The First-tier Tribunal's (FTT) decision in Triathlon Homes LLP v. Stratford Village Development Partnership and others is a stark illustration of the powers under the Building Safety Act 2022 (BSA) to pierce the corporate veil and redistribute the costs of building safety remediation works to those "with the broadest shoulders" irrespective of their degree of fault.

Background

The case concerned an application for remediation contribution orders (RCOs) pursuant to s.124 of the BSA. The applications related to five blocks of flats in London originally developed by SVDP (which, at that time, was ultimately owned by the taxpayer) as athletes' accommodation for the 2012 Olympics and thereafter retrofitted as flats and sold off on long leases. In 2020, it was discovered that the blocks were blighted by serious fire safety defects requiring remediation works costing in excess of £25 million.

An RCO is an order of the FTT, made on the application of an interested person, requiring a current or former landlord or developer or their associates (within the meaning of s.121 of the BSA), to meet costs incurred or to be incurred in remedying relevant defects in relevant buildings. An interested person includes anyone with a legal or equitable interest in the relevant building. The person against whom the order is sought must be either a company or a partnership. If the relevant qualifying conditions are met, the FTT can make an RCO if it considers it "just and equitable to do so".

The application

In this case, the interested person was Triathlon, the long leaseholder of the affordable and social housing flats within the blocks. It sought orders against:

• SVDP, the original developer whose shares had been sold in 2014 (so was no longer owned by the taxpayer) and had since undergone various changes to its ultimate beneficial ownership. At the time of the applications, it continued to be the beneficial owner of the freehold to the blocks; and
• Get Living, a property group incorporated in 2018 (long after construction of the blocks completed) which now included SVDP and its partner entities, the companies holding legal title for SVDP and a subsidiary company that held the long leasehold interests in the private flats within the blocks. Get Living had not been involved in the original design or construction of the blocks but, at the time of the application, was associated with the current freeholders and each of the landlords in the chain of title. (The FTT did not consider it necessary to determine the separate question of whether Get Living was an associate of SVDP as developer because of its connections to SVDP's corporate partners.)

The advantage of including Get Living was that, on its own, SVDP was unlikely to be able to meet its liability under an RCO from its own resources whereas Get Living "would be more than able to meet any obligation which might be imposed on it in these proceedings".

The decision

It was agreed that the relevant qualifying conditions for making an RCO had been met. The question was whether the FTT thought it just and equitable to make the RCOs.

Following detailed consideration, the FTT concluded it was just and equitable, and made RCOs against both SVDP and Get Living for more than £18 million (representing Triathlon's share of the remediation costs, both past and future).

One of the principal arguments made against making the orders was, in essence, that they were not needed to secure the remediation works. The works had already commenced with funding from the Building Safety Fund (the Fund) and there was little doubt that the Fund would continue to finance the works. In addition, both Triathlon and the estate management company procuring the works had contractual means of recourse against the original contractors to enable them to eventually recoup the various costs. Why should the costs of remediation not continue to be borne by the public purse? Unsurprisingly, the FTT had little time for this argument, noting that counsel for the respondent had "found it difficult to find a clear and convincing reason why it would be just and equitable to allow the best part of £20 million to remain in Get Living's bank account, earning interest or being put to account for its benefit, rather than being returned to the [Fund] where it could be used to remediate other buildings". The public interest in securing reimbursement of those funds quickly pointed strongly in favour of making an order. Further, the argument against RCOs being made cut across two of the principal objectives of the BSA:

• that the BSA and associated regulations create a hierarchy of liability for relevant defects, with primary liability resting with those responsible for such defects. The taxpayer does not appear in that hierarchy – "given this position, it is difficult to see how it could ever be just and equitable for a party falling within the terms of section 124(3) [those against whom an RCO may be sought] and well able to fund the relevant remediation works to be able to claim that the works should instead be funded by the public purse";
• that it was plainly the intention of Parliament that an application for a RCO should provide a route to securing funding for remediation works without the applicant having to become involved in, or to wait upon, the outcome of other claims arising out of the relevant defects, which might involve complex, multi-handed, expensive and lengthy litigation.

Given that all parties agreed that SVDP had been the original developer (albeit that it had outsourced the management, design and construction of the scheme to others) and that those who are responsible for defects are primarily liable under the hierarchy of the BSA, it is unsurprising that an RCO was made against it.

Of more interest is the position of Get Living, given that it had not been involved (and indeed did not even exist) at the time the blocks were originally constructed and so had no direct input into their design or the materials used. Instead, it had only entered the scene in 2018, well after completion, before the BSA and before the full scale of remediation was understood. FTT attributed little if any weight to the changing identity of the ultimate beneficial owner of SVDP since 2014 – it was enough that, as at the date of the application, Get Living was associated with the freeholder and those involved in the leasehold chain.

Concluding thoughts

This case illustrates some notable points about RCOs and the BSA more generally:

• The BSA and related regulations create a hierarchy of liability for remediation of relevant defects. At the top of that chain are parties who were responsible for the relevant defect. Lower down the chain are those with the means to bear the financial burden and those with a current interest in the relevant building.
• Responsibility under the BSA "is not synonymous with fault; a developer may have done all that could reasonably be expected of it to build a safe building, but it will still be 'responsible for' relevant defects caused by others". This echoes another comment from the FTT in its decision in Waite v. Kedai that when determining whether something is or is not a relevant defect "whether or not work done at the time did or did not comply with the then extant Building Regulations is not the issue…The question is simply whether the work creates a building safety risk in light of today's knowledge".
• Ordinarily, when you buy a corporate entity, you assume the assets and liabilities of that entity but not of its wider group of associates. However, s.124 of the BSA (and some of its other provisions such as building liability orders) can pierce the corporate veil so that one corporate entity in a group can find itself responsible for the liabilities of its associates. "The obvious purpose behind the association provisions is to ensure that, where a development has been carried out by a thinly capitalised or insolvent development company, a wealthy parent company or other wealthy entity which is caught by the association provisions cannot evade responsibility for meeting the cost of remedying the relevant defects by hiding behind the separate personality of the development company." That is exactly what happened to Get Living in this case. So, going forward, parties cannot rely on the corporate veil to shield them from all liability under the BSA – instead they will have to consider carefully what liabilities they could be assuming through acquiring new associations with others. If a party does not want to take on this risk, it may need to consider whether proceeding by way of a direct asset purchase, rather than purchase of a corporate vehicle, is a better way of proceeding.
• The provisions of the BSA can also cut across existing contractual arrangements. The contractual arrangements between the parties would ordinarily have shielded Get Living from making contributions to the remediation costs incurred by Triathlon. However, s.124 of the BSA cut across them with the FTT noting "we see nothing unfair in Triathlon taking advantage of the ability which it has been given to act independently of the network of contractual provisions relied on by the respondents" to resist the RCOs.
• The availability of an RCO is not dependent on the applicant having no other means of recourse. Here, both Triathlon and the management company had the option of pursuing reimbursement by pursuing various contractual rights they had against the original contractors. The availability of other means of remedy was not a bar to seeking an RCO. The fact that remediation works are not dependent on an RCO is also not a bar to a party seeking an RCO.