Earlier this month, specialist property solicitors JB Leitch were successful in a notable preliminary decision concerning a single specific question which arises following the coming into force of various new provisions in the Building Safety Act 2022 (“the Act”).
Specifically, the preliminary issue focused on the question of whether the leaseholder protection provisions in Schedule 8 to the Act restrict a leaseholder’s liability for service charges which were otherwise payable before those provisions came into force.
Background
The proceedings were brought by a landlord client who sought a determination that certain charges in respect of the 2019 and 2020 service charge years were payable by the Respondent leaseholders (under section 27A of the Landlord and Tenant Act 1985) in a purpose-built, seven storey, mixed use development. To make that determination, the Tribunal needed to consider arguments about whether the individual Respondents were liable to pay the disputed service charges pursuant to the provisions of their leases and relevant legislation; whether the charges were reasonably incurred; and whether the services and works they relate to were of a reasonable standard.
The costs in question were incurred by the Applicant landlord in 2019 and 2020 and relate to the installation of a fire detection system and remedial works to the automatic and manual opening vents, as well as costs in respect of fire marshals. Individual service charge demands in this regard were issued to the Respondents, also in 2019 and 2020.
Factoring the Building Safety Act Provisions
On the 28th of June 2022, provisions in Part 5 of the Act including the provisions in Schedule 8, came into force. Section 122 of the Act introduces the provisions of Schedule 8 and states: “Schedule 8 provides that certain service charge amounts relating to relevant defects in a relevant building are not payable”.
Representatives for the Respondent leaseholders observed that the disputed charges were of a type which would be restricted by the new provisions in Schedule 8, and: “that the charges which are to be subject to the restrictions in Schedule 8, will extend to those which fell due in the ‘pre-commencement period’ this being 5 years before the 28th of June 2022.”
In response, JB Leitch’s position was that any liability which the Respondents have to contribute to the costs which are the subject of the [service charge] application was unaffected by the new provisions in Schedule 8 to the Building Safety Act – and that this followed from the fact that those costs were incurred (and the resulting service charges were demanded and for the most part, paid) before the new statutory provisions came into force on the 28th June 2022.
The Tribunal’s Interpretation
The Tribunal noted that “now that the provisions in Schedule 8 have been enacted and have come into force, their effect is clearer… and have no doubt that the interpretation contended for by the Applicant is to be preferred”.
It was also noted that the provisions were brought into force, without transitional provision, by section 170(3)(a) of the Act itself, and the language of both section 122 are of Schedule 8 is in the present tense: “certain service charge amounts … are not payable” and “No service charge is payable …this is language which is apt only to affect liability for service charges which would otherwise become payable after the new provisions came into force, and nothing about it suggests that the payability of past (pre-commencement) service charges may be revisited by reference to the new provisions in Schedule 8”.
Summary
In conclusion, the Tribunal determined that the liability of each Respondent for any service charges which were otherwise payable prior to the 28th of June 2022, is unaffected by the leaseholder protection provisions in Schedule 8 to the Building Safety Act.
As a footnote to proceedings, an additional point to note is that the Tribunal recognised that past charges may need to be taken into account to ascertain the effect of the limit on certain service charges payable under a qualifying lease, which is provided for by paragraph 5 of Schedule 8 (and this is the relevance of the 5-year ‘pre-commencement period’, but it is important to note that this statutory limit still only applies to post-commencement service charges.
Katie Orr of JB Leitch’s Building Safety team concludes: “We are pleased that we have successfully represented our client in one of the first significant decisions relating to the provisions of the BSA 2022. It will be interesting to note how similar cases follow the precedent set in this matter and additionally, how cases referencing remediation contribution orders under section 124 of the BSA may be made in respect of relevant pre-commencement service charges under similar conditions. We shall continue to report on our involvement and key decisions made as they continue to emerge and provide further clarity in coming months”.
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