Building Safety: Recovery of Service Charges from “Other” Landlords
The Building Safety Act 2022 is legislation which, subject to supplementary statute and being tested in the courts, leaves many issues subject to further clarification. One thing that is clear is that imposing obligations upon landlords and developers, to protect leaseholders from paying some or all of the costs of remediating relevant defects, remains a parliamentary priority. When attempting to navigate the 2022 Act and establish who should meet the costs, one of the questions which we anticipate will arise for landlords is the recovery of service charges from other landlords.
Who are the ‘other’ landlords?
Schedule 8 of the Building Safety Act 2022 defines the term “relevant landlord”. A relevant landlord is the landlord under the lease at the qualifying time or any superior landlord at that time. The qualifying time is defined in section 119 of the Act and means at the beginning of 14 February 2022.
Therefore, given that title structures for different developments vary in complexity, a relevant landlord for the purposes of the Act can be an under leaseholder, a head lessor, and/or a superior landlord such as a freeholder. Further, the current landlord will not always be the relevant landlord.
What does the Act mean for relevant landlords?
Paragraph 2 of Schedule 8 provides that no service charge is payable by any leaseholder of a “relevant building” in respect of a defect for which a relevant landlord is responsible or is associated with the person responsible.
Similarly, no service charge is payable by any leaseholder (in respect of charges caught by the Act) under paragraph 3 of Schedule 8 if the relevant landlord met the contribution condition at the qualifying time. The contribution condition is that the landlord’s group net worth at the beginning of 14 February 2022 was no more than the number of relevant buildings x £2,000,000.
The Building Safety (Leaseholder Protections) (England) Regulations 2022 came into force on 20 July 2022. Under paragraph 6 of the regulations, a current landlord must provide a landlord’s certificate to a leaseholder in the following circumstances: (a) when the current landlord makes a demand to a leaseholder for the payment of a remediation service charge, (b) within four weeks of receipt of notification from a leaseholder that the leasehold interest is to be sold, (c) within four weeks of becoming aware of a relevant defect not covered by a previous certificate or (d) within four weeks of being requested to do so by the leaseholder.
The form of a landlord’s certificate is prescribed in Schedule 1 of the regulations. The landlord’s certificate must include the name and address of the relevant landlord under the lease, the name and address of the current landlord under the lease, and the names and addresses of any superior relevant landlords under the lease. The certificate must also include whether the contribution condition was met at the qualifying time by either the relevant landlord or any of the superior relevant landlords, and whether the landlord or any of the superior relevant landlords were responsible for the defect or associated with the responsible party.
Paragraph 7 of the regulations confirms that a relevant landlord must provide the current landlord with information including the percentage of the storeys in the relevant building for which they were relevant landlord at the qualifying time; and where the relevant landlord was a part of a landlord group at the qualifying time, details of the corporate structure of that landlord’s group.
Recovery of service charges from other landlords
Relevant landlords who are not themselves responsible for the defect, connected to the responsible party (i.e. in joint venture) or do not meet the contribution condition ought to consider whether this applies to any superior landlords. If so, then the protections under paragraphs 2 and 3 of Schedule 8 of the Building Safety Act 2022 are triggered and a landlord must look at avenues for recovery other than the service charge such as recovery from such superior landlords. A current landlord who is not the relevant landlord should consider recovery of service charges from relevant or superior landlords where applicable.
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