Upper Tribunal gives guidance on effects of Schedule 8 of the Building Safety Act

Introduction

The Upper Tribunal has given guidance on the impact of Schedule 8 of the Building Safety Act 2022 (“BSA”) in a recent decision regarding an application to dispense with the consultation requirements under the Landlord and Tenant Act 1985 (“LTA”).

The decision in Adriatic Land 5 Limited v The Long Leaseholders at Hippersley Point provides more clarity on the leaseholder protections provided by the BSA.

What is Schedule 8?

Schedule 8 provides a series of leaseholder protections which limit the remediation costs recoverable from leaseholders who hold qualifying leases.

Paragraph 9 of Schedule 8 provides:

(1) 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 a result of a relevant defect.
(2) In this paragraph the reference to services includes services provided in connection with—

1. obtaining legal advice,
2. any proceedings before a court or tribunal,
3. arbitration, or
4. mediation.

For more information about Schedule 8 and the BSA, please see our previous article where this topic is covered in more detail.

Background

The property, Hippersley Point, is a 10-storey mixed use premises which consists of 32 flats. It was determined in 2020 that the external walls of the building required substantial remedial works in relation to fire safety risks and interim fire safety measures were also required.

The landlord, Adriatic Land 5 Limited (“Adriatic Land”), made an application to dispense with the consultation requirements under the LTA as the works were considered to be urgent.

The First-tier Tribunal, in December 2021, granted the dispensation on an unconditional basis. It also decided that an order should be made preventing Adriatic Land from recovering any costs of the application under the service charge. This decision was then reviewed by the First-tier Tribunal who reversed the decision to make the order and instead made it a condition of the grant of dispensation that Adriatic Land should not be able to recover the costs of the dispensation application from the leaseholders.

Adriatic Land made an appeal to the Upper Tribunal, who had two issues to decide: (i) whether the decision to impose a costs condition as part of the grant of dispensation could be upheld; and (ii) whether recovery of costs is affected by paragraph 9 of Schedule 8, despite the fact that the costs were incurred before the BSA came into force.

Decision

The Upper Tribunal found that the exercise of the First-tier Tribunal of its discretion could not be upheld for procedural and substantive reasons. The parties were not given the opportunity to be heard in relation to the costs condition and there is no general principle that landlords will bear their own costs of a dispensation application, it must be decided on the facts of the specific case and whether the landlord is seen as ‘seeking an indulgence’.

In relation to the BSA, paragraph 9 of Schedule 8 would prevent a landlord from recovering costs from qualifying leaseholders in relation to a dispensation application as it was held to be legal or professional services relating to the liability or potential liability as a result of a relevant defect under the BSA.

The Upper Tribunal confirmed that paragraph 9 of Schedule 8 took effect from 28 June 2022 with respect to all protected service charge costs, even where such sums were incurred prior to that date. The Tribunal stated: “It seems to me that the words “No service charge is payable” mean what they say. As from 28 June 2022, when Paragraph 9 was brought into force, no service charge is payable in respect of Qualifying Services. The new regime applies, regardless of when the costs of the Qualifying Service were actually incurred, and regardless of when the relevant service charge became payable.”

Summary

The decision of the Upper Tribunal shows that Schedule 8 has a wide-ranging and retrospective effect on service charge requests, despite the wording of paragraph 9 not expressly stating that it was a retroactive provision.

In his judgment, the Chamber President, Mr Justice Edwin Johnson, stated: “What might be seen as unfair results are, it seems to me, simply a reflection of life in the new world of the 2022 Act.”