Para 3, Schedule 8, Building Safety Act 2022 No service charge payable if landlord meets contribution condition

(1) No service charge is payable under a qualifying lease in respect of a relevant measure relating to any relevant defect if the landlord under the lease at the qualifying time (“the relevant landlord”) met the contribution condition.

(2) The contribution condition is that the landlord group’s net worth at the qualifying time was more than N x £2,000,000,

where N is the number of relevant buildings within sub-paragraph (3).

(3) A relevant building is within this sub-paragraph if a member of the landlord group was, at the qualifying time, a landlord under a lease of the relevant building or any part of it.

(4) For the purposes of this paragraph—

(a) “the landlord group” means the relevant landlord and any person associated with the relevant landlord;

(b) the net worth of the landlord group at the qualifying time is to be determined in accordance with regulations made by the Secretary of State.

(5) The Secretary of State may by regulations amend the amount for the time being specified in sub-paragraph (2).

(6) This paragraph does not apply if, at the qualifying time, the relevant landlord was—

(a) a private registered provider of social housing (as to which see section 80 of the Housing and Regeneration Act 2008),

(b) a local authority (as defined by section 30), or

(c) a prescribed person.

Comes into force on 28 June 2022.

Applies to England and Wales.

Good grief. Formulae.

Whereas paragraph 2 takes aim at landlords who also developed the relevant building – or were in a joint venture with the developer – paragraph 3 targets wealthy landlord groups who own relevant buildings.

Let’s start with something straightforward: two types of landlord are expressly excluded from the operation of paragraph 3:

• a private registered provider of social housing (as to which see section 80 of the Housing and Regeneration Act 2008),
• a local authority (as defined by section 30).

Parliament has allowed the Secretary of State some wriggle room by adding to that duo a third, to-date-undefined group – a “prescribed person”. That is, a person defined in regulations.

The test that must be satisfied if leaseholders are to be freed from liability to pay a service charge is contained in subparagraph 1.

Here is the test, broken down into parts:

• The lease must be a qualifying lease. “Qualifying lease” is defined in section 119;
• The activity for which a service charge may be made must be a relevant measure. “Relevant measure” is defined in paragraph 1 to Schedule 8;
• The “landlord under the lease” must have been that landlord at the qualifying time. The qualifying time is defined in section 119: it is the beginning of 14 February 2022;
• The landlord under the lease must meet the “contribution condition”.

Subparagraph 2 defines “contribution condition” by introducing us to the psychedelic world of statutory formulae. That formula reads:

The contribution condition is that the landlord group’s net worth at the qualifying time was more than N x £2,000,000,

where N is the number of relevant buildings within sub-paragraph (3).

I’ll park the dubious syntax in favour of the substance of the provision.

This is not your average group.

Group companies are common in company law, but the Building Safety Act 2022 has a wider embrace. It is an iconoclast for which a landlord group comprises “the relevant landlord and any person associated with the relevant landlord”.

We are not therefore looking at groups of companies here.

Whereas the net worth of a limited company can generally be calculated from the balance sheet of its statutory accounts, in relation to other “persons” who might fall within the scope of this paragraph, there are three significant issues:

• How to identify those persons;
• How to obtain the information needed to calculate that person’s net worth, and
• How to calculate the net worth of that person, even if the information is provided.

To date, the draft regulations published by the Government do not supply any answers.

“Relevant building” is defined in section 117, but that definition is narrowed by subparagraph (3).

The characteristics of the “relevant building” remain the same, but, when calculating a landlord group’s net worth, a “relevant building” does not count towards the “N” number unless “a member of the landlord group was, at the qualifying time, a landlord under a lease of the relevant building or any part of it”.

How we establish “membership” of a landlord group is, I am afraid, beyond me on the wording of the Act as it is currently worded.