Retrospective costs applied to building safety

Elizabeth Dwomoh considers the implications of a recent decision that builds on the evolving case law concerning the hugely important legislation delivered in the Building Safety Act 2022. Key point Paragraph 9 of schedule 8 to the Building Safety Act 2022 is broad in scope and can provide cost protection from relevant legal and professional costs even if those costs were incurred before 28 June 2022. In the absence of express provision, there is a general presumption in law that legislation will not have retrospective effect. In Adriatic Land 5 Ltd v Long Leaseholders at Hippersley Point [2023] UKUT 271 (LC); [2024] EGLR 2, the Upper Tribunal (Lands Chamber) was asked, among other things, to consider whether paragraph 9 of schedule 8 to the Building Safety Act 2022 prevented the recovery through service charge of the costs of an application for dispensation from the consultation requirements from leaseholders holding qualifying leases before the 2022 Act came into force. The parties The appellant, Adriatic Land 5 Ltd, was the freeholder of Hippersley Point, a mixed-use building in Abbey Wood, London, SE2. The respondents were the residential long leaseholders of the flats in the building. Investigations carried out in 2020 identified defects that were a fire risk. The works required to remedy defects to the building were qualifying works within the meaning of section 20ZA(2) of the Landlord and Tenant Act 1985. In September 2021, Adriatic applied to the First-tier Tribunal for dispensation from the consultation requirements to enable work to be carried out quickly. The decisions The FTT initially granted Adriatic unconditional dispensation. In so doing, it found that the leaseholders had failed to establish any prejudice arising from the failure to consult. In addition to the grant of dispensation, the FTT made an order under section 20C of the 1985 Act which prevented Adriatic from recovering the costs of its application through the service charge. Adriatic appealed the section 20C order. The FTT reversed the section 20C order, on review, but varied the dispensation order by granting Adriatic dispensation on condition that it did not seek to recover costs of its application from the leaseholders through the service charge. The issues on appeal Adriatic appealed the review decision, arguing that, in granting dispensation, the FTT had erred in imposing the costs condition. In short, the FTT had acted of its own volition without giving the parties an opportunity to make submissions on whether the costs condition should be imposed. In granting permission to appeal, the UT identified an additional issue; namely, whether Adriatic’s ability to recover costs was prohibited by paragraph 9. Who asked you? The UT found the FTT had erred both procedurally and substantively. Procedurally, the FTT had failed to give the parties the opportunity to make submissions on the imposition of the costs condition. Substantively, the FTT had exceeded the ambit of its jurisdiction. The UT observed that the Supreme Court in Daejan Investments Ltd v Benson [2013] UKSC 14; [2013] 2 EGLR 45 had not laid down any general principle that the imposition of a cost condition was appropriate in all applications for dispensation. The facts of the case would determine whether the imposition of a costs condition was appropriate. The leaseholders in the present case had not suffered any prejudice on the FTT’s findings. Question of interpretation In summary, paragraph 9 provides that no service charge is payable under a qualifying lease in respect of legal or other professional services relating to the liability (or potential liability) of any person incurred as the result of a relevant defect. “Services” included obtaining legal advice and any proceedings before a court or tribunal. Adriatic argued that the costs of its application for dispensation fell outside the ambit of paragraph 9 because such an application was in respect of the liability of a leaseholder “incurred as the result of a relevant defect” under the 2022 Act. The focus was on whether the leaseholder would suffer prejudice arising from the landlord’s failure to comply with the consultation requirements under the 1985 Act. The UT determined that Adriatic had interpreted paragraph 9 too narrowly. The “liability or potential liability of any person” referred to in paragraph 9 broadly included any person subject to that liability or potential liability to remedy the relevant defect, which included the landlord. Further, the liability was not confined to only those arising under the 2022 Act. Additionally, in identifying the legal and professional services referred to in paragraph 9, they had to be relevant services “relating to” the liability or potential liability of the relevant person incurred as a result of the relevant defect. The phrase “relating to” was broad. Such a relationship existed between the costs of a dispensation application made by a landlord, in relation to works required to remedy a relevant defect, and the liability of the landlord to remedy the defect. Retrospectivity Adriatic further argued that paragraph 9 did not have retrospective effect. Although true, the UT recognised that, in light of the wording of the provision, it was difficult to see how it could be said not to apply where the costs of the relevant services were incurred prior to the date when the 2022 Act came into force. Paragraph 9(1) was drafted on the basis that no service charge was payable under a qualifying lease in respect of the costs of the relevant services listed if they related to the liability or potential liability incurred by any person as a result of a relevant defect. This would be the effect regardless of when the costs of the relevant service were incurred or the service charge became payable. Elizabeth Dwomoh is a barrister at Lamb Chambers Photo © tookapic/Pixabay