Katie Edwards, Associate at JB Leitch, considers the impacts and implications in applying to the new £1bn remediation fund.

Following the £600m initially made available in 2018 and 2019, in the 2020 Budget, the Chancellor announced an additional £1bn of government funding to address the issue of unsafe cladding on high rise buildings. Associate Katie Edwards of specialist property solicitors JB Leitch, looks ahead to the some of the key areas of consideration that will impact Landlords and Management Companies prior to the new application process being introduced.

Building safety and the funding for necessary remedial works is an issue of increasing importance. The application process in respect of the £1bn remediation fund for external wall systems over 18 meters is due to be released at any time. Although this will assist the responsible entity to carry out major health and safety works concerning defects in external wall systems, it is known within the industry that the fund will not cover all of the costs required.

We have seen the guidance and application process in respect of the previous £600m ACM fund. The application process has been criticised for being overly complex, including comments on the long-winded administrative tasks and the time it is taking for approval of applications.

Our Litigation team at JB Leitch predicts, as with the ACM fund, that the new fund will only be available where there is a possibility that some, or all of the costs of the works form part of the service charge and could potentially be sought from the leaseholders of the building. Essentially, the fund is for the ultimate benefit of the leaseholders and therefore there must be confidence that the correct entity (Landlord or Management Company) have sought advice to ensure the elements of the work fit in with the provisions of any leases.

Additionally, the responsible entity is to ensure that there is no other recourse that can be taken against another party and provide evidence. We explore below, the other options the Landlord and/or Management Company may take to seek recompense for the costs of works against other responsible parties.

Recourse Against Developers/Contractors/Warranty Providers

Building safety issues caused by the use of incorrect materials, poor design and/or bad workmanship are increasing problems as buildings are tested in respect of their safety. This leaves Landlords and Management Companies trying to find funds for works that would not have been required if the construction of the building had been completed to the standards expected.

The Landlord

Firstly, what is imperative in any claim against a party associated with the construction of a building, is evidence. Evidence of the defects, evidence of the fault in design or material, evidence of the poor workmanship and that these issues are the cause of the defects. This will be fundamental in showing that the faults are with the parties that carried out the work at the time. Without solid evidence as to the defects, there will be issues in making a claim.

As the Landlord of the building, a purchase of the reversion may have the added benefit of the assignment of warranties and indemnities from the developer in respect of the construction of the building.  These will be vital in establishing a claim for breach of contract. An analysis of the warranties and indemnities in respect of the expert report regarding the building safety issues will be vital in establishing a course of action. There will need to be a clear breach, supported by the expert evidence referred to above.

A claim in respect of the Defective Premises Act 1972 (“DPA”) is a remedy for a party with a legal or equitable interest in the property concerned. Section 1 DPA provides that a person who takes on work for, or in connection with, the provision of a dwelling owes a duty to ensure that the work is done in a workmanlike or professional manner, with proper materials so that the dwelling is fit for human habitation. This type of claim should always be considered where there is potential for the properties to be rendered unfit for habitation. Evidence (as to unfit for habitation) and tying this into the expert evidence confirming that the safety issues have been caused upon construction of the building, will be required. Case law assists with setting out the criteria upon which a court will assess whether a property is unfit for habitation.

It should not be forgotten that the Limitation Act 1980 still applies in respect of these claims. As building safety issues arising from the developmental phase of a building tend to be discovered many years after the works were carried out, a thorough review of the contracts and completion dates will be required.

Finally, mitigating the risk posed by the building safety issue will be necessary. As the landlord, in addition to regulatory and statutory obligations, there will be repairing obligations within the leases. Additionally, the Landlord will want to ensure that there aren’t any contributing disrepair issues that could have been prevented by general repair and maintenance to the building.

The Management Company

As the Management Company, there will be clear obligations in respect of the management, repair and maintenance of the building. The defects in health and safety primarily fall at your doorstep to resolve. You are unlikely to be in receipt of any warranties or indemnities from the developer or contractors, but this is worth thoroughly checking to ensure that nothing was provided at the time the leases were granted, especially where the developer remains the landlord.

You have no legal or equitable interest in the building so a claim under the DPA is not available.

The Management Company is in a catch-22 situation, where funding for the works from the parties responsible for ensuring the construction of the building was correct, but there is no legal authority any action against them. On top of this, covenants with the Landlord and the leaseholders via the terms of the leases, specifically those relating to ensuring the safety of the building, keeping it in repair, in compliance with legislation and regulations must be complied with.

Finally, any leaseholders that continue to have the benefit of a new build warranty policy should immediately be informed of their ability to make a claim for any defects in construction and/or workmanship at the time of build. New build warranties are generally held for 10, or in some cases 20 years, but it is vital to get any claim in before the 10-year expiry. A day late and the warranty provider will not accept the claim.

Summary

In conclusion, and recognising ultimately that the additional funding is an important and positive step, we anticipate with interest how the application process will unfold. We will also closely monitor how the availability of the fund will impact decision making in terms of what will be deemed reasonable by Tribunals – and importantly, what will be recoverable.