In a new collaboration with regular articles from legal firm, Kingsley Napley, IFSEC Insider hears from Partners, Hannah Eales and Claire Lamkin, who provide answers to common defective cladding questions, with a focus on leaseholder contributions.
Introduction
The Building Safety Act 2022 was enacted on 28 April 2022. It sets out a fairly complex procedure for dealing with the recovery of costs typically arising from costs associated with defective cladding.[1]
We have set out below some bullet points to help guide you through the legislation.
What is a cladding system?
-
Hannah Eales, Partner at Kingsley Napley
This is quite straightforward. For the purposes of the leaseholder protections under the Act, cladding remediation is defined as the removal or replacement of any part of a cladding system that:
- Forms the outer wall of an external wall system;
- Is unsafe.
Does the Act apply to all residential buildings?
- No – Only those that are at least 11 metres or at least 5 storeys above ground level (in calculating the number of storeys, those below ground level are disregarded for this purpose) and the building must contain at least two dwellings;
- No – It does not apply to buildings where the landlord/freeholder is a local authority, registered social housing provider or where the leaseholders collectively own the freehold e.g. via
- In buildings that do not qualify under the Act, the Government suggest more proportionate remedies may be appropriate further to a risk assessment, such as installing sprinkler systems or fire alarms.
What works are covered by the provisions?
- Works to rectify a defect that is a building safety risk i.e. The defect arises from the spread of fire or partial/complete collapse of the building. So this would include cladding removal or replacement.
- Works arising from non-cladding defects for example waking watch
Do all flat occupiers qualify for protection from costs?
-
Claire Lamkin, Partner at Kingsley Napley
The leaseholder must fulfil the following conditions[2]:
- *That as at 14 February 2022, they:
- hold long leases e. leases granted for more than 21 years; and
- they pay a service charge under the lease; and
- EITHER they occupy the flat as their main home, OR if not, they do not own more than 3 UK properties in total.
- If the leaseholder does not fulfil the above conditions, it cannot take advantage of the cost protection measures introduced by the Act.
- In terms of contributions to be made by the leaseholder, any service charge contributions that have fallen due and been paid since 28 June 2017 are taken into account when calculating the leaseholder’s contribution.
- Service charge contributions that are payable can be spread out over a 5 year period.
Determining a leaseholder’s contributions:
Further reading: Leaseholders obtain first remediation order under Building Safety Act for defective cladding
What if my landlord (a company) is required to pay the costs of remedying defects but does not pay or goes into liquidation?
- A leaseholder may be able to apply for a remediation contribution order against someone associated with the landlord, which includes a current director; someone who was a director in the 5 years up to 14 February 2022; another group company; a holding company; and even an unrelated company if it has a director who is also a director of the landlord.
- The liquidator of the landlord can apply to the court for an order that an associated company contribute a “just and equitable” amount to the landlord company’s assets.
- Or, the liquidator can ask the court to order an associated company to pay someone to remedy the defects.
- But the above may not result in the defects being remedied, including because:
- the liquidator is not obliged to make an application and incur the costs of doing so;
- the liquidator may not think it is within the liquidator’s role to apply for an order that an associated company pay someone to remedy the defects;
- if a contribution is made to the company’s assets, other costs (including the liquidator’s own) can be deducted first and other creditors may benefit from the contribution by way of dividend.
What if I want to sell my flat?
- The position has to be assessed as at 14 February.
- Cost protections afforded to the selling leaseholder will transfer to the buyer even if the buyer does not intend to live in the flat itself or the buyer already owns more than 3 UK properties, so it is important for buyers to establish if the seller is a qualifying leaseholder under the Act.
[1] It introduces amendments to the service charge provisions set out in the Landlord and Tenant Act 1985 and introduces new limitation periods for claims under the Defective Premises Act 1972 by amending provisions of the Limitation Act 1980.
[2] The Government has produced guidance on the practical application of the Act and in particular about the above conditions by introducing a Leaseholder Protections Checker.
Hannah Eales is a Regulatory, Health and Safety and Criminal Law Specialist, heading up the Fire Safety team at Kingsley Napley. She can be contacted on heales@kingsleynapley.co.uk . Claire Lamkin is a Property Litigation partner within the Real Estate and Construction team, and can be contacted on clamkin@Kingsleynapley.co.uk.