Following the Grenfell disaster there has been a significant emphasis on building safety and a move to address defects in buildings, including particularly cladding – but who foots the bill for the costs of addressing those defects and can a landlord pass on the costs to a leaseholder via service charges? The liability for rectification of defective buildings could clearly have significant accounting consequences for landlords, and those acting for them.
The Building Safety Act 2022 and associated regulations introduced a certification process to determine the liability of both landlords and leaseholders for the costs of remedying relevant defects, determining how much of those costs can potentially be charged to leaseholders via service charges and what is left to be borne by landlords.
In this article, we highlight when tenant protections apply and various remediation responsibilities and advise on the steps for landlords facing remediation costs.
The framework is complicated, but as a general rule most of the tenant protections only apply to qualifying leases:
There is complex guidance to be aware of around the height of buildings. Most residential flat leases will fulfil bullet points 1-3 above, but the information required in respect of point four is only likely to be available to the landlord from the leaseholder.
The costs of cladding remediation sit with the landlord where leaseholders hold qualifying leases, or where a landlord or an ‘associated person’ is responsible for the defect.
There are also leaseholder-friendly provisions where the landlord has high net worth or the leases themselves are of low value, as defined. Where remediation costs are recoverable from leaseholders with qualifying leases, they can be subject to a cap based on location and the value of the leasehold interest and there are rules which can act to spread leaseholders liability over a ten year period.
A landlord can also lose the right to charge leaseholders, where it defaults in the certification process, e.g. it fails to provide a landlord certificate within the requisite time frame. Conversely, once the landlord has taken all required steps to obtain a leaseholder deed of certificate, but a leaseholder fails to provide one, the leaseholder will lose protection and will be treated as a non-qualifying lease regardless of its actual status.
Landlords facing remediation costs might potentially have a claim against any third party responsible for the defects, e.g. the original developer, and the legislation imposes obligations on the landlord in this respect. Claims are subject to time limits, so landlords should seek advice immediately where they believe they might have claims.
The Building Safety Act and associated regulations are a detailed and complex scheme of rules relating to the recovery of service charges and advice should be sought by landlords on a case by case basis – please contact Sian Gibbon or Sophie Michaelides for further information.
