTT turned to Inspired Sutton Ltd.

It directed that it could determine the application against Inspired Sutton Ltd without the need for a hearing. Rule 31 of the Tribunal Procedure Rules entitles it to determine an application on the papers.

Should an order be made?

Having considered the evidence and the submissions, the FTT was satisfied that the conditions for making of a remediation contribution order against Inspired Sutton Ltd had been met. There was no dispute that the building fell within the meaning of “relevant building” for the purposes of section 117 of the Building Safety Act.

The FTT then proceeded to explain why it considered that those conditions were met.

First, it found that 9 Sutton Court Road was a “relevant building” for the purposes of section 124(2) and section 117 of the Building Safety Act 2022. Specifically, it noted that it was structurally detached and had at least five storeys.

Secondly, the FTT was satisfied that the leaseholders were interested persons because they held a legal interest in 9 Sutton Court Road. That is to say, they were leaseholders.

Thirdly, the FTT was satisfied that Inspired Sutton Ltd was a relevant specified body corporate for the purposes of section 124 of the Building Safety Act 2022.

Next, the FTT turned its attention to the costs in respect of which the leaseholders sought an order.

It found that those costs related to “relevant defects”:

“those costs relate to the remediation of external defects (the section 11 works) and the balconies to the building which were assessed as part of the local authority HHSRS exercise as being one of the category 1 hazards were works were required to remove or reduce fire risk. We are satisfied that the external defects and balconies constituted a “building safety risk” within the meaning of section 120 (5), as they constituted a risk to the safety of people in or about the building arising from the spread of fire. We find that the remediation costs claimed were incurred in the remediation of the balconies…

“Paragraph 2 of Schedule 8 to the Act provides that no service charge is payable for defect for which the landlord is responsible.

“The paragraph applies in relation to a lease of any premises in a relevant building and has effect in respect of a relevant measure (i.e. the remediation works) if the landlord (or associate) is responsible for the relevant defect.

“Inspired Sutton Limited was the developer and the landlord under the lease at the qualifying time.

“Accordingly by reference to paragraph 10 of Schedule 8, the costs are not to be regarded as relevant costs to be taken into account in calculating the amount of the service charge. The Tribunal are satisfied that there are no mitigations or other matters to be taken into account in the exercise of its discretion in this case. The Applicants are therefore entitled to a remediation contribution order in their favour.”

The amount

Having dealt with the question of principle as to whether a remediation contribution order should be made, the FTT then turned to working out how much should be contributed by Inspired Sutton Ltd. It also needed to establish how that total sum was to be apportioned between the applicant leaseholders.

This is how it did it:

“in order to extrapolate the costs relating to the remediation of the balconies and the external works, the following methodology was applied: the section 20 notice given in 2021, gave a total building safety remediation amount of £3,716,593.68, with the [third set of works relating] to the heating amounting to £143,323.77.

“Therefore the claim by each applicant is 96.144% of the amounts paid. When the appropriate percentage is applied to the service, charge costs are relevant to each of the applicants leases. The result is as set out in the total column of the schedule attached to this decision.

“Each Applicant has provided the tribunal with the relevant invoices and proof of payment of the amounts claimed.

“… we therefore make a remediation contribution order for the amounts set out in the schedule to this decision.”

What does this decision tell us about the “just and equitable” test that the Tribunal must apply when it is asked to determine an application for a remediation contribution order?

The main point that I take is that the Tribunal considers that section 124 of the Building Safety Act can – in a way – operate retrospectively.

By that I mean that:

• if a leaseholder has paid a service charge for a relevant measure in relation to a relevant defect before 28 June 2022 when the Part 5 of the Act came into force, and
• if that leaseholder would have been protected by Schedule 8 to the Act and would not have had to pay, had the service charge demand been raised after 28 June 2022,
• the Tribunal can make a remediation contribution order.

The facts in this case were however very specific, because the leaseholders had actually paid towards the cost of the remediation works in 2017.

Whether it helps in any other situation is a different question.

The purpose of the application in this case is clearly to have that money refunded, but there are  all sorts of difficulties with actually getting the money. The Tribunal said that the order is enforceable in the same way as a county court order. That statement is drawn from section 27, Tribunals Courts and Enforcement Act 2007.

Part 70 of the Civil Procedure Rules supplements section 27 with further detail.

Unlike a determination of the amount of service charge payable under s.27A of the Landlord and Tenant Act 1985, a remediation contribution order is an order.

The difference between a “determination” and an “order” is explained by Newey LJ in Al-Balhaa v Termhouse (Clarendon Court) Management Ltd [2021] EWCA Civ 1881. He held that a determination under s.27A is “declaratory in nature and so not susceptible to enforcement pursuant to either section 176C of the [Commonhold & Leasehold Reform Act] 2002 … or section 27 of the [Tribunals Courts and Enforcement Act] 2007.”

So what about other situations? How will the Tribunal apply the “just and equitable” test then?

It’s very difficult to predict the circumstances in which it will (or will not) be just and equitable to make an order, which means that each case will teach us a little more about how this new, badly-drafted legislation (there! I’ve said it!) is to be interpreted, albeit at the expense of the litigants involved in it.