Leasehold and Freehold Reform Act 2024: The BSA 2022 Changes 10 June 2024
1. Introduction
1.1 With the unexpected announcement of the General Election on 22 May 2024, Parliament quickly went into ‘wash up’ mode to save something of the Government’s legislative program. The Leasehold and Freehold Reform Act 2024 (the LFRA) was the last statute to be passed, receiving Royal Assent on 24 May 2024 at 8.32pm (fourteen minutes before Parliament was prorogued); albeit the final form of Act was only first published a few days later (a defect in the system any incoming government might address). Listen to a podcast by Stephen Jourdan KC and Edward Blakeney about potential problems with the Act here.
1.2. The LFRA both before its enactment and subsequently has received much attention for the major amendments it makes in particular to the Leasehold Reform, Housing and Urban Development Act 1993. But it includes important amendments also to the Building Safety Act 2022 (BSA). Some have yet to be commenced (see section 124) and we await the necessary statutory instrument for this purpose; but it is to be expected that this will follow soon enough when a new government of any hue takes power. So, what does or will it do.
2. The 24/7/24 Changes
2.1 On 24 July 2024 (two months from commencement) section 117 of the LFRA comes into force. This amends Schedule 8 to the BSA 2022 (remediation costs under qualifying leases etc.) by introducing an exception to the existing paragraph 9 leaseholder protection from legal and professional costs relating to liability for relevant defects, to enable a resident management company (defined as a body corporate limited by guarantee whose members are leaseholders or where the majority of shares are held by leaseholders) or an RTM company (within the meaning of Chapter 1 of Part 2 of CLRA 2002) to recover such costs incurred after 24/7/24 in connection with an application or possible application by the company for a remediation contribution order (RCO) under section 124.
2.2 This is a significant change, which will be welcomed by hard pressed RMCs and RTMs that need the funds to apply for RCOS. To be clear though section 117 does not create any new right, it will only apply where the lease already permits legal and professional costs incurred in connection with an application or possible application for an RCO to be recovered. Section 117 is also not retrospective and does not disapply paragraph 9 in respect of any such costs incurred before its commencement. It may be observed that the amendment appears also to reinforce the arguments that such costs are not within the scope of ‘relevant measures’ or costs incurred ‘in remedying relevant defects’ for the purposes of section 124 (as to which see below).
2.3 In addition, sections 118 (repeal of section 125 of the BSA 2022) and section 119 (higher-risk and relevant buildings: notifications in connection with insolvency) will also come into force on 24 July 2024. No explanation was given in the Explanatory Notes to the Bill as to why DLUHC had seen fit to abolish section 125; which enables a court, on the application of an insolvency practitioner to make in effect a RCO against any company or partnership associated with a company which is a landlord of a relevant building, where during the course of the winding up of the landlord it appears to be under an obligation to remedy or to pay the costs of remedying any relevant defects in the building. It presumably was thought to be duplicative of Building Liability Orders (section 126) or otherwise redundant or of limited utility at best.
2.4 Instead, but not actually by way of substitution for section 125, section 119 introduces new section 125A to the BSA 2022. This is aimed at improving local authority and regulator awareness of buildings where the person with repairing obligations in relation to higher risk or relevant building is insolvent. Thus, it imposes new duties on insolvency practitioners who are appointed in relation to a responsible person for a higher-risk building (18m or 7 storeys) or relevant building to give specified information (name of the insolvent party, address of the building, details of the insolvency practitioner etc.) within 14 days of their appointment to the local authority and the fire and rescue authority for the area in which the building is situated, or if the insolvency practitioner is appointed in relation to an accountable person to give the required information to the Building Safety Regulator. Where ‘insolvency practitioner’ means any administrator, administrative receiver, receiver, liquidator or trustee in bankruptcy and a responsible person is the accountable person for the HRB or the person who would be the accountable person if the building was an HRB.
3. The Other Changes
3.1 Otherwise, Part 8 of the LFRA amends Part 5 of the BSA 2022 by introducing (into section 120 of the BSA) a definition of ‘relevant steps’ in relation to the remediation of relevant defects. These are essentially preventative or mitigating steps that can be taken to reduce the risk and/or severity of any incident resulting from a relevant defect. More precisely, relevant steps are defined to mean steps which have as their purpose (a) 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 (b) reducing the severity of any such incident, or (c) preventing or reducing harm to people in or about the building that could result from such an incident.
3.2 It will be recalled that in Triathlon v SVDP & Get Living, it was argued by the respondents before the FtT (as now before the Court of Appeal) that section 124, referring as it does to the costs incurred or to be incurred in remedying relevant defects, does not extend to the costs of installing an alarm system or engaging a waking watch and that a cornerstone of that argument was the difference in wording between section 124 and Schedule 8 which defines ‘relevant measure’ (at paragraph 1) as a measure taken (a) to remedy a relevant defect, or (b) for the purpose of (i) preventing a relevant risk from materialising, or (ii) reducing the severity of any incident resulting from a relevant risk materialising. Section 114 of LFRA removes this alleged contrast.
3.3 It does so by amending Schedule 8 and section 124 so that they now coincide. Thus, by virtue of section 114, the definitions of ‘building safety risk’ and ‘relevant risk’ are omitted (they only repeat earlier definitions) and the definition of ‘relevant measure’ substituted with a new paragraph re-defining it to mean both (a) a measure taken to remedy a relevant defect and (b) a relevant step taken in relation to a relevant defect. Similarly, section 124 is amended by section 116 so as to extend to both costs incurred or to be incurred in remedying ‘… or otherwise in connection with’ relevant defects.
3.4 Further, section 116 inserts new subsection (2A) into section 124. This provides a non-exclusive description of costs within this extended class of connected costs, which includes (a) costs incurred or to be incurred in taking relevant steps in relation to a relevant defect in the relevant building (b) costs incurred or to be incurred in obtaining an expert report relating to the relevant building, and (c) temporary accommodation costs incurred or to be incurred in connection with a decant from the relevant building (or part of it) for reasons connected with relevant defects as specified therein or as may be prescribed in due course by regulations.
3.5 This is accompanied by a Henry VIII clause, in the form of new sub-section (2B), that allows the Secretary of State by regulations to specify descriptions of costs that are, or are not, to be regarded as falling within subsection (2). Notably, also section 116 provides at sub-section (7) that the amendments made by the section are fully retrospective, applying in relation to proceedings under section 124 pending when the amendments come into force, proceedings commenced after that day and in relation to costs incurred before as well as after the amendments come into force.
3.6 By these means, therefore, the amendments made by the LFRA effectively endorse and replicate the FtT decision in Triathlon to the effect that section 124 applies retrospectively to costs incurred before as well as after it came into force and that orders for payment under the section may cover steps such as waking watch and alarm installation as well as the works required finally to remedy the relevant defects. The amendments also mirror and likewise effectively endorse the decision of the Court of Appeal in URS Corporation Limited v BDW Trading Limited [2023] EWCA Civ 772 (now under appeal to the Supreme Court) in relation to the retrospective effect of s135 (revived DPA claims) and its applicability to pending proceedings.
3.7 The amendments to section 124 (discussed above) are naturally carried through into section 123 (remediation orders), by virtue of section 115. This amends section 123 to provide expressly that the FtT may order a relevant landlord to ‘do one or both of the following by a specified time (a) remedy specified relevant defects in a specified relevant building, (b) take specified relevant steps in relation to a specified relevant defect in a specified relevant building’; the current form of section 123 referring only to (a), with no (b).
3.8 Usefully, section 115 also amends section 123 to provide that the FtT may order, and enforce, the production of an expert report by a relevant landlord in relation to relevant defects or potential relevant defects to identify what steps are required, as experience indicates is often necessary. Any such direction is enforceable in the County Court pursuant to existing subsection 124(7). Again, these amendments apply both to pending and future proceedings (see section 115(5)).
4. Summary
4.1 In summary, therefore, as from 24/7/24 RCMs and RTMs may recover in service charges legal and professional costs in connection with any RCO application and insolvent landlord contribution orders under section 125 are abolished. Whilst the key takeaways so far as ss.123 and/or 124 are concerned are (a) statutory confirmation that RO’s and RCO’s apply to preventative or mitigating steps such as waking watch or other interim measures and (b) that section 124 is fully retrospective in effect.
4.2 Nothing is said as to the retrospective operation and effect of Schedule 8 and its application to pre-commencement costs (one of the issues in Adriatic v Hippersley) and it remains to be seen which side of the argument this omission, alongside the amends to s.124, is taken to favour. It will also be noted that any reforms in response to Octogon v Unsdorfer, about which there was much speculation during the passage of the LFRA, did not make it through wash-up.
4.3 The burning question is of course, when are all of the above reforms to be commenced. It is unlikely that we will know the answer to this until after the General Election, but given the passing of the LFRA depended essentially upon cross party support or cooperation, it seems likely that come what may on 4 July 2024 those provisions that do not commence on 24/7/24 can be expected to come into force relatively soon thereafter.
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