Schedule 8: Remediation costs under qualifying leases Paragraph 2: No service charge payable for defect for which landlord or associate responsible Effect
Paragraph 2 sets out that service charges are not payable under a lease in respect of a relevant defect where the landlord, or an associate of the landlord, was responsible for that defect.
	Sub-paragraph (1) sets out that paragraph 2 applies in relation to any lease of a premises in a relevant building. The effect of this is that paragraph 2 applies to all leases, irrespective of whether the lease is a qualifying lease under section 119. This means that paragraph 2 applies to all residential leases in a relevant building (irrespective of how many additional properties are owned), and to commercial leases.
	Sub-paragraph (2) sets out the circumstances in which no service charge is payable under a lease in respect of a relevant measure for the purposes of this paragraph. No service charge is payable in respect of a relevant measure if the landlord is either responsible for the defect, or if they are associated with the person responsible for the defect, where "associated" has the meaning given in section 121. Sub-paragraphs (3) and (4) set out what is meant by "responsible for" a defect.
	Sub-paragraph (3)(a) sets out how paragraph 2 applies in relation to an "initial defect". An "initial defect" is defined in sub-paragraph (4) as being a defect which has arisen from works relating to the initial construction or conversion of the building, as defined in section 120(3)(a). A person is "responsible for" the defect in this case if they were the developer (which is defined in subsection (4)), or were in a joint venture with the developer, or if they undertook or commissioned the work themselves. This means that, in relation to a defect which was created during construction, no service charge is payable by any leaseholder in respect of the defect if any landlord for the building was also the developer. As set out in subparagraph (2)(a), this includes any person associated with the person responsible. This means that a landlord who is a subsidiary of the developer would also be caught for the purposes of this paragraph and would not be able to pass on any costs to leaseholders.
	Sub-paragraph (3)(b) sets out how paragraph 2 applies in relation to defects that are not initial defects; in other words, defects which have been created after the building’s initial construction or conversion. In this case, a person is "responsible for" the defect if they undertook or commissioned the works which have caused the creation of the defects. For example, if a landlord has commissioned a major refurbishment of a building that has later been found to be defective, for the purposes of this paragraph the landlord would be deemed to be responsible for the defects arising due to the refurbishment. Sub-paragraph (3)(b) applies equally where the landlord commissioned the works through its managing agent.
	Sub-paragraph (4) provides a definition of "relevant landlord". A "relevant landlord" is any landlord under the lease at the beginning of 14 February 2022 (the qualifying time) or any superior landlord at that time. This means that the test as to whether a landlord is responsible for the defect applies at the qualifying time, and the status of the building under paragraph 2 applied and became fixed at that time. For example, if on 14 February the freeholder of the building was also the developer, then no service charge would be payable by leaseholders. Even if the freeholder subsequently sold off the building to another company who is not linked to the developer, leaseholders would still be protected from all costs, as on 14 February, the freeholder was linked to the developer. The new freeholder would take on all the liabilities of the previous freeholder, irrespective of whether the new freeholder has links to the developer.