Schedule 8: Remediation costs under qualifying leases Paragraph 3: No service charge payable if landlord meets contribution condition Background
This is a new provision.
	Building owners are responsible for the safety of their own buildings, and the leaseholder protections set out in law that building owners of medium- and high-rise buildings are responsible for some, or all the costs associated with remediating historical building safety defects. The Government’s approach to the remediation of historical building safety defects in medium- and high-rise buildings is that in the first instance, those responsible for the defects must pay to remedy them. This principle is set out for the leaseholder protections provisions in paragraph 2, as that paragraph provides that no service charge is payable under a lease if the relevant landlord is responsible for the defect.
	The Government has also set out its position that, where a building owner or landlord can afford to meet the costs of remediating their own building in full, then they need to do so ahead of leaseholders. Where the condition at paragraph 2 is not met as no landlord for the building was responsible for the defects, paragraph 3 sets out that landlords who can afford to meet the costs that would otherwise be attributable to qualifying leaseholders must do so.
	The "contribution condition" is defined in this paragraph as the landlord group’s net worth being at least N × £2,000,000, or in other words, at least £2,000,000 per relevant building owned by the landlord group. The contribution condition is a metric which measures the ability of the landlord group to meet the costs of remediation in full. If the landlord group has a net worth of more than £2,000,000 per relevant building it owns, it will need to meet the remediation costs that would otherwise have been attributable to the qualifying leaseholders. If the net worth per relevant building is less than £2,000,000, then it will not need to meet the costs in full, as some costs will be recoverable from qualifying leaseholders, up to the permitted maximum (to which see paragraph 6), and from any other relevant landlords with an interest in the building (see the explanatory note to paragraph 12 for more detail).
	While the condition at paragraph 2 applies to all leases in the building, the condition at paragraph 3 only applies to qualifying leases. This means that, if the contribution condition is met by the relevant landlord, no service charge is payable only under qualifying leases. Non-qualifying leases are unaffected by paragraph 3 and can be expected to contribute towards the costs of remediation as per the terms of their lease agreement.
	As discussed in the explanatory note to section 122, where service charges are not payable according to paragraph 3, the provisions apply irrespective of when any service charge demands were issued to leaseholders.
	While paragraph 2 applies to any landlord under the lease at the qualifying time, paragraph 3 only applies in respect of the landlord under the qualifying lease. For the purposes of paragraph 3, for the condition to be met, the landlord who meets the contribution condition must be the landlord over the qualifying lease specifically. For example, if a landlord with a lease over only the top five floors of the building meets the contribution condition, then the limit on service charge amounts under this paragraph only applies to qualifying leases on the top five floors.
	The contribution condition applies to "the landlord group" which is defined as the relevant landlord and any person associated with it, where "associated" has the meaning given in section 121. It is common practice for institutional investors in freehold interests to hold those interests as part of fragmented corporate structures, so that any given company might itself only own a few freeholds, but the wider group of which it is part will own many more. As discussed in the explanatory note to section 121, the individual freehold-owning entities will often be thinly capitalised with limited assets, but the wider group structure will be well-capitalised and more likely to be able to meet the costs of remediation in full. The contribution condition of having a net worth of at least £2,000,000 per relevant building has therefore been defined as applying to the whole group structure, rather than to each individual freehold-owning entity.