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Building Safety Act 2022 - Does it Protect RMCs and RTMs?

The eagerly anticipated Building Safety Act 2022 leaseholder protections came into force on 28th July 2022. Confusion reigns. Much focus has been on leaseholder and landlord certificates and service charges…but will the Act ensure remediation works actually get done? This blog examines vital implications for leaseholders and directors with repairing obligations under:


A) the Right To Manage (RTM); or


B) a Resident Management Company (RMC) tripartite lease arrangement where leaseholders are shareholders in the RMC (my own personal situation as a leaseholder and director).

The good news headlines centred on Part 5 and Schedule 8 of the Act. They prohibit service charges for "relevant measures" relating to "relevant defects" for some leaseholders in some circumstances. They protect all leaseholders if the “Landlord under the lease” was responsible for creating or commissioning the defect (ie developer retained the freehold/superior leasehold). They protect “qualifying” leaseholders if the Landlord Group has a net worth of £2m per affected building they own, or if the lease/property is worth less than a certain value; and in other circumstances there are service charge caps and annual limits. For leaseholders, the immediate relief is bills are halted or tamed.


But here's where the confusion has set in for leaseholders with a RMC or RTM. What does protection really mean? The Act does not shift all responsibility to the freeholder/superior leaseholder (the "Landlord under the lease"). In practice, only the financial liability shifts away from (some) leaseholders. This is the protection.


Whilst this protection is necessary, it is not sufficient to end the crisis. Buildings still remain unsafe. Mortgage lenders demand funded and committed remediation plans with dates. Even then, property values remain depressed without a clean EWS1 because major construction works and unsafe properties are undesirable to buyers. There is no protection against sky-high buildings insurance. Lives remain on hold. Remediation is ultimately the key to freedom and solving these issues.


Crucially, the repairing obligations for RMCs and RTMs remain. RMC / RTM directors remain in the driving seat and still need to move remediation forwards by directing a highly complex planning and construction project. The freeholder won’t manage the process to actually remediate the building. RMC and RTM boards which grasp this fact are much closer to ending their nightmare.


To rub salt in the wound for volunteer directors, Section 123 even allows the regulator, local authorities and fire authorities to apply to the First Tier Tribunal to serve an injunction-like measure called a “Remediation Order” against a RMC / RTM (defined in S123 as the “Relevant Landlord” who is required under the lease to repair or maintain anything), ordering them to remedy “Relevant Defects".


The question then for RMC / RTM Directors of where to draw funding from is multi-faceted.


Section 133(4) requires the party with the power to raise service charge (ie the RMC/RTM) to take reasonable steps to ascertain whether any grant is payable and if so to obtain the grant. In other words: You must apply for the Building Safety Fund (BSF) or 11m+ Cladding Safety Scheme. Warranties, insurances and claims against the developer also need to be explored. The developer pledge exists in the background for some buildings but is not explicitly contained within the Act.


Another funding option is a Section 124 "Remediation Contribution Order" where the First Tier Tribunal could require the "Landlord under the lease" to make payments for remedying relevant defects, if the tribunal considers it "just and equitable" to do so. But funding questions are inextricably linked to the project’s cashflow. Would a bidding contractor go through months of tendering to agree a contract sum if their client's funding hinges on a tribunal ruling with no certainty the freeholder even has the cash? Remediation Contribution Orders may be helpful to leaseholders for recouping historical waking watch costs or recouping remediation service charge costs that were already incurred prior to the legislation (such as the tribunal ruling in Batish V Inspired Sutton Ltd), but they are likely to be completely impractical for a RMC or RTM that needs to cashflow a remediation project now. I suspect the drafters of the Act are not au fait in the complexities of procuring and cashflowing a construction project, resulting in well-intentioned but flawed legislation.


Those who have been through BSF will already know that it takes months of expensive professional work to identify defects, scope the remediation works and complete sufficient design to be able to tender the project to contractors, followed by months of contract negotiations before a contract sum can be known (as explained in more detail in another blog here). How does a RMC / RTM with zero assets cashflow this consultancy work to even get to tribunal? If the application for a Remediation Contribution Order then takes months to get to tribunal, the contract sum may have expired, effectively meaning the application will be based on the wrong amount, leaving the RMC/RTM at risk of a funding shortfall and resulting in a painful loop of repricing. And will a new Remediation Contribution Order be required for every inevitable contract variation that are a standard part of all construction projects? It will be incredibly laborious for contract management to the point of being completely impractical.


Seeing this through my lens as a chartered engineer and project delivery expert, and with my own detailed experience as a RMC Director successfully obtaining £13m from the Building Safety Fund for remediation of my own building and home, I consider that the overarching problem to be resolved is procurement and cashflow of a complex construction project, not a theoretical legal exercise. The Building Safety Fund and Cladding Safety Scheme routes therefore remain the better and more stable option. It gives Contractors the confidence to tender, knowing the fund has proven it pays out. The Building Safety Fund and Cladding Safety Scheme also provides the pre-tender cash injection needed to navigate the pre-construction phase towards agreeing a contract sum - a luxury that does not exist for Remediation Contribution Order applicants (this pre-construction phase alone can often amount to £150-£200k of consultancy work).


I want the best for leaseholders, and for this reason my advice to RMC / RTM Directors is to apply for Building Safety Fund or the Cladding Safety Scheme if you can. It won’t be simple, but it will be simpler. No matter what stage you are at or who your team is, you can benefit from my unique offering: first-hand BSF knowledge, guidance and client-side steering advice from a fellow leaseholder and RMC Director with a professional engineering and project background. CONTACT ME today with your problems and let’s arrange a chat to solve them.


Read below how I can help you

 

If you have discovered fire safety issues with your external walls, you could benefit from strategic advice from me, a leaseholder, RMC Director, Chartered Engineer and Project Management Expert who has led his own apartment block and others through the highly complex Building Safety Fund process. For support which protects leaseholders and offers cost and time saving strategies, please contact Scott@cladtohelp.co.uk to arrange an initial chat.


This blog post is purely for informational purposes. This information is provided in good faith and we assume no responsibility or liability for any errors or omissions in the content. Under no circumstances will Clad To Help Ltd be held responsible or liable in any way for any claims, damages, losses, expenses, costs or liabilities whatsoever resulting or arising directly or indirectly from the use of or reliance on the information or arising from your inability to use or access the information. This blog is not legal advice. Full Copyright Notice available at www.cladtohelp.co.uk. All rights reserved.

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