Are Remediation Orders and Remediation Contribution Orders storing up trouble for the TCC?

United Kingdom

Construction and engineering - Articles

24-01-2023

The focus of the Building Safety Act 2022 (the “BSA”) is to provide occupants with a swift and effective means to rectify building safety defects, without having to pay additional costs under their service charge. One of the ways in which the BSA does this is by using Remediation Orders. These can be applied for under the First Tier Tribunal (the “FtT”), which is a court for resolving property disputes. However it is anticipated that subsequent flow down claims, deciding who will ultimately pay for such defects, will be decided in the Technology and Construction Court (the “TCC”). As explained in this article, this may store up trouble for landlords and developers, if the FtT and TCC take different approaches. It could create inconsistencies and delay when it comes to landlords/developers recovering the ultimate cost of the remediation works from third parties.

Remediation Orders – will they be watertight?

Remediation Orders have been in force since 28 June 2022. A Remediation Order requires a landlord to remedy defects within a specified time.¹ This applies to:

landlords who have a repairing or maintenance obligation under the lease;
in respect of defects that cause a building safety risk, which means a risk to the safety of people in or about the building arising from (a) the spread of fire, or (b) the collapse of the building or any party of it;
which arise from works in the construction or conversion of a building, remediation works or any other works undertaken by the landlord or management company that occurred 30 years prior to 28 June 2022; and
are in relation to a building which is self-contained in England, contains at least two dwellings and is at least 11 metres or 5 storeys high.

A Remediation Order can be applied for by the regulator, a local authority, the fire and rescue authority or any person with a legal and equitable interest in the relevant building or any party of it (i.e. in most instances the tenant(s)). It is the key means of redress for occupants to require their landlord to take effective measures.

Timescales for progressing a case through the FtT will of course depend upon its nature and complexity, but in general they are usually resolved within 20 weeks. There is not sufficient data yet to consider the average turnaround time of a Remediation Order, but it is clear that the FtT will seek to resolve matters promptly. This perhaps is the key reason why the FtT was chosen under the BSA as the appropriate forum for dealing with Remediation Orders.

An application for a Remediation Order must include the draft order which the applicant seeks. This must specify the relevant landlord, the defects, and the reason why the order should be made. In order to make an application it is therefore necessary to know what the defects are. Notably the applicant does not need to specify the remediation works required. It is worth noting that there is a broad definition of what constitutes a defect for the purpose of a Remediation Order:

the BSA considers that this is anything which causes a “building safety risk”, however this term means anything causing a risk to people (either from the spread of fire or the collapse of a building). This is not defined according to industry guidance and can give rise to subjective and varying interpretation;
there can be little doubt that the determination of what constitutes a defect causing a “building safety risk” can be technically complex. Expert evidence will be required, and the FtT will have to grapple with competing expert opinions. In Martlet Homes Ltd v Mulalley & Co Ltd², the first post Grenfell cladding case considered by the TCC, the judge noted that the position was “highly contentious and thoroughly unclear as regards the specification” and what constituted a fire safety defect was not straightforward;
as the FtT deals with property disputes it is not likely to be as well-versed in determining technical issues associated with building safety defects compared with the TCC, which was set up as a specialist court so that construction and technology disputes could be heard by a judge experienced in such matters;
a Remediation Order is effectively a mandatory injunction for the landlord to remediate the defects, but there is no clear guidance on how the landlord is to carry out these works, which will in turn depend on what the requisite works are; and
the fact that the BSA is designed to protect occupants from incurring costs means that there may be a lack of clarity in their description and assessment of the defects, which usually requires costly and extensive investigative work.

It is worth noting that the Remediation Order is enforceable by the County Court and requires the landlord to remedy the defects within a “specified time”. The “specified time” is likely to be the time proposed by the applicant in the draft order, and again it is unclear what level of review the FtT will take in relation to this. Those in the construction industry will be well aware of the challenges associated with accurately predicting the programme and duration for remedial works, and the FtT is going to need assistance from technical experts to set a realistic timeframe for the landlord to carry out these remediation measures.

The lack of clarity on these points means that there is potential for the landlord to carry out, under pressure and without proper review, what it thinks are necessary remediation works. However after carrying out such works, there could still remain a “building safety risk” which requires further rectification. It is not clear whether there will be any follow up to check the works have been carried out (if this is practicable) and if the requirements of the Remediation Order have been discharged. This creates the possibility of prolonging building safety risks and also causes additional work, disruption and expense for all involved by a potential second wave of repair works. All of these problems are further exacerbated when considering who ultimately pays for such remediation works.

Remediation Contribution Orders - who pays for the works?

Whereas often the landlord would recover the cost of remediation from their tenants, a key principle of the BSA is to limit the circumstances in which residential tenants pay for building safety repairs through their service charge. The BSA establishes that no residential tenant in a building taller than 11 metres or five storeys is to pay for unsafe cladding works and there are various threshold tests that must be satisfied before the landlord can recover monies through the service charge for building safety repairs.³

The landlord may not have the money available to cover the cost, but they are under an obligation to take reasonable steps to ascertain whether any grant or funding is available and in particular, “must…take reasonable steps to ascertain whether monies may be obtained from a third party in connection with the undertaking of the remediation works and, if so, to obtain monies from the third party.”⁴ Any grant or funding may need to be repaid.

Under the BSA one of the ways in which a landlord can recover monies from a third party (or parties) is by way of a Remediation Contribution Order⁵ (“RCO”). These can be requested by a number of different applicants, which include anyone with a legal or equitable interest in the relevant building or any part of it (i.e. the landlord). One of the third parties that the landlord can apply for a contribution from is the developer or any party “associated” with the developer. The developer is anyone who carried out or commissioned the works.

If it considers it just and equitable to do so, the FtT can require a developer to pay a specified amount within a specified time, or upon the occurrence of a specified event, for the purpose of meeting the costs incurred, or to be incurred, in remedying relevant defects. In making its application the landlord will specify the sum it seeks in a draft order. If granted by the FtT, the RCO will be enforceable by the County Court.

There are some perceived difficulties with this system:

it remains to be seen how the FtT will assess what costs are payable. To help it decide, it will be able to give case management directions; and require: (a) a statement of case from the applicant for the RCO, (b) provision of all documents relied upon, (c) the statement of case in reply and (d) expert evidence. However, given the complexities involved, the FtT may find itself in unfamiliar territory. It will be dealing with issues which are the more natural territory of a TCC judge, and the reason why the High Court has the TCC as a specialist division for dealing with these types of disputes;
due to the wider category of parties who can apply for RCOs there may be a number of potential cross claims between multiple parties, leading to inconsistencies and multiple payments;
it may be tactically more beneficial for both the landlord and developer if the FtT hears Remediation Order and RCO applications at the same time. This would enable there to be clarity on what costs are recoverable under the RCO. It could also make the monies available to the landlord upfront under the RCO to pay for the works that it is required to carry out under the Remediation Order. This would require a landlord to act very swiftly upon hearing that a Remediation Order was being brought against it, so as to collate the information necessary to apply itself for a RCO. Given the level of detail required, this may be problematic. Furthermore, it is not clear if the landlord will be able to make another RCO application if the costing was wrongly calculated in its original application.

The lack of detail and transparency in these matters may store up problems for the TCC in the flowdown of claims.

It is clear that the BSA has favoured the FtT due to its comparatively swift turnaround time, compared to the TCC. This was perhaps with a noble aim that this would make it cheaper and quicker for tenants to obtain remediation works under Remediation Orders and for landlords to receive payment under RCOs. However, the TCC has efficient procedures in place for the management of construction cases, which have developed over time, and the reason for the timescale of claims in the TCC is due to the complexity of those claims, rather than any inherent feature of the TCC process. The most recent cases post-Grenfell have demonstrated that these matters are not straightforward and often require complex analysis of the factual and technical details to achieve a just result. It remains to be seen if the FtT will adopt a similar approach to the TCC, out of sheer practicality in having to deal with these complex claims.

Flow down claims - who ultimately pays for the works?

If a developer, or one of its associated persons, receives a RCO it will want to ascertain how and to what extent it is able to recover from its contractor and consultants. There are a several ways in which it can do this:

it may be able to sue under the original building contract, consultant appointments and/or collateral warranties (or third party rights), if there is still sufficient time under the limitation periods of these contracts;
it may be able to seek a contribution from these parties under the Civil Liability (Contribution) Act 1978; or
if it still has a legal or equitable interest in the property, it may be able to use its rights under the Defective Premises Act 1972.

Any of these flow down claims, that potentially stem from FtT orders, are likely to be dealt with by the TCC. This is because the TCC is a specialist court which deals with construction and engineering claims that are often high value (usually over £500,000 in London) and technically complex.

It is clear from the recent cases how sophisticated these issues are when called under examination by the TCC. For example, in the recent case of Evolve Housing and Support v Bouygues (U.K) & Ors⁶, the TCC found that the claimant had not adequately responded to requests for further information from the defendant. This demonstrates that the TCC will require proper particulars of negligence in fire safety and will ensure further information is provided if cases are not properly pleaded.

The TCC decision in Martlet v Mulalley⁷ (the first cladding case post-Grenfell) demonstrates the level of complexity and detail that can be involved in determining whether there is liability for a fire safety defect. The TCC considered technical evidence adduced by both parties from experts in the fields of architecture, fire safety and quantity surveying, as well as the provisions of the relevant building regulatory framework.

The TCC has procedural requirements tailored to construction disputes: it is governed by its own Civil Procedure Rule 60 and has a detailed TCC Guide (comprising 170 pages) to follow in order to ensure effective case management. It is also a requirement of the TCC that the parties to a dispute have fully complied with the Pre-action Protocol for Construction and Engineering Disputes. This Pre-action Protocol requires parties to go through a number of procedural steps including attendance at a pre-action meeting and the early exchange of information, before proceedings can be commenced.

Unfortunately, owning partly to the complexity of its case load, wait times for available hearing dates at the TCC can be significant; for example, currently in the TCC in London, trials lasting longer than one week will not be heard until January 2024.

This means it may take considerable time for parties on the receiving end of a RCO to recover sums from those parties who may ultimately be contractually responsible or otherwise liable for the defective works. Given likely limitation issues, standstill agreements may need to be considered in order to ensure the route to recovery is protected.

The fact that the claim may have originated in the FtT means that key issues on the nature of the defect, the timing of the works, and the cost that can be claimed may have already been determined. However, such matters are likely to have been dealt with at a high level in the FtT. It is possible that when these claims are considered at length in the TCC, inconsistencies may arise. This may mean that developers/landlords who are seeking to flow down claims and/or claim contributions may face a shortfall in recovering from consultants and contractors.

Recommended next steps

Landlords and developers may face being on the hook to remedy and pay for building safety defects under a Remediation Order or RCO in the FtT, with then an uphill struggle to recover the cost from other liable parties, such as the contractor and consultant, in the TCC. Uncertainty and difficulty arises from the potential difference in approach between the FtT and the TCC, which could create a mismatch in key decisions and result in a potential shortfall in recovery for landlords and developers from third parties.

In order not to face these problems, it is best if landlords/developers take a proactive approach in seeking to resolve building safety issues before a Remediation Order or RCO is considered necessary. In doing so, a developer/landlord may be able to establish the full scope of their liability earlier on and recover a fair and proportionate contribution from other liable parties such as the contractor and consultants, without being hamstrung by an earlier FtT order and then seeking a flow down claim.

Written by Gemma Irving and Nick Pinder.