Background

The decision of the First-Tier Tribunal (the “Tribunal“) in Triathlon Homes LLP v Stratford Village Development Partnership and others [2024] provides the first indication of how the Tribunal will consider applications for remediation contribution orders (“RCOs“) made against a developer and its ultimate parent company.

The Facts

Stratford Village Development Partnership (“SVDP“) developed buildings in Stratford, East London as part of an athletes’ village for the London 2012 Olympic Games. SVDP subsequently retrofitted this village into a large permanent residential estate known as East Village which provided affordable homes, mostly contained in 66 residential buildings of between 8 and 12 storeys in height. This case concerned five of these buildings.

Some of the units in the five residential buildings were owned through subsidiaries of the second respondent, Get Living plc (“Get Living“) and some were owned by the applicant, Triathlon Homes LLP (“Triathlon“). Triathlon had a long lease of all of the flats and apartments in two of the buildings and leases of some of the units in the other buildings. Get Living’s ownership included all of the units in the three buildings not leased to Triathlon. It also owned SVDP, although it did not at the time the original development and subsequent retrofit were undertaken.

In 2017, work was undertaken by East Village Management Limited to identify the materials used in the construction of the East Village and to determine what risks they might present. In November 2020, serious fire safety defects were discovered relating both to the design and the construction of the various cladding systems adopted for the external facades of the buildings. In response to this, a programme of work to remedy permanently the defects at East Village was implemented, commencing on 20 April 2023 with a plan to see the remediation of the buildings completed by August 2025. The total cost of the work was expected to exceed £24.5 million and at the time of issuing the proceedings these costs were funded by the Building Safety Fund (which was introduced by the Government in 2020 to meet the cost of replacing unsafe cladding on high-rise (18 metres or above) residential buildings in London).

On 19 December 2022, Triathlon made applications for RCOs under s124 of the Building Safety Act 2022 (the “Act“). Triathlon sought a contribution of almost £18 million towards the remediation costs from SVDP and its ultimate parent company, Get Living (together the”Respondents“). Triathlon sought the RCOs against both of the Respondents as it believed SVDP would not be able to comply with the RCOs from its own resources.

The Law

The key provisions of the law are summarised below.

s124(1) of the Act provides that:

“The First-tier Tribunal may, on the application of an interested person, make a remediation contribution order in relation to a relevant building if it considers it just and equitable to do so.”

An RCO is defined in s124(2) of the Act as “an order requiring a specified body corporate or partnership to make payments to a specified person, for the purpose of meeting costs incurred or to be incurred in remedying relevant defects (or specified relevant defects) relating to the relevant building.”

The Judgment

The Tribunal ruled that Triathlon was entitled to the RCOs it sought. It held that Triathlon, as a long leaseholder of all or part of each building, was an “interested person” under the definition in s124(5) of the Act.

The Tribunal dismissed the Respondents’ view that s124 of the Act did not apply to costs incurred before the provision came into force on 28 June 2022. It stated that it was “in no doubt that s124 allows remediation contribution orders to be made in respect of costs incurred before 28 June 2022“. The language of the provision was clear and there was no temporal limitation or transitional provision. According to the Tribunal this was “consistent with the purpose and structure of Part 5 [of the Act] that the radical protection it extends to leaseholders should not be restricted by precise distinctions of time… Parliament has decided that, irrespective of fault, it is fair for those with the broadest shoulders to bear unprecedented financial burdens“.

The Tribunal found that the qualifying conditions for making RCOs against the Respondents were met – relevant defects existed in a relevant building (both of which are terms used in the Act) and the Respondents were within the classes of persons who may be specified in an order. However, this alone was not enough. The Tribunal also had to decide whether to exercise its discretion to grant the RCOs by reference to whether it was “just and equitable to do so“.

The Tribunal found it just and equitable for RCOs to be made against SVDP as it was a developer of the East Village. It held that the policy of the Act is that primary responsibility for the cost of remediation should fall on the original developer, and that others who have a liability to contribute may pass on costs incurred to the developer.

The Tribunal then concluded it would also be just and equitable to make an order against Get Living, on whom SVDP depended for financial support. The “obvious purpose” behind the association provisions in s124 of the Act was said “to ensure that where a development has been carried out by a thinly capitalized or insolvent development company, a wealthy parent company or other wealthy entity which is caught by the association provisions cannot evade responsibility for meeting the cost of remedying the relevant defects by hiding behind the separate personality of the development company“. The Tribunal held that SVDP’s relatively precarious financial position and its dependence for financial support upon Get Living constituted these such circumstances. It was the Tribunal’s view that the investors that had bought into the corporate structure above SVDP had willingly assumed the risks associated with their investment.

The Tribunal also held that the intention of Parliament was for an RCO to provide a route to secure funding for remediation works without the applicant having to become involved in, or to wait upon the outcome of, other claims arising out of relevant defects, which might involve complex, multi-handed, expensive and lengthy litigation. Therefore, it dismissed the Respondents’ argument that making the order was not just and equitable as Triathlon could have pursued other claims for the recovery of the relevant sums.

Discussion

This decision, although not binding, may indicate the position the Tribunal will take in the future in determining whether to issue RCOs. Residential and mixed use property developers may well find themselves at the top of the hierarchy of liability where a building has a defect that causes a building safety risk. Landlords owning such properties may also find themselves equally exposed to this liability based on a notion of this being considered “just and equitable”.

Further, a leaseholder (or another interested person under the definition in s124(5) of the Act) will not need to wait for the outcome of any existing litigation before pursuing an application for an RCO. Developers, landlords and their associated companies may find themselves needing to defend multiple claims from different persons relating to a single issue.

s124 of the Act empowers the Tribunal to pierce or lift the corporate veil, a virtually unprecedented concept which goes against the very nature of limited corporate liability. Where a property developer with financial dependence on its parent company is found liable to make a contribution to remediation costs, this liability may be imposed on the ultimate parent company. Similarly, this is likely to be the case where the subsidiary is or was a landlord. An acquisition of such a company or subsidiary may leave the purchaser open to this new liability if it knowingly accepts the risks. As a result of this more caution will need to be exercised on acquisitions of companies owning properties to which the Act applies and a more detailed analysis undertaken on the exposure to their potential liabilities under that Act.Triathlon Homes LLP v Stratford Village Development Partnership and others [2024] UKFTT 26 (PC)

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