Schedule 8: Remediation costs under qualifying leases Paragraph 2: No service charge payable for defect for which landlord or associate responsible Background
This is a new provision.
	Most of the leaseholder protections provisions apply only to qualifying leases, as defined in section 119. This is because the protections have been designed to apply leaseholders living in their own homes, or who have moved out of their home and are subletting. In addition, a lease will be qualifying if its owner owns no more than three properties in the United Kingdom in total, in recognition of the circumstances surrounding people who own a small number of additional properties. Where a lease is non-qualifying, in most circumstances, the owner of that lease will be expected to contribute to the costs of remediation as per the terms of the lease (but paragraph 11 of Schedule 8 provides that no leaseholder can be required to pay more than they would have done in the absence of the protections; taken together with paragraph 12, this means that any costs not recoverable from a leaseholder must be borne by the landlords for the building and cannot be reallocated to other leaseholders). This is because the leaseholder protections have been designed to take a proportionate approach to the allocation of costs; this means focusing protections on those leaseholders who are most likely to need them, and that parties are expected to make a greater contribution to remediation if they are more likely to have the means to do so.
	There is an exception under this paragraph to the general position that the protections only apply in respect of qualifying leases. Where the landlord is responsible for the defects, then no service charge is payable by any leaseholder in respect of that defect. This aligns with the Government’s position that those directly responsible for creating historical building safety defects need to pay to put them right.
	As discussed in the explanatory note to section 122, where service charges are not payable according to paragraph 2, the provisions apply irrespective of when any service charge demands were issued to leaseholders.
	This paragraph sets out a definition of "responsible for" a relevant defect. This definition includes those who directly undertook defective work themselves, as well as those who commissioned the work and landlords that were in joint ventures with developers. Nothing in paragraph 2 (or anywhere else in Schedule 8) limits or otherwise interferes with the ability of any party to use legal remedies available to them to pursue other parties and hold them to account. For example, if a housing association that owns a block was in a joint venture with the developer of that block, then no service charge would be payable in respect of initial defects by the building’s leaseholders, and the housing association would instead be allocated liability for those costs according to the Schedule. However, the paragraph does not limit the ability of the housing association to hold to account through the courts, or via any other legal means, the developer, contractors, or other professionals who may be directly responsible for carrying out the defective work.
	It will not necessarily always be the case that the landlord that is responsible for the defects is also under the obligation to fix them. This paragraph provides that no service charge is payable where a relevant landlord was responsible for the defects. Paragraph 12 of this Schedule creates powers which allow regulations to be made setting out how costs are to be recovered, including where a landlord with a repairing obligation needs to recover costs from a different landlord who was responsible for the defects. For example, it might be that a building’s head lessee bears responsibility for maintaining the structure of the building, but the building’s freeholder was the developer. In this situation, the head lessee would need to undertake remediation, but would be entitled to recover remediation costs from the freeholder.
	As discussed in the explanatory note to section 121 it is common practice for owners of freehold and superior lease interests in multi-occupied residential buildings to use thinly capitalised subsidiary companies, often termed special purpose vehicles, to hold these interests. While developers will often sell on buildings after construction is completed, some developers and their subsidiaries will retain ownership of their buildings. Where developers have retained interests in buildings that they have had a role in developing, they will need to bear the costs associated with remediation in full.
Example 1
A building constructed by a developer in 2005 has been found to have fire safety defects which need remediation. On 14 February 2022 the building’s freehold was owned by a subsidiary of the developer. For the purposes of paragraph 2, as the freeholder is linked to the developer, the freeholder is classed as "responsible for" the fire safety defects associated with the building’s initial construction. All leaseholders in the building are fully protected from the costs associated with remediating those defects. The freeholder sells the building on, but as the status as regards liability become fixed on 14 February 2022, then there is no change to liability if the building is subsequently sold. Because the freeholder on 14 February was a subsidiary of the developer, and the liability status became fixed at that point, then the leaseholders in that building remain protected in full, and the next owner of the building would bear the same liability as the previous freeholder if the remediation had not been completed.
Example 2
The refurbishment of a block of flats was commissioned by the freeholder in 2008. The refurbishment introduced fire safety defects into the building that now need to be remediated. Because the freeholder commissioned the works, the freeholder is responsible for the defects for the purposes of this paragraph, and costs cannot be passed on to leaseholders in respect of those defects. The freeholder who commissioned the work wishes to pursue the lead contractor for the refurbishment, who was responsible for defective work which led to the fire safety defects. The freeholder shows to the court that the contractor’s defective work led to the defects being created and is able to claim damages from them