Key takeaways from article:
- Becoming the parent company of a developer through acquisition is sufficient for a party to be viewed as an ‘associated person’ – potentially making them liable for costs.
- The Tribunal may consider it is ‘just and equitable’ to demand contributions from a party even if it is not at fault.
- Time will tell how the issue of ‘deservedness’ plays out owing to Get Living’s key worker pension members throughout its appeal.
Should innocent parties bear the cost of remediating dangerous cladding on high risk residential buildings? The obvious answer is “No!” – but what happens if there are innocent parties on both ends of the claim? This is exactly the situation which has arisen over at the Olympic East Village.
At the risk of oversimplifying a highly complex legal structure, five buildings were developed by Stratford Village Development Partnership (SVDP) which had been incorporated by the Olympic Development Association (aka the Government) in 2009 for that specific purpose. Triathlon took a long lease of all of the flats and apartments in two of the Blocks and a long lease of other units in another three blocks with the purpose of providing affordable housing. Get Living has subsidiaries which own leases in some of the buildings, and has also become the owner of SDVP. Get Living’s interests were acquired long after the buildings were designed, constructed, and sold. It derived no financial benefit from the disposal of the interests in the buildings. Get Living and Triathlon jointly own East Village Management Limited (EVML) a management company which has the responsibility for the repair and maintenance of the exterior, structure and common parts of the buildings.
Although EVML was entitled to, and did apply to the Building Safety Fund (aka the Government) for assistance with the cost, and although proceedings could have been brought against a number of other parties involved in the actual design and construction of the buildings under various contractual arrangements, Triathlon brought proceedings for a Remediation Contribution Order (RCO) against Get Living under the provisions of the Building Safety Act 2022. This was despite Get Living not being involved in the design and construction of the buildings and deriving no benefit from the sale of the interests in the buildings. How is this possible?
The answer to this question is that an RCO can be made against a number of parties including a landlord, a developer and, crucially where Get Living are concerned, against an ‘associated person’. Being the parent company of the developer (as Get Living became when it acquired SDVP) is sufficient to be an associated person. However, just being an associated person is not of itself sufficient – the Tribunal must also consider whether it is “just and equitable” to make an order. Was it just and equitable in this case?
Despite the fact that Get Living had no involvement in the design and construction of the buildings, was not the landlord and had derived no benefit from the earlier disposals, the Tribunal thought it was. Some sections of the judgment are illuminating:
“When [Get Living] opted to acquire SVDP it could instead have taken a transfer of the land and buildings, leaving the liabilities of the developer behind, but it chose not to do so for its own reasons, knowing that it was acquiring not only the assets of the partnership but also its liabilities, including latent and consequential liabilities. [Get Living] willingly assumed the risks associated with [its] investment. In our judgment it is not open to [it] to ask that the timing and circumstances in which [it] made [its] investment in those assets be taken into account in determining whether it is just and equitable for the companies in which they invested to be the subject of contribution orders.”
“A wealthy parent company or other wealthy entity which is caught by the association provisions cannot evade responsibility for meeting the cost of remedying the relevant defects by hiding behind the separate personality of the development company.”
The availability of a RCO provides a remedy for the applicant “without the applicant having to become involved in, or to wait upon the outcome of other claims arising out of the relevant defects, which might involve complex, multi-handed, expensive and lengthy litigation.”
Relying on the public purse (aka the Building Safety Fund aka the Government) would have allowed “the best part of £20m to remain in Get Living’s bank account, earning interest or being put to account for its benefit, rather than being returned to the Building Safety Fund where it could be used to remediate other buildings.”
All pretty clear cut you might have thought. But is it? Get Living has appealed the decision and has come out swinging! To quote from the press releases:
“Get Living has a responsibility to its pension fund shareholders to appeal the tribunal’s decision, which lays financial liability at the wrong door, not only to protect the value of those funds that are mainly held on behalf of key workers, but also to test this unfair principle for other investors at a time when the UK has never been more in need of property investment and housing.”
“The tribunal ruling itself said that Get Living is not at fault. And there is no way that Get Living’s investors could have foreseen the impact of the Building Safety Act when they first made an investment in UK housing.”
“Given this decision unfairly financially punishes our pension members who are municipal workers including firefighters and police officers that serve our communities, we have no choice other than to appeal.”
So, Get Living has made a clear grab for the moral high ground and those determining the appeal would seem to have to choose between two sets of innocent parties generally thought to be deserving. But what if instead of Get Living with all its key worker members, the associated person was a very wealthy private equity fund – would this make a difference? Should it? Would it be any less innocent than Get Living? Is this just a way of protecting the public purse by finding a convenient and “undeserving” deep pocket? And if it is, what are the consequences for investment in badly needed UK housing stock?
The arguments are far from simple and the policy considerations weighty and complex. Watch this space!