Vista Tower is a high-rise building in Stevenage that was converted from office to residential use between 2015 and 2017 by Edgewater (Stevenage).
Grey, a subsidiary of Railpen, purchased the freehold interest in 2018 from Edgewater and subsequently discovered fire safety defects were present in the building.
As a result Grey issued an application for a Remediation Contribution Order (RCO) against Edgewater and 95 other body corporates1 for the costs incurred and to be incurred in remediating the building, totalling £13,863,360.58. Concurrent proceedings were also issued in the High Court.
An RCO is a new remedy introduced by section 124 of the Building Safety Act 2022 (BSA) which requires a landlord, developer or associated person to contribute towards the costs of remedying a "relevant defect" in a "relevant building" where the First-tier Tribunal considers it "just and equitable" to do so.
In summary, Grey's position was as follows:
- Relevant Defects2 had been identified at the Building which required remediation.
- The design, cost and procurement of that scheme had been impacted by various external factors such as Covid, pressure from the Secretary of State3 and the availability of appropriate contractors.
- The Respondents were a number of companies owned and / or operated by Jack Frankel, Jacob Dreyfuss and / or various members of their immediate family.
- They operated as an interconnected group of companies under the name "the Edgewater Group" that used companies interchangeably and provided intercompany funding as and when they needed.
- In those circumstances, the assets of the wider corporate structure should be accessed to meet the costs of remediation.
- Edgewater (Stevenage) was the developer that was responsible for introducing the Relevant Defects. However, it had very limited net assets available for remediation, whereas its wealthy associated companies collectively reported significant assets on Companies House.
- Further, Edgewater (Stevenage) was aware that there were fire safety defects prior to the sale of the building, not least as "…serious warnings…" about the building had not been brought to Grey's attention, leading to a "…misleading…" Fire Risk Assessment (FRA) being provided prior to the sale.4
On the other hand, Edgewater (Stevenage) and its associated companies argued that:
- The standard of risk for a defect to fall within section 120 BSA 2022 was "intolerable".
- The remedial scheme being carried out by Grey was unreasonable and disproportionate, particularly in relation to Wall Type 1.
- An RCO would not be just and equitable because Grey failed to do proper due diligence when it bought the Building.
- The other associated companies had no involvement with the Vista Tower development.
- Non-qualifying leaseholders should contribute to any costs of remedying defects.
Decision
The Tribunal determined that an RCO would be just and equitable in the circumstances and ordered the Respondents to pay £13,262,119.08 for the costs incurred and to be incurred in remedying the relevant defects.
It considered that the test for relevant defects should not be limited to breach of building regulations, and the standard of risk that constituted a building safety risk for the purpose of the BSA 2022 is anything above "low" risk. It also agreed that the remedial scheme had been affected by other external factors, and Grey had acted reasonably in seeking professional advice in respect of the same.
It also gave guidance as to how the issue of "just and equitable" should be approached in circumstances where companies were associated through shared directors during the relevant period.
In their view, there must be an "…additional factor…" to indicate a wider corporate structure that cannot be explained by the Respondents; ultimate beneficial ownership by a single person is not sufficient. This will depend on the facts and circumstances of each case.
In this case, the Respondents subject to the Order were all property development companies operating under the umbrella name of the "Edgewater Group". Each of the companies were owned and / or operated by Jack Frankel and Jacob Dreyfuss or members of their family.
It was not necessary for Grey to conduct a tracing exercise in this case. The poor and opaque record keeping, together with the "…complex and interconnected web of relationships and interdependencies…" and frequent intercompany lending, indicated they were being run as a "…fluid and blurred network or structure…".
It was also considered that Edgewater (Stevenage) had given an untrue warranty at the time of the sale of the building due to i) the misleading FRA given to Grey during the sale process, and ii) the lack of action by Edgewater despite warnings about the fire safety risks, particularly in relation to the inadequate sprinkler system.
Analysis
The Decision provides some useful clarity on how Tribunals will approach RCO applications, in particular:
- A Relevant Defect5 is much wider than just a breach of a Building Regulation.6
- As to how parties may approach the question of what constitutes a "…building safety risk…"7, the Tribunal considered the better view was:
“any risk above “low” risk (understood as the ordinary unavoidable fire risks in residential buildings and/or in relation to PAS 9980 as an assessment that fire spread would be within normal expectations) may be a building safety risk. Section 120(5) describes a risk to the safety of people arising from the spread of fire or collapse, not a risk reaching an intolerable or any other particular threshold. We do not think “collapse” indicates the risk must be of catastrophic fire spread, as was suggested. It need only be a risk to the safety of people arising from the spread of fire in a tall residential building”.8
- Whilst the question of what is just and equitable under section 124 of the BSA 2022 will be decided on the facts of each case, the Tribunal's key findings were as follows:
- The test is "…deliberately wide…" and "…different considerations may be relevant and different approaches may be just and equitable in different cases…".9
- Whilst it was surprising that Grey had purchased the building, Edgewater (Stevenage) had given a "…surprisingly firm…" warranty and indemnity that the building complied with building regulations. However given the facts, the sales warranty was untrue and serious warnings were not disclosed.10
- The developer had failed to act properly when it was made aware that there were fire safety risks in the building prior to the sale, including an inadequate sprinkler system.11
- In terms of the remedial scheme, Grey relied on professional advice12 and the costs of the works were within reasonable boundaries.
- The Tribunal also made some findings in relation to the Respondents' association under section 121 of the BSA 2022, specifically:
- The Respondents subject to the Order all operated as property investment companies, predominantly under the umbrella name "Edgewater".
- The Respondents did not disclose all of the information relating to the links between the companies.13
- Almost all of the Respondents subject to the Order have or had links in addition to association by shared directorship during the specified period that had not been properly explained.
- The Tribunal considered that, in the circumstances, an RCO should be made on a joint and several basis against most of the Respondents.14
DAC Beachcroft LLP acted for Grey GR LP.
[1] Three were removed before the trial
[2] As defined under section 120 of the Building Safety Act 2022
[3]Secretary of State for Levelling Up Housing and Communities v Grey GR Limited Partnership [CAM/26UH/HYI/2022/0004]
[4] See paragraph 87
[5] S.120 BSA 2022
[6] See paragraph 68
[7] S.120(5) BSA 2022
[8] See paragraph 72
[9] See paragraph 349
[10] See paragraph 87
[11] See paragraph 229
[12] See paragraph 154 and 166
[13] See paragraph 199
[14] See paragraph 192 and 373
