In the spring, the previous Conservative Government published the Leasehold and Freehold Reform Bill (the "Bill") which we reported on in our previous insight: Leasehold and Freehold Reform Bill.
The Bill subsequently became the Leasehold and Freehold Reform Act (the "Act"). Indeed, it was one of the few pieces of legislation that made it through the final "wash-up" before the proroguing of Parliament prior to the General Election, receiving Royal Assent on 25 May 2024. However, despite receiving Royal Assent, the vast majority of the Act did not come into force at that time and would require further "commencement regulations" to enable the provisions of the Act to become enforceable law.
On 7 October 2024, the new Labour Government introduced The Leasehold and Freehold Reform Act 2024 (Commencement No. 1) Regulations 2024 (the "Regulations"). These gave effect to a limited number of the provisions contained in the Act, specifically amendments to the Building Safety Act ("BSA"). Those amendments, which come into force on 31 October 2024, look to ensure that the legislative intention behind the BSA - namely the protection of leaseholders from the costs incurred and associated with fire safety remedial works -operates as intended.
Why is this important?
The BSA contains numerous financial protections for leaseholders in buildings of at least 11 metres or five storeys in height, particularly where work is needed to address safety defects. These protections have been in force since June 2022.
It's fair to say there has been some criticism as to the workings of the BSA, whether because the drafting can be hard to follow at points or the legislation leaves potential gaps which may leave leaseholders vulnerable. Parliament has taken note, and whilst the BSA has already been amended in prior legislation, these further amendments have been brought in to further ensure that the leaseholder protections set out in the BSA are properly secured. Importantly, some of the amendments will affect legal proceedings already underway when the amendments come into force at the end of October.
Part 5 of the Building Safety Act
The amendments in the Act are focused on Part 5 of the BSA, which places obligations on relevant landlords to maintain the safety of "relevant buildings" (those at least 11m high or with at least five storeys). The goal is to ensure that leaseholders continue to be protected from dangerous buildings within the scope of the BSA, as well as from the cost of fixing such buildings.
Key points
1. The relevant landlord may be ordered to take "relevant steps" to remedy defects
Under Section 120 of the BSA, a "relevant defect" in a building arises as a result of anything done (or not done), or anything used (or not used), in connection with relevant works, and causes a building safety risk. Section 123 allows the First Tier Tribunal (FTT) to make a Remediation Order, requiring relevant landlords to remedy a relevant defect. This amendment introduces a second limb to the FTT's power, allowing them to order the relevant landlord to either remedy specified relevant defects or, alternatively, to take specified "relevant steps" to remedy a relevant defect. The amendment also introduces a new definition of "relevant steps" under the new Section120(4), meaning steps that have the purpose of:
- preventing or reducing the likelihood of a fire or collapse of the building (or any part of it) occurring as a result of the relevant defect,
- reducing the severity of any such incident, or
- preventing or reducing harm to people in or about the building that could result from such an incident.
In practice, relevant steps can include waking watches, and/or sprinkler systems.
2. Service charges can be payable for legal costs relating to liability for relevant defects
Currently, Schedule 8, paragraph 8 of the BSA states 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 a result of a relevant defect.
Now, an amendment to this section will allows management companies to recover legal and professional costs incurred in the application of a remediation contribution order, where the lease permits this. Therefore, this is not a new right – the service charge provisions in the lease must allow for recovery. It is also important to note that this change will not be retrospective, so it will not apply to professional fees incurred before the amendment comes into force.
3. Making remediation orders and remediation contribution orders clearer
Currently, the First-Tier Tribunal can make Remediation Orders or Remediation Contribution Orders against parties to ensure fire safety issues are addressed. A Remediation Order requires a relevant landlord to remedy specified relevant defects in a specified relevant building by a specified time (Section123, BSA). A Remediation Contribution Order requires a body corporate or partnership to make payments for the purpose of meeting costs incurred, or to be incurred, in remedying relevant defects (or taking specified steps to remedy relevant defects) related to a relevant building.
There are a series of amendments in the Act which clarify the scope of these orders, for example:
- Section123 of the BSA is amended so that a landlord can be ordered to take relevant steps rather than just remedy a relevant defect. This means the Tribunal can order specific actions that must be taken; and
- - Section124 of the BSA is amended to give the Tribunal and Secretary of State greater power to specify which costs fall within a remediation contribution order.
4. No longer meeting remediation costs of insolvent landlords
Currently, where a landlord is required to remedy relevant defects and that landlord is insolvent, a Court can require an associated body corporate or partnership to make payments towards the insolvent landlord's assets or to make payments towards remedying the relevant defects (Section125, BSA). The amendment in the Act repeals this clause.
5. Greater awareness of insolvent landlords
Several further amendments provide third parties with greater awareness when a person with repairing obligations relating to a relevant or higher risk building is insolvent. There will be duties on insolvency practitioners to update the Regulator, the local fire and rescue service, and local authorities.
The road ahead: will these changes deliver results?
As noted above, the Regulations bring the above provisions into force on 31 October 2024. It is clear that Parliament intends for these provisions to strengthen and clarify the scope of protections provided to leaseholders. However, the proof will be in the pudding as to whether these enhanced protections lead the way to an increase in the speed and scale of remediation required.
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