Building safety: A question of accountability

In December 2023, the First-tier Tribunal (Property Chamber) determined, as a preliminary issue, the novel question of whether a manager appointed by the FTT pursuant to section 24 of the Landlord and Tenant Act 1987 can be an accountable person for the purposes of Part 4 of the Building Safety Act 2022 (Canary Riverside Estate, Westferry Circus, London E14: LON/00BG/HYI/2023/0022). Its decision may significantly impact the scope of all section 24 management orders. The background This important issue arose in the context of an estate which includes five residential towers. In 2016, the residential leaseholders applied to the FTT pursuant to section 24 of the 1987 Act to appoint a manager to manage the estate due to the landlord’s poor management and the FTT made the requisite management order. Since that time, the manager has maintained the common parts of the estate, including the structure and exterior. Following the Grenfell Tower tragedy in 2017, the government enacted the 2022 Act. Part 4 of the 2022 Act includes a new safety risk management scheme in relation to “higher-risk buildings” (buildings that are at least 18m high or have at least seven storeys and contain at least two “residential units”). It imposes wide-ranging duties on every “accountable person” and the “principal accountable person” in respect of such buildings, particularly in respect of fire safety. Such duties include carrying out building safety assessments and managing building safety risks (which may necessitate remedial works, such as cladding replacement). Breaches of these serious obligations, which are regulated and enforced by a newly appointed Building Safety Regulator, carry criminal sanctions. The residential towers at the estate, which were all “higher-risk buildings”, had been identified as having combustible materials in their cladding. The manager had therefore planned cladding replacement works, applied to the Building Safety Fund for necessary funding and registered the buildings with the regulator (which is one of the duties of a PAP under the 2022 Act regime). However, before the funding was released to the manager, the landlord of the estate made an application to the FTT under section 75 of the 2022 Act seeking to have itself declared as both the AP and the PAP in respect of the higher-risk buildings and claimed that, on the proper construction of the Act, a section 24 manager cannot be an AP at all (and, by implication, cannot undertake the necessary cladding works). The legal arguments Whether a section 24 manager can be an AP is a matter of statutory interpretation of the provisions of section 72 of the 2022 Act. In short, those provisions provide that, to be an AP, the section 24 manager needed to establish that they were under “relevant” repairing obligations in respect of the residential towers. To be “relevant” his repairing obligations had to arise “under a lease or by virtue of an enactment”. It was common ground that the manager clearly had repairing obligations but the landlord argued – on the well-known authority of Taylor v Blacquiere [2002] EWCA Civ 1633; [2003] 07 EG 138 – that this was only as a consequence of the terms of the management order and therefore not “under a lease or by virtue of an enactment”. Similarly, the landlord argued that the repairing obligations do not arise by virtue of an enactment as no legislation directly imposes such obligations on the manager in a similar way to, for example, the way in which section 11 of the Landlord and Tenant Act 1985 imposes a direct obligation on lessors to repair aspects of a dwelling house. The landlord relied in support of this interpretation on the structure of the 2022 Act generally, the explanatory notes and, in particular, section 110, which introduced the new subsection (2E) into section 24 of the 1987 Act with effect from April 2023. This states that: “An order under this section may not provide for a manager to carry out a function in relation to a higher-risk building where Part 4 of the Building Safety Act 2022 or regulations made under that Part provide for that function to be carried out by an accountable person for that building.” It argued that all this indicated that parliament intended the new higher-risk building safety regime introduced by the 2022 Act to be a stand-alone regime imposed on the relevant AP/PAP and that it was specifically envisaged that a section 24 manager should not be such a person. Conversely, the manager and leaseholders argued that there is nothing in the 2022 Act which expressly excludes a section 24 manager from being an AP. Indeed, as a matter of interpretation, it was clear from the words of the management order itself (which provided, among other things, that the manager was given “all such powers and rights as may be necessary and convenient and in accordance with the eases to carry out the Landlord’s management functions under the Leases…”) and from case law, that the manager’s repairing obligations can be said to arise “under a lease”. Equally they arise “by virtue of an enactment” as the management order was made pursuant to section 24 of the 1987 Act. While the construction of section 24(2E) of the 2022 Act was not technically part of this preliminary issue, the manager and leaseholders argued that the “functions” referred to should be construed narrowly to relate to the AP’s principal statutory obligations created by the 2022 Act or ensuing regulations (such as assessment, monitoring and reporting obligations). Otherwise, given the potentially very wide scope of an AP’s “functions” in respect of a higher-risk building, this amendment could ride a coach and horses through the section 24 jurisdiction and effectively mean that a section 24 manager cannot usefully be appointed in respect of a higher-risk building at all, which would be an absurd result given that a section 24 manager is appointed to protect the leaseholders’ interests in the light of the landlord’s management failings. The manager and leaseholders also submitted that, as there are no transitional provisions attached to the coming into force of section 24(2E), it is not retrospective and accordingly does not affect existing management orders. Finally the parties argued that, whatever section 24(2E) may mean, there is nothing which prohibits the manager from being mandated to fulfil the practical aspects of compliance with an AP or PAP’s functions. A corporate entity such as the landlord can only act through agents and section 24(2E) does not prevent the manager from performing that role as an independent tribunal-appointed manager. The decision The FTT held that a section 24 manager cannot be an AP as they are not under “relevant” repairing obligations – their obligations arise under the management order and not “under a lease or by virtue of an enactment”. While the tribunal made it clear that it had not yet determined what practical consequences flow from this in terms of the manager’s ongoing role (which matters are subject to a further hearing), it stated “section 72, and the amendments made to section 24 by section 110 of the BSA 2022 prohibit a section 24 manager from being an AP, and a tribunal cannot order a section 24 manager to carry out building safety responsibilities that parliament has decided should fall outside the section 24 regime and which should be the responsibility of an AP”. The FTT also held that “there was no need for express provision to be made for section 24(2E) to take retrospective effect because the duties in Part 4 of [the] BSA 2022 Act did not subsist before its enactment, and so cannot have featured in any extant management order.” In respect of the secretary of state’s suggestion, in a letter produced to the FTT, that there is no reason why a section 24 manager cannot be appointed as a special measures manager under the 2022 Act as well, the FTT noted that the special measures manager provisions of section 102 and Schedule 7 of the 2022 Act are not yet in force. Conclusion While the practical ramifications of the FTT’s decision remain to be determined (and an appeal to the Upper Tribunal (Lands Chamber) may be made) it casts significant uncertainty on what role, if any, both existing and future section 24 managers can play in relation to remedying building safety issues in higher-risk buildings. It also highlighted the need for the special measures manager provisions of the 2022 Act to be enacted promptly (as has now been done), so that a remedy is available in cases where the landlord is legally the AP/PAP but is not a desirable person to be trusted to perform important building safety measures. David Stevens is a partner and head of real estate litigation at Norton Rose Fulbright Image © Klaus-Peter Wolf/imageBROKER/Shutterstock