Schedule 8: Remediation costs under qualifying leases Paragraph 9: No service charge payable for legal or professional services relating to liability for relevant defects Background
This is a new provision.
	Where building owners assume new liabilities under the Act, they may wish to seek to recover costs from third parties to meet these liabilities. In addition, section 133 of the Act requires that landlords must exhaust all reasonable avenues for cost recovery before passing any costs on to leaseholders; this will include any contributions from leaseholders which can be sought up to the "permitted maximum" as provided for in Schedule 8. Landlords may also choose to seek legal advice and other professional services in connection with their liability for relevant defects under the Act.
	The Act brings forward a number of provisions which will allow those directly responsible for historical building safety defects to be held to account. This includes the extension of the limitation period under section 1 of the Defective Premises Act (to which see section 135), granting a power to the High Court which removes the protection afforded by special purpose vehicles (to which see sections 130 to 132), and a new cause of action against manufacturers of defective or mis-sold construction products (to which see sections 147 to 150).
	The terms of many leases will allow for landlords to pass legal and other professional costs through the service charge. The purpose of Schedule 8 is to protect leaseholders from costs associated with historical building safety defects. Where landlords incur costs in connection with their new liabilities under the Act, this paragraph prevents these costs incurred by landlords from being passed to leaseholders. Without these protections, it would be possible for landlords to pursue spurious or unrealistic legal claims and charge these costs to leaseholders; this paragraph mitigates against that and ensures incentives are aligned by requiring building owners and landlords to absorb the costs of their own legal and other professional advice.
	Costs already incurred by leaseholders prior to commencement under this paragraph do not count against the "permitted maximum" totals set out in paragraph 6 (unless those costs are also classified as a "relevant measure" under paragraph 1). However, any costs not yet incurred by leaseholders under this paragraph are not payable from the date of commencement onward, even if those costs were incurred by the landlord prior to commencement.
Example 1
Following the publication of the leaseholder protections provisions, a freeholder of a high-rise building has taken legal advice to assess the extent of its liability for historical non-cladding defects in the building. The landlord cannot pass those costs on to qualifying leaseholders through the service charge as they are caught by paragraph 9.
Example 2
The freeholder of a high-rise building decides to pursue litigation to recover costs from the building’s developer in relation to historical non-cladding defects. The freeholder cannot pass any legal costs, or costs associated with taking legal action, to qualifying leaseholders through the service charge.