Building Safety Act 2022

Schedule 8: Remediation costs under qualifying leases

Paragraph 1: Interpretation

Effect

1652. Paragraph 1(1) sets out key definitions that are relevant to Schedule 8.
1653. "Associated", "building safety risk", "joint venture", "qualifying lease", "the qualifying time", "relevant building", and "relevant defect" are defined in sections 117 to 121.
1654. There are a number of regulation-making powers in the Schedule; accordingly, "prescribed" means prescribed in regulations which the Secretary of State has the power to make.
1655. For the purposes of the Schedule, a "relevant measure" is defined, in relation to a relevant defect (to which see section 120). A "relevant measure" is one that is taken to remedy a defect, to prevent a risk from materialising, or to reduce the severity of an incident arising from the risk materialising.
1656. Sub-paragraph (1)(a) sets out that a relevant measure can be a measure that is taken to remedy, or fix, a relevant defect. This would include, for example, work to remove unsafe cladding from a building, to put right internal compartmentation issues, or to underpin defective foundations (provided those defects are relevant defects, meaning that the defects must give rise to a building safety risk, as defined in section 120). Services procured in connection with remedying a relevant defect, such as undertaking an external wall survey, or consultancy and project management fees, will also be relevant measures, as those measures are a necessary part of the work needed to remedy the relevant defect.
1657. Sub-paragraph (1)(b)(i) sets out that a relevant measure can alternatively be a measure that is taken to prevent a "relevant risk" from materialising, where a "relevant risk" is defined as a building safety risk that arises as a result of the relevant defect. For example, if the presence of unsafe cladding on a building gives rise to a fire safety risk, that fire safety risk would be defined as a "relevant risk". Any measure which is taken to prevent that fire safety risk from materialising would be a relevant measure. For example, if a "waking watch" fire warden patrol is put in place in the building to mitigate against the fire safety risk until such a time as the cladding can be removed, the waking watch would be classed as a relevant measure, because it has been put in place to mitigate against the fire safety risk caused by the unsafe cladding.
1658. Sub-paragraph (1)(b)(ii) sets out that a relevant measure can also be one that reduces the severity of an incident resulting from the relevant risk materialising. For example, in some circumstances full remediation of a building may not be necessary, and a less costly and more proportionate measure may be appropriate. In some circumstances, it may be possible to mitigate against the risk created by the presence of fire safety defects through the installation of, for example, a fire alarm or a sprinkler system (although this will depend on the facts as they pertain to the building in question; while mitigation will be appropriate in some circumstances, in others full remediation will be needed to secure the safety of the building). Although the fire alarm will not prevent the risk from materialising altogether (i.e., it will not stop a fire from spreading), it will reduce the severity of a fire as the fire alarm would aid successful evacuation of the building.
1659. "Service charge" has the same meaning as in section 18 of the Landlord and Tenant Act 1985. That definition applies in relation to residential leases only.
1660. Some parts of the Schedule also apply to service charges under leases of non-residential premises. As the definition of "service charge" under the Landlord and Tenant Act 1985 only relates to residential premises, paragraph 1(2) sets out that, for the purposes of Schedule 8, "service charge" in relation to non-residential premises has the same meaning as in relation to a residential premises. This means that, for the purposes of this Schedule, a service charge in relation to a non-residential lease is defined in the same way as under section 18 of the Landlord and Tenant Act.

Background

1661. This is a new provision.
1662. The explanatory note to section 122 gives a general overview of the provisions in Schedule 8. This paragraph sets out definitions that are relevant to the subsequent paragraphs, many of which have been provided in sections 117 to 121.
1663. A number of multi-occupied residential buildings in England have been found to have historical building safety defects which can be costly to put right. The pre-existing legal position in most cases is that leaseholders are liable in full for these costs. The leaseholder protections change the law to protect leaseholders from some or all these costs.
1664. Section 120 defines a "relevant defect" for the purposes of the leaseholder protections as defects which have been created in the past 30 years, which give rise to a building safety risk, and which have arisen due to the way the work was done (including in relation to the provision of professional services) and the use of defective or inappropriate products in construction.
1665. Paragraph 1 defines the types of work (defined as a "relevant measure") in relation to relevant defects to which the leaseholder protections apply. As well directly remediating defects (such as removing unsafe cladding), the protections also apply to interim measures like waking watches and other measures which mitigate against risks such as the installation of fire alarms. Fees incurred in connection with remedying relevant defects, for example project planning fees and costs of external wall fire risk assessment will also be caught by the definition of a relevant measure. This ensures that the leaseholder protections apply to all types of costs which could be incurred in connection with making buildings safe due to historical building safety risks.

Paragraph 2: No service charge payable for defect for which landlord or associate responsible

Effect

1666. 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.
1667. 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.
1668. 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.
1669. 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.
1670. 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.
1671. 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.

Background

1672. This is a new provision.
1673. 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.
1674. 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.
1675. 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.
1676. 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.
1677. 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.
1678. 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

Paragraph 3: No service charge payable if landlord meets contribution condition

Effect

1679. Paragraph 3 sets out that a service charge is not payable under a qualifying lease if the relevant landlord meets the contribution condition.
1680. Sub-paragraph (1) sets out that no service charge is payable under a qualifying lease (to which see section 119) in respect of a relevant measure (to which see paragraph 1) if the person that was the landlord under the lease on 14 February 2022 ("the relevant landlord") met the contribution condition. "The relevant landlord" is defined as the landlord under the lease at the qualifying time.
1681. Sub-paragraph (2) sets out the contribution condition. The contribution condition is that the landlord group’s net worth at the qualifying time was at least N × £2,000,000.
1682. Sub-paragraph (4)(a) defines "the landlord group". The landlord group is the relevant landlord and any person associated with it, where "associated" has the meaning given in section 121.
1683. N is defined at sub-paragraph (2) as the total number of relevant buildings held by the landlord and its group. A "relevant building" is defined in section 117 as a multi-occupied residential building which is at least 11 metres tall or has at least five storeys. Sub-paragraph (3) sets out that a relevant building counts as being part of the landlord’s group if a member of the landlord’s group was, on 14 February 2022, a landlord for that building. This means that to calculate N, the landlord group would first be defined by identifying all companies which are associated with the landlord. N would be the total number of relevant buildings owned by all companies within the landlord group.
1684. Sub-paragraph (4)(b) allows the Secretary of State to make regulations setting out how the net worth of the landlord group is to be determined.
1685. Sub-paragraph (5) creates a power for the Secretary of State to amend, by regulations, the amount specified at sub-paragraph (2). This means that regulations made by the Secretary of State can change the reference to £2,000,000 to another amount.
1686. Sub-paragraph (6) sets out that the contribution condition does not apply in certain circumstances, determined by the identity of the relevant landlord at the qualifying time. The contribution condition does not apply if, at the qualifying time, the relevant landlord under the lease was either a social housing provider, a local authority, or a prescribed person. In this sub-paragraph, prescribed means set out in regulations made by the Secretary of State.

Background

1687. This is a new provision.
1688. Building owners are responsible for the safety of their own buildings, and the leaseholder protections set out in law that building owners of medium- and high-rise buildings are responsible for some, or all the costs associated with remediating historical building safety defects. The Government’s approach to the remediation of historical building safety defects in medium- and high-rise buildings is that in the first instance, those responsible for the defects must pay to remedy them. This principle is set out for the leaseholder protections provisions in paragraph 2, as that paragraph provides that no service charge is payable under a lease if the relevant landlord is responsible for the defect.
1689. The Government has also set out its position that, where a building owner or landlord can afford to meet the costs of remediating their own building in full, then they need to do so ahead of leaseholders. Where the condition at paragraph 2 is not met as no landlord for the building was responsible for the defects, paragraph 3 sets out that landlords who can afford to meet the costs that would otherwise be attributable to qualifying leaseholders must do so.
1690. The "contribution condition" is defined in this paragraph as the landlord group’s net worth being at least N × £2,000,000, or in other words, at least £2,000,000 per relevant building owned by the landlord group. The contribution condition is a metric which measures the ability of the landlord group to meet the costs of remediation in full. If the landlord group has a net worth of more than £2,000,000 per relevant building it owns, it will need to meet the remediation costs that would otherwise have been attributable to the qualifying leaseholders. If the net worth per relevant building is less than £2,000,000, then it will not need to meet the costs in full, as some costs will be recoverable from qualifying leaseholders, up to the permitted maximum (to which see paragraph 6), and from any other relevant landlords with an interest in the building (see the explanatory note to paragraph 12 for more detail).
1691. While the condition at paragraph 2 applies to all leases in the building, the condition at paragraph 3 only applies to qualifying leases. This means that, if the contribution condition is met by the relevant landlord, no service charge is payable only under qualifying leases. Non-qualifying leases are unaffected by paragraph 3 and can be expected to contribute towards the costs of remediation as per the terms of their lease agreement.
1692. As discussed in the explanatory note to section 122, where service charges are not payable according to paragraph 3, the provisions apply irrespective of when any service charge demands were issued to leaseholders.
1693. While paragraph 2 applies to any landlord under the lease at the qualifying time, paragraph 3 only applies in respect of the landlord under the qualifying lease. For the purposes of paragraph 3, for the condition to be met, the landlord who meets the contribution condition must be the landlord over the qualifying lease specifically. For example, if a landlord with a lease over only the top five floors of the building meets the contribution condition, then the limit on service charge amounts under this paragraph only applies to qualifying leases on the top five floors.
1694. The contribution condition applies to "the landlord group" which is defined as the relevant landlord and any person associated with it, where "associated" has the meaning given in section 121. It is common practice for institutional investors in freehold interests to hold those interests as part of fragmented corporate structures, so that any given company might itself only own a few freeholds, but the wider group of which it is part will own many more. As discussed in the explanatory note to section 121, the individual freehold-owning entities will often be thinly capitalised with limited assets, but the wider group structure will be well-capitalised and more likely to be able to meet the costs of remediation in full. The contribution condition of having a net worth of at least £2,000,000 per relevant building has therefore been defined as applying to the whole group structure, rather than to each individual freehold-owning entity.

Proposed use of power

1695. The contribution condition is based on the "net worth" of the landlord group. In broad terms, the net worth is a measure of the total assets of the group minus its liabilities. The power at sub-paragraph (4)(b) will be used to make regulations setting out how the net worth of the landlord group is to be calculated.
1696. The contribution condition is that the landlord group’s net worth at the qualifying time was at least £2,000,000 per relevant building. The power at sub-paragraph (5) allows the Secretary of State to change, by regulations, the reference to £2,000,000 to another amount. This power will be used if it becomes apparent that another value for the contribution condition would be more appropriate than £2,000,000.
1697. Sub-paragraph (6) lists the types of relevant landlord to which the contribution condition does not apply. The power at sub-paragraph (6)(c) allows further categories of persons to whom the contribution condition does not apply. This power will be used to prescribe further categories of persons to be excluded from paragraph 3 where it would not be appropriate for the contribution condition to be applied to that class of persons, or where "net worth" is not a relevant concept to that class of persons.

      Example 1 A ten-storey building constructed by a developer in 2010 has been found to have non-cladding fire safety defects which need remediation. The landlord under the lease is the freeholder. The freeholder does not have links to the developer. The freeholder’s group comprises the freeholder and its parent company. The freeholder owns four additional buildings above 11 metres in height, and so owns five relevant buildings in total. The total net worth of the freeholder and its parent company is £12,000,000. This gives a total of £2,400,000 per relevant building, which is higher than the contribution condition of £2,000,000 per relevant building. The freeholder of the building therefore cannot pass any remediation costs onto qualifying leaseholders. Example 2 An eight-storey building constructed by a developer in 2008 has been found to have non-cladding fire safety defects which need remediation. The landlord under the lease is the freeholder. The freeholder does not have links to the developer. The freeholder is not part of a wider group structure, and it owns one other relevant building. The total net worth of the freeholder is £1,000,000, giving a net worth per relevant building of £500,000. This is less than the contribution condition of £2,000,000 per relevant building. This means that the freeholder does not pass the contribution condition and, subject to the other provisions in the Schedule, may recover some costs from qualifying leaseholders. The freeholder will still have to meet any costs which are not recoverable under qualifying leases. Example 3 A ten-storey building with non-cladding fire safety defects has two landlords for different parts of the building: one for the top five floors and one for the lower five floors. The landlord for the upper five floors meets the contribution condition; this means that qualifying leaseholders on the top five floors cannot be charged for non-cladding defects. The landlord for the lower five floors does not meet the contribution condition; this means that, subject to the other provisions in the Schedule the landlord is entitled to recover some costs from qualifying leaseholders.

Paragraph 4: No service charge payable where lease below a certain value

Effect

1698. Paragraph 4 provides that no service charge is payable under a qualifying lease where the value of the lease is below a certain amount.
1699. Sub-paragraph (1) sets out that this paragraph applies in respect of a qualifying lease (to which see section 119) in respect of a relevant measure (to which see paragraph 1) relating to a relevant defect (to which see section 120).
1700. Sub-paragraph (1) sets out that no service charge is payable under a qualifying lease if, at the qualifying time, the value of the lease was less than £325,000 if the premises is in Greater London, or £175,000 if the premises was anywhere else in England. Greater London means the 32 London Boroughs, the City of London, and the Temples (Inner and Middle Temple – which are treated separately as local authorities for most legal purposes), as set out in the London Government Act 1963.
1701. Sub-paragraph (1) sets out that the value of the qualifying lease is taken at the qualifying time. Sub-paragraph (2) sets out how the value of the qualifying lease at the qualifying time is to be determined and provides that it should be determined in accordance with paragraph 6 of Schedule 8, and the regulations made under it. Paragraph 6(7) sets out how the value of the qualifying lease is to be determined; for further information, see the explanatory note to paragraph 6.

Background

1702. This is a new provision.
1703. Paragraph 8 of Schedule 8 sets out that qualifying leaseholders cannot be charged for costs relating to cladding remediation. Paragraphs 5 to 7 of Schedule 8 set limits on service charge amounts that can be passed to leaseholders in respect of relevant measures relating to relevant defects that are not related to cladding – this includes costs associated with non-cladding defects and interim measures like waking watches. In respect of most leases, the maximum amount that can be ("the permitted maximum") charged for non-cladding defects is £10,000, or £15,000 for leases in Greater London (see the explanatory note to paragraph 6 for further detail).
1704. Paragraph 4 provides that where the value of the lease is less than a certain amount, no service charge is payable in respect of a relevant measure relating to any relevant defect; this includes cladding and non-cladding costs, and interim measures. This value is set at £175,000, or £325,000 for properties in Greater London.
1705. The Government has made clear that it is it taking a proportionate approach to the allocation of remediation costs. Where no landlord with an interest in the building was responsible for the defect, and the landlord under the lease does not meet the contribution condition, this approach involves capped contributions from leaseholders in certain circumstances. To increase affordability of these contributions, paragraph 7 provides for the contributions to be spread over ten years.
1706. The intention of the provision in this paragraph is to ensure that those leaseholders who are least likely to be able to afford to make a capped contribution are protected from all costs. This is achieved by providing that leaseholders living in low-value properties cannot be charged for any non-cladding (or cladding) costs.
1707. The lease value is calculated according to the method set out in paragraph 6. Paragraph 6 sets out that lease values are calculated by "uprating" the price at which the property was last sold on the open market. "Uprating" means multiplying the most recent sale price by a fixed multiplying factor, which will be set out in regulations. For further detail, see the explanatory note to paragraph 6.
1708. As discussed in the explanatory note to section 122, where service charges are not payable according to paragraph 4, the provisions apply irrespective of when any service charge demands were issued to leaseholders.

      Example 1 A flat in Birmingham was last sold in 2012. The uprated value of the property is £170,000. The leaseholder of the flat cannot be charged anything by their landlord for costs related to historical cladding or non-cladding defects. Example 2 A flat in London was last sold in 2016 and its uprated value is £300,000. The leaseholder of the flat cannot be charged anything by their landlord for costs related to historical cladding or non-cladding defects.

Paragraph 5: Limit on service charge in other cases

Effect

1709. Paragraph 5 makes provision for limits on service charges under qualifying leases.
1710. Sub-paragraph (1) sets out that a service charge in respect of a relevant measure (to which see paragraph 1) relating to a relevant defect (to which see section 120) cannot exceed the permitted maximum, meaning that landlords cannot charge leaseholders more than that amount. Sub-paragraph (4) provides that "the permitted maximum" is defined in paragraph 6.
1711. Sub-paragraphs (1)(a) and (1)(b) define the service charges that are to be counted towards the permitted maximum for the purposes of the Schedule. If the landlord is seeking to levy a new service charge, the amount of that service charge, plus the total amount of "relevant service charge" which have been levied before the new service charge, cannot exceed the permitted maximum.
1712. Sub-paragraph (2) defines "relevant service charge". Any service charge which falls due after commencement (which is two months after Royal Assent of this Act, or 28 June 2022) is to be counted as a relevant service charge; in other words, any service charge levied after commencement in respect of a relevant measure relating to a relevant defect is counted as a relevant service charge.
1713. In addition, any service charge that was levied in the pre-commencement period is also counted as a "relevant service charge". Sub-paragraph (3) defines the "the pre-commencement period".
1714. In most cases, the pre-commencement period will be the period of five years leading up to commencement, which is the period from 28 June 2017 to 28 June 2022. This means that any service charges paid in that period in respect of relevant measures are to be counted towards the permitted maximum. This applies if the person who is the tenant under the lease ("the relevant person") has been the leaseholder since 28 June 2017.
1715. If relevant person did not become the tenant under the lease until after 28 June 2017, then sub-paragraph (3)(a) provides that the pre-commencement period for that person began when they became the tenant under the qualifying lease. This means that any service charges in respect of relevant measures paid since the person became the leaseholder, if that time was after 28 June 2017, are to be counted towards the permitted maximum.

Background

1716. This is a new provision.
1717. The provisions in Schedule 8 protect qualifying leaseholders from costs associated with historical building safety defects by limiting, or preventing altogether, the costs that can be passed to leaseholders through the service charge by landlords. Paragraph 5 makes provision that limits the costs that can be passed to leaseholders through the service charge by providing that service charge amounts in respect of costs associated with historical building safety defects cannot exceed a maximum amount referred to as "the permitted maximum".
1718. The paragraph sets out the service charges that are to be counted towards the permitted maximum amount. As well as future costs relating to historical building safety defects, costs that have already been incurred by the leaseholder in the past five years count towards the capped leaseholder contribution. Since the Grenfell Tower fire in 2017, many leaseholders have been faced with significant costs associated with historical building safety defects, including costs to remediate defects and to cover interim measures like waking watches. This paragraph provides that costs incurred in the five years prior to commencement, so from 28 June 2017, count towards the caps. This means that if leaseholders have already made payments, then going forward they will not have to pay the full capped amount. If a leaseholder has already paid up to the permitted maximum, their landlord will not be able to demand any further payments in respect of relevant measures; this includes costs that have been incurred in relation to cladding and non-cladding defects and interim measures like waking watches. (paragraph 8 provides that qualifying leaseholders cannot be charged for cladding costs going forward, whereas this paragraph provides that any cladding costs already incurred by leaseholders count towards the permitted maximum capped amounts).
1719. This provision in respect of costs already paid out only applies where costs have been incurred by the person who owns the property at commencement. This means that, for properties that have been acquired more recently (within the five years leading up to commencement) any costs incurred by the previous leaseholder or leaseholders are not to be counted towards the permitted maximum. However, if the property is sold after commencement, costs incurred by the previous leaseholder count towards the capped contribution amount.
1720. As discussed in the explanatory note to section 122, where service charges are not payable according to paragraphs 5 to 7, the provisions apply irrespective of when any service charge demands were issued to leaseholders.

      These examples refer to the permitted maximum amounts set out in paragraph 6. Example 1 A qualifying leaseholder of a flat in London acquired their property in 2015 and their capped contribution is £15,000. In the five years between 28 June 2017 and 28 June 2022, they had already paid out £5,000 towards a waking watch on their building. The maximum their landlord can charge them in respect of relevant measures is £10,000. Example 2 A qualifying leaseholder of a flat in Leeds acquired their property on 1 January 2020. In the period between 1 January 2020 and 28 June 2022 they had incurred £1,000 of costs towards a waking watch. Costs incurred by the owner of the flat before 1 January 2020 do not count towards the capped amount. The maximum that their landlord can charge them going forward in respect of relevant measures is £9,000. Example 3 The leaseholder of the flat referred to in Example 2 pays a further £2,000 towards remediation costs before selling their flat in 2024. They had already paid £1,000 in the pre-commencement period. The maximum that the new buyer of the flat can be charged by their landlord towards relevant measures is £7,000.

Paragraph 6: the permitted maximum

Effect

1721. Paragraph 6 makes provision about the meaning of "the permitted maximum" in relation to a qualifying lease.
1722. Sub-paragraph (2) sets out that the value of the permitted maximum is £15,000 for properties in Greater London, or £10,000 otherwise, for properties in the rest of England. Greater London means the 32 London Boroughs, the City of London, and the Temples (Inner and Middle Temple – which are treated separately as local authorities for most legal purposes), as set out in the London Government Act 1963. Sub-paragraph (2) is subject to sub-paragraphs (3) to (5).
1723. Sub-paragraphs (3) and (4) provide for a higher permitted maximum for higher-value properties. Where the value of the qualifying lease at the qualifying time (to which see section 119) is between £1,000,000 and £2,000,000, the permitted maximum is £50,000. Where the qualifying lease value is greater than £2,000,000, the permitted maximum is £100,000.
1724. Sub-paragraph (5) provides that where a lease is a shared ownership lease, the permitted maximum is to be calculated in accordance with the tenant’s total share of the lease at the qualifying time. This means that paragraph 6 applies according to the share of ownership in the property on 14 February 2022; the position does not change should a shared owner acquire an increased total share of their property after that date. Sub-paragraph (5)(a) sets out that the value of the qualifying lease is to be determined according to the value of a 100% share in the lease. Sub-paragraph (8) sets out the meaning of "shared ownership lease" and "total share".
1725. Sub-paragraphs (6) and (7) make provision for how the value of the qualifying lease at the qualifying time is to be determined. Sub-paragraph (6) sets out that the way in which the value of the qualifying lease is to be determined will be set out in regulations made by the Secretary of State. Sub-paragraph (7) sets out further detail about what the regulations may provide. These sub-paragraphs apply for the purposes of this paragraph and to paragraph 4 (which makes provision for service charges not to be payable if the lease value is below £175,000, or £325,000 for properties in Greater London).
1726. Sub-paragraph (7) sets out how the value of the qualifying lease is to be determined. If the property was last sold on the open market in 2022, the value of the lease is the value at which the property sold on the open market. If the property was last sold on the open market before 2022, then the value of the lease is determined by uprating the most recent sale price of the property in accordance with the regulations. The regulations may also set out how the value of the qualifying lease is to be determined in "prescribed cases", such as where the most recent sale price of the property cannot be determined.

Background

1727. This is a new provision.
1728. The provisions in Schedule 8 protect qualifying leaseholders from costs associated with historical building safety defects by limiting, or preventing altogether, the costs that can be passed to leaseholders through the service charge by landlords. Paragraph 5 sets out that leaseholders cannot be charged more than the permitted maximum in respect of costs relating to historical building safety defects. As paragraph 8 of the Schedule provides that no service charge is payable in respect of cladding remediation, the permitted maximum costs relate to non-cladding costs only; this includes the costs associated with interim measures like waking watches.
1729. Paragraph 6 sets out the value of the permitted maximum, which varies according to the value of the lease. For most leaseholders, the maximum that they will be able to be charged for costs relating to historical building safety defects is £10,000, or £15,000 for properties in London. Paragraph 4 sets out that qualifying leaseholders in low-value properties (properties worth less than £175,000, or £325,000 in Greater London) will not have to pay any costs towards historical building safety defects. For leaseholders in very high-value properties, the permitted maximum is higher, at £50,000 for leases with a value at the qualifying time of more than £1,000,000, and £100,000 for leases with a value of more than £2,000,000.
1730. The Government has made clear that it is it taking a proportionate approach to the allocation of remediation costs. Where no landlord with an interest in the building was responsible for the defect, and the landlord under the lease cannot afford to meet the costs in full, this proportionate approach involves capped contributions from leaseholders. The capped contributions of £10,000 and £15,000 for most leaseholders represents what the Government considers to be a proportionate and equitable contribution to remediation costs. For leaseholders who are least likely to be able to afford to make a capped contribution, paragraph 4 provides that they are fully protected from all historical building safety costs. Similarly, this paragraph requires those leaseholders who are likely to be able to afford to make a greater contribution to do so.
1731. While leaseholders in shared ownership arrangements are typically liable in full for any service charges, paragraph 6 provides that the capped contribution for shared ownership leases is set in proportion to their total share of the lease at the qualifying time. For example, the permitted maximum of a 50% shared ownership lease would be half the permitted maximum for a 100% owned lease.
1732. This paragraph also makes provision for how the qualifying lease value at the qualifying time is to be determined and sets out that this is to be done by an uprating of the most recent sale price of the property. Further detail of the uprating mechanism will be provided in regulations. This approach to calculating the lease value has been used to give a value which is fixed as of the qualifying time (14 February 2022), to give certainty to leaseholders, as well as landlords and freeholders, as to their levels of liability. The approach uses three pieces of readily available information to determine the lease value: the most recent sale price, the year in which the most recent sale took place, and a numerical "multiplier" for that year, which will be set out in regulations. This negates the need for individual valuations which would be expensive, time-consuming, and would have the potential to be the subject to dispute if the landlord and leaseholder did not agree on the valuation that has been assigned to the property.
1733. The paragraph makes provision for the most recent sale price to be uprated because properties last transacted more recently will, on average, have done so for a higher price than comparable properties that were last sold further back in time due to the inflation of house prices. It is therefore necessary to uprate the most recent property sale value with an appropriate measure of inflation, to ensure that property values can be compared like-for-like, irrespective of when they last sold.

Proposed use of power

1734. The power at sub-paragraphs (6) and (7) will be used to make further provision setting out how the value of the qualifying lease is to be determined.
1735. The regulations will set out a formula by which the value of the qualifying lease at the qualifying time will be calculated, taking account of the most recent sale price of the property, the year in which that sale took place, and a fixed uprating multiplier for that year.
1736. It is intended that the uprating multiplier will be based on the House Price Index published by the Office for National Statistics, which is the measure of house price inflation. The regulations will set out a list of uprating multipliers, one for each year before 2022.
1737. The regulations also allow provision to be made in respect of "prescribed cases". It is intended that these regulations will set out how the value of the qualifying lease is to be determined when the most recent sale price cannot be identified.

      Example 1 A qualifying leaseholder’s flat in Leeds has a value of £180,000 according to the uprating formula set out in regulations. The leaseholder’s permitted maximum is £10,000. Example 2 A qualifying leaseholder owns a shared ownership lease in London. On 14 February 2022 they had a 50% share in their lease. Their share of the lease has a value of £325,000, according to the uprating formula set out in regulations, meaning that a 100% share would be worth £650,000. As the permitted maximum for a £650,000 lease in Greater London would be £15,000, the shared ownership leaseholder’s permitted maximum is £7,500.

Paragraph 7: Annual limit on service charges

Effect

1738. Paragraph 7 provides for an annual limit on service charges in relation to historical building safety defects.
1739. Sub-paragraph (2) defines a "relevant service charge" for the purposes of this paragraph as a service charge under a qualifying lease (to which see section 119) in respect of a relevant measure (to which see paragraph 1) relating to a relevant defect (to which see section 120). This means that a relevant service charge is defined as one relating to historical building safety costs.
1740. Sub-paragraph (1) makes provision for an annual limit on relevant service charges by setting an annual limit on relevant service charges at one tenth of the permitted maximum (to which see paragraphs 5 and 6).
1741. Where a landlord seeks to levy a relevant service charge, then that service charge is only payable if the sum of that particular service charge (as set out in sub-paragraph (1)(a)), and the total amount of relevant service charges payable in the past 12 months (as set out in sub-paragraph (1)(b)), are not higher than one tenth of the permitted maximum. The effect of this provision is that service charges relating to historical building safety defects cannot exceed one tenth of the permitted maximum in any given 12-month period.

Background

1742. This is a new provision.
1743. Paragraphs 5 and 6 make provision for maximum amounts ("the permitted maximum") that landlords can charge to leaseholders in respect of historical building safety defects. For most leaseholders, the permitted maximum is £10,000, or £15,000 for properties in Greater London. This provides for a fair approach to the allocation of remediation costs, such that qualifying leaseholders make a proportionate and equitable contribution to remediation when there is no clear party to pay in full, while being protected from excessive and unaffordable bills.
1744. Paragraph 7 makes provision for the capped leaseholder contributions to be spread over up to ten years, by setting out that service charges relating to historical building safety defects cannot be higher than one tenth of the maximum capped amount in any given 12-month period. For most leaseholders outside of London, this means that maximum payable amount will be £1,000 per year, and £1,500 per year for most leaseholders in London.
1745. The annual limit on the caps represents a maximum, not a target, and landlords will need to provide evidence to leaseholders that work is needed when a service charge is levied (using powers made under paragraph 16 of this Schedule).
1746. This approach is intended to maximise affordability for qualifying leaseholders who can be required to make a capped contribution. Landlords who are responsible for organising remediation work will need to put arrangements in place to begin work and recover capped leaseholder contributions over time.

      Example 1 A qualifying leaseholder of a flat in London has a permitted maximum of £15,000. Their landlord can charge up to £1,500 per year towards historical building safety costs. After the cap is reached, the landlord will not be able to charge leaseholders anything more towards historical building safety costs. Example 2 A qualifying leaseholder of a flat in Newcastle has a permitted maximum of £10,000. The leaseholder paid £2,000 towards cladding costs prior to commencement; this means their remaining maximum liability is £8,000. Going forward, the landlord can charge the leaseholder up to £1,000 per year for eight years in respect of non-cladding costs. Example 3 A qualifying leaseholder of a flat in Manchester has a permitted maximum of £10,000. The landlord commissions remedial work and charges the leaseholder £1,000 per year for three years to cover the cost of the works. The leaseholder’s remaining maximum liability is £7,000. Several years later, further work is identified which falls within scope of the Schedule. The landlord can continue to charge up to £1,000 per year, until the £10,000 cap is met. After the £10,000 cap is met, the landlord cannot make any further service charge demands in respect of historical building safety defects.

Paragraph 8: No service charge payable for cladding remediation

Effect

1747. Paragraph 8 provides for protections for qualifying leaseholders from the costs associated with remediating unsafe cladding by providing that no service charge is payable under a qualifying lease in respect of cladding remediation.
1748. Sub-paragraph (2) defines "cladding remediation". Cladding remediation means the removal or replacement of unsafe cladding from the outer part of an external wall.

Background

1749. This is a new provision.
1750. The provisions in Schedule 8 protect leaseholders from the costs associated with historical building safety defects, defined in paragraph 1 as relevant measures. Paragraphs 5 to 7 make provision for qualifying leaseholder contributions towards relevant measures to be subject to a cap ("the permitted maximum"). This paragraph provides for qualifying leaseholders to be fully protected from the costs associated with cladding remediation. This means that the qualifying leaseholder contribution caps only apply in respect of relevant measures which are not related to cladding remediation costs; in other words, applying to non-cladding costs, including the remediation of non-cladding defects and the costs associated with mitigating measures such as fire alarms and interim measures like waking watches.
1751. Although this paragraph provides that no cladding costs be charged to leaseholders going forward (i.e., after commencement), any leaseholder contributions towards cladding remediation that have been incurred prior to commencement do count towards the leaseholder contribution caps.

      Example A qualifying leaseholder of a flat in London has a permitted maximum of £15,000 and has already paid £5,000 towards cladding costs on their building. They are legally protected from cladding costs going forward. The cladding costs that they have already paid out count against their contribution permitted maximum (the "capped" amount). This means that their landlord can charge the leaseholder a maximum of £10,000 towards non-cladding costs. The maximum that the landlord would be able to charge the leaseholder in a 12-month period is £1,500 (one tenth of the permitted maximum of £15,000 for a flat in London).

Paragraph 9: No service charge payable for legal or professional services relating to liability for relevant defects

Effect

1752. Paragraph 9 provides that no service charge is payable by qualifying leaseholders in respect of legal or other professional services in connection with liability for relevant defects. This means that landlords are prevented from passing costs through the service charge to qualifying leaseholders in respect of legal or other professional costs relating to liability for historical building safety costs.
1753. Sub-paragraph (2) sets out further detail as to what the term "services" includes. The reference to services in sub-paragraph (1) includes services provided in connection with obtaining legal advice, court or tribunal proceedings, arbitration, or mediation.
1754. This paragraph captures a wide range of services that may be provided to a relevant landlord in connection with liability for relevant defects. The term "in connection with" means that the services captured under this paragraph are not strictly only those directly referred to in sub-paragraphs (2)(a) to (2)(d). For example, the costs incurred with obtaining expert evidence or testimony in connection with court proceedings would fall under sub-paragraph (2)(b) and would not be chargeable to leaseholders.

Background

1755. This is a new provision.
1756. 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.
1757. 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).
1758. 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.
1759. 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.

Paragraph 10: Paragraphs 2 to 4, 8 and 9: supplementary

Effect

1760. Paragraph 10 makes provision supplementary to paragraphs 2 to 4, 8 and 9 which are defined in sub-paragraph (1) as "the relevant paragraphs". These paragraphs set out that certain costs are not payable by leaseholders under service charges and include where the landlord is responsible for a relevant defect (paragraph 2), where the landlord under the lease meets the contribution condition (paragraph 3), where the lease is below a certain value (paragraph 4), in respect of cladding remediation (paragraph 8) and in respect of legal or professional services relating to liability for relevant defects (paragraph 9).
1761. Sub-paragraph (2) provides that where one of the relevant paragraphs provides that a service charge is not payable, those costs cannot be otherwise passed through any service charge or met from a reserve fund.
1762. Sub-paragraph (2)(a)(i) prevents any costs which are subject to the cost protections in the relevant paragraphs from being passed through any service charge mechanism (defined as "the relevant provisions", to which see sub-paragraph (3)). "Relevant costs" has the same meaning as in section 18 of the Landlord and Tenant Act 1985.
1763. "The relevant provisions" are defined in sub-paragraph (3). They are defined as sections 18 to 30 of the Landlord and Tenant Act 1985 which relate to service charges, and section 42 of the Landlord and Tenant Act 1987, which relate to service charges held on trust.
1764. Sub-paragraph (2)(a)(ii) prevents any costs which are subject to the leaseholder protections from being met from a building’s reserve fund.
1765. Sub-paragraph (2)(b) provides further protections in respect of service charge amounts and reserve funds. It sets out that, should any payment be made under a lease or met from a reserve fund in respect of a cost which is subject to the leaseholder protections, an adjustment must be made to correct the position. This could be either by reimbursing a leaseholder or reserve fund for the service charge amount or by reducing subsequent service charges payable by leaseholders.
1766. Sub-paragraph (3) also sets out the definition of "relevant reserve funds" which are protected from being used to meet costs relating to relevant defects. These are a trust fund as defined by section 42 of the Landlord and Tenant Act 1987 or any other fund which is made up of payments from leaseholders for the purposes of meeting costs in connection with the building, such as for the maintenance of the building.
1767. Sub-paragraph (4) contains a power to expand the provisions in paragraph 10 to non-residential leases.

Background

1768. This is a new provision.
1769. Paragraph 10 ensures that where the relevant cost protections apply, the costs cannot be passed on to leaseholders, either by means of service charge demands or met from a reserve fund.
1770. The law relating to service charges in multi-occupied residential buildings is set out in sections 18 to 30 of the Landlord and Tenant Act 1985. Section 18 of that Act defines "relevant costs" as costs incurred by the landlord in connection with matters for which the service charge is payable. This paragraph provides that, where the relevant cost protections under the Schedule apply, those costs cannot be passed through the service charge.
1771. It is common practice for multi-occupied residential buildings to maintain reserve funds. Leaseholders pay into the reserve fund, which is set aside to pay for the costs of major works. These funds are usually held on trust. The law governing service charge contributions held on trust is set out in section 42 of the Landlord and Tenant Act 1987. Paragraph 10 sets out that, where the relevant protections apply, those costs cannot be met from a reserve fund. This provision applies equally to reserve funds which are caught by section 42 of the Landlord and Tenant Act 1987, as well as to any other types of funds into which leaseholders have paid.

Proposed use of power

1772. The power at sub-paragraph (4) will be used to expand the protections to non-residential leases. While service charges and reserve funds in respect of residential leases are governed by the Landlord and Tenant Act 1985 and the Landlord and Tenant Act 1987, there is no equivalent overarching legislation governing these matters for non-residential leases.
1773. Paragraph 2 of Schedule 8 applies equally to non-residential leases as it does to residential leases. This means that where a landlord for the building was responsible for the defect, no service charges relating to that defect can be passed to any leaseholder, including non-residential leaseholders. The power at sub-paragraph (4) will be used to make provision setting out that in this situation, costs cannot be met by service charges payable by commercial leaseholders or by reserve funds into which commercial leaseholders may have made payments.

      Example The landlord for a high-rise building is linked to the developer and so cannot pass on any costs to leaseholders relating to defects connected with the initial construction of the building. Paragraph 10 prevents the landlord from meeting any of the costs for remediation of those defects from the building’s reserve fund.

Paragraph 11: No increase in service charge for other tenants

Effect

1774. Paragraph 11 provides that no leaseholder, whether a qualifying or non-qualifying leaseholder, can be charged more than they otherwise would have been in the absence of the leaseholder protections for costs relating to historical building safety defects.
1775. Sub-paragraph (a) defines "the original amount" as the amount that would have been payable by a leaseholder in the absence of the provisions in Schedule 8 applying.
1776. Sub-paragraph (b) sets out that where a greater amount than the original amount would be payable under a lease of a premises in a relevant building (to which see section 117) as a result of Schedule 8 applying, then the amount that is payable is the original amount.
1777. This paragraph applies to all costs to which Schedule 8 applies including costs associated with cladding and non-cladding defects, to interim measures, and to costs relating to legal or professional services.

Background

1778. This is a new provision.
1779. The leaseholder protections in Schedule 8 protect leaseholders by limiting or preventing altogether costs relating to historical building safety defects being passed through the service charge.
1780. In a given building, different protections can apply to different leases. For example, some leaseholders may be protected from all costs, others may be subject a capped contribution, and others may not be eligible for the cost protections.
1781. When work is undertaken to the building, how much each leaseholder will ordinarily be liable to pay will be governed by the terms of the leases. In some buildings, costs might simply be evenly split among all leaseholders; other buildings may have more complicated arrangements for dividing the costs.
1782. Paragraph 11 ensures that, where leaseholders in a building have their liability removed or reduced, that these costs are not simply reallocated to other leaseholders. The paragraph makes clear that no leaseholder can be charged more than they would have been in the absence of the protections.
1783. The provisions in this paragraph mean that any amount that is not recoverable under a lease from a leaseholder as a result of Schedule 8 is reallocated to relevant landlords for the building (see paragraph 2 for the definition of "relevant landlord") and cannot be reallocated to other leaseholders in the building.

      Example A high-rise building in Greater London contains 20 units of which 15 are qualifying leases and five are non-qualifying leases. The 15 qualifying leases are all worth less than £325,000 and so are protected from all costs relating to historical building safety defects. £200,000 of remediation is required for the building and the terms of the leases provide that any costs are to be divided equally among leaseholders, equating to a contribution of £10,000 per lease. The 15 qualifying leaseholders are fully protected from costs and so cannot be required to pay anything by their freeholder. Paragraph 11 provides that the five non-qualifying leaseholders cannot be charged more than they would have been in the absence of the protections, meaning that they can each be asked to contribute no more than £10,000 by their freeholder. Accordingly, the remaining £150,000 of liability moves to the freeholder of the building.

Paragraph 12: Recovery of service charge amounts from landlords

Effect

1784. Paragraph 12 creates a power to make regulations prescribing how service charge amounts that are not recoverable from leaseholders are to be met.
1785. Sub-paragraph (1) sets out that amounts that are not recoverable from leaseholders are to be met by relevant landlords prescribed by the regulations.
1786. Sub-paragraph (2) sets out the meaning of "relevant landlord". A "relevant landlord" means the landlord under a lease and any superior landlord. This term includes freeholders, head lessees and any other landlords who hold superior leases over all or part of the building.
1787. Given that the definition includes the landlord under "a lease", this means that any landlord with a superior lease over any part of the building will be a relevant landlord. In mixed-use buildings it includes landlords who hold superior leases over both residential and commercial parts of a building, including landlords who hold leases over solely commercial premises. The term "relevant landlord" does not include resident management and right to manage companies.

Background

1788. This is a new provision.
1789. Schedule 8 provides that certain service charges are not payable under leases in respect of relevant measures (to which see paragraph 1 of Schedule 8) relating to relevant defects (to which see section 120). Where service charge amounts are limited by the Schedule, the landlord under the lease will be legally prevented from recovering those costs from leaseholders.
1790. Paragraph 12 creates a power for the Secretary of State to make regulations setting out who meets the costs that are not recoverable from leaseholders, representing a reallocation of liability that would previously have been attributable to leaseholders. The paragraph makes clear that it is the "relevant landlords" for the building that will need to meet these costs and a definition of "relevant landlord" is provided.
1791. The explanatory note to section 116 sets describes the ownership structures of multi-occupied residential buildings. In the most straightforward cases, there will be a freeholder who owns the land and the building itself, and leaseholders who own the long leases of dwellings contained within the building.
1792. The ownership structures of buildings can be, and often are, significantly more complex, with multiple layers of demised lease interests in the building. In some situations, the freeholder will own the land on which the building sits, but the ownership of the building itself will have been demised to another party, such as a head lessee. In more complex scenarios, head lessees can then demise the building or parts of it to other superior landlords. In turn these superior landlords can further demise leases to other superior landlords. Different parts of the building (e.g., different floors of a block of flats) can have different superior landlords. Such ownership structures will vary significantly from building to building. The leaseholder protections provisions in the Act have been designed so that they apply equally to simple and complex ownership structures.
1793. Such complex arrangements can be thought of as "chains" of demised leases. The leaseholder of the individual unit will have a lease agreement with the superior landlord at the bottom of such a lease chain. As such, the chain of leases has the leaseholder of the residential (or commercial) unit at the bottom of the chain and the freeholder (of the land, or of both the building and the land) at the top.
1794. Sub-paragraph (2) provides a definition of "relevant landlord" as the landlord under a lease and any superior landlord. This term captures all landlords with a superior lease interest in any part of the building. Resident management and right to manage companies are not caught by the definition because they are not landlords for the building and do not hold leases over it. The "landlord under the lease" will be the landlord with whom the leaseholder has their lease agreement directly. Any landlord above the landlord under the lease in the lease chain will be a "superior landlord".
1795. The power at paragraph 12 allows all relevant landlords for a relevant building to be allocated liability. As discussed in the explanatory notes to paragraphs 2 and 3, in the first instance, those who are responsible for the defects, and those who can afford to bear the costs in full, are required to do so first. If neither of these conditions are met, some costs can be recovered from some qualifying leaseholders (paragraphs 5 to 7). The remaining costs, that would otherwise have been attributable to qualifying leaseholders, will be spread equitably among all relevant landlords for the building.
1796. The provisions take a proportionate approach by ensuring that, where there is no clear party to bear the costs in full, an equitable spread of costs is achieved; this includes contributions from leaseholders and from all relevant landlords for the building. This approach has been taken because all relevant landlords will have a stake in the building and thus derive profit from it; as such, it is only fair that all such parties are allocated a share of liability to fix the building in which they have an interest.
1797. While Schedule 8 removes liability from leaseholders and paragraph 12 creates powers to formally reallocate that liability to relevant landlords, that does not mean that relevant landlords will always need to bear these costs in practice. . The Act contains significant wider powers that will allow building owners and landlords to seek to recover costs from those directly responsible for historical defects. Where cost recovery is not possible, Schedule 8 and the regulations made under the powers in paragraph 12 will provide for an equitable distribution of liability across leaseholders and all relevant landlords for the building.

Proposed use of power

1798. The power at paragraph 12 will allow all regulations to be made allocating liability that is not recoverable from qualifying leaseholders to all relevant landlords for the building. To which parties the regulations allocate liability will vary according to the circumstances pertaining to that building. The Government’s approach in Schedule 8 sets out a clear hierarchy of liability for costs; the regulations made under this paragraph will give full effect to that hierarchy.
1799. In the first instance, those responsible for relevant defects will be required to pay for them. Paragraph 2 of Schedule 8 sets out that no service charge is payable under any lease where a relevant landlord was responsible for the defect. Regulations will make clear that it is the relevant landlord who was responsible for the defects that is liable to meet these costs; this provision will be important to make clear who is liable to meet costs where there are multiple relevant landlords for a building, some of whom are not responsible for the defects.
1800. Paragraph 3 sets out that no service charge is payable under a qualifying lease when the landlord under the lease meets the contribution condition. Similarly, regulations will make clear that it is the landlord that meets the contribution condition that is liable to meet the costs that would otherwise have been attributable to qualifying leaseholders.
1801. Paragraphs 4 to 7 set out the protections that apply to leaseholders where paragraphs 2 and 3 do not apply. Where paragraphs 4 and 7 apply, regulations will provide that all costs which cannot be recovered from leaseholders will be divided equitably among all relevant landlords for the building. The mechanism for division of costs will be set out in regulations and will provide that relevant landlords’ contributions will be proportionate to their level of interest in the building. For example, a landlord with a superior lease over the entire building will pay a greater proportion of costs than a landlord with a superior lease over just one floor.

      Example A ten-storey block of flats in Leeds has a freeholder, a head lessee, and two further superior landlords; one for the upper five floors and one for the lower five floors. No landlord is linked to the developer or meets the contribution condition. A contribution from each qualifying leaseholder whose property is worth above £175,000 of £10,000 can be recovered, but these costs must be spread over ten years. Any historical building safety costs that cannot be recovered from leaseholders will be allocated to the relevant landlords for the building according to the regulations made under paragraph 12. The freeholder and head lessee, who have an interest in the entire building, will pay a greater contribution than the two other superior landlords, who only have an interest in part of it.

Paragraph 13: Presumption: qualifying lease

Effect

1802. Paragraph 13 makes provision about the determination of whether a lease is a qualifying lease according to section 119. The effect of this paragraph is to require that the leaseholder provides documentation to their landlord demonstrating that their lease is qualifying. It also provides that the landlord may not assume a lease is non-qualifying until they have exhausted attempts to determine otherwise.
1803. Sub-paragraph (3) makes provision for a "qualifying lease certificate". The certificate is a document provided by the leaseholder to the landlord demonstrating the qualifying lease status. A "qualifying lease certificate" confirms that, at the qualifying time (to which see section 119) the lease in question was a qualifying lease.
1804. Sub-paragraph (3) states that the certificate must comply with any "prescribed requirements". This means that requirements that the certificate must meet may be set out in regulations made by the Secretary of State.
1805. Sub-paragraph (4) sets out further detail as to what the prescribed requirements in the regulations may include. These are: the information that is to be provided by the leaseholder in the certificate; the form of the certificate, meaning the way in which the certificate and the information contained within it are to be presented; and the execution of the certificate, meaning the way in which the certificate is to be provided, including any relevant timescales.
1806. Sub-paragraph (2) makes provision about a "presumption" in relation to the qualifying lease and in connection with the qualifying lease certificate. Sub-paragraph (2) sets out that a lease is to be treated as being a qualifying lease unless the landlord has sought to obtain a certificate from the leaseholder and has been unable to do so. The sub-paragraph states that the landlord must take all reasonable steps to obtain the certificate; the sub-paragraph also contains a power for the Secretary of State to prescribe, in regulations, the steps that the landlord must take in attempting to obtain the certificate.

Background

1807. This is a new provision.
1808. Section 119 defines a qualifying lease for the purpose of the leaseholder protections. Whether a lease is qualifying is determined according to its ownership at the qualifying time, which is the start of 14 February 2022. As set out in the explanatory note to section 119, the qualifying lease status is automatically transferred to future buyers of the property.
1809. Whether a lease is qualifying determines whether the lease, and therefore the tenant under the lease (the leaseholder), qualifies for the leaseholder protections set out in Schedule 8. Not all leases will be qualifying. It is important that leaseholders and landlords have clarity on the position. Landlords will need to know which leases in their building are qualifying, as that will determine the extent to which they are legally permitted to pass costs on to leaseholders through the service charge. Leaseholders will need to know whether they are the owner of a qualifying or non-qualifying lease as this will determine what they can be charged by their landlords; potential purchasers of leases will also need to understand whether the lease they may wish to purchase is qualifying.
1810. The qualifying lease certificate is the formal means by which qualifying lease status is demonstrated and recorded; to this end appropriate evidence will need to be provided by the leaseholder to the landlord when the certificate is executed; this will ensure that the landlord has confidence that the information provided in the certificate is accurate. The landlord will need to accept the certificate, once executed, at face value. However, it will be made clear to leaseholders that they must provide information that to the best of their knowledge is true, and that knowingly failing to do so is a criminal offence. No express provisions are made in relation to such conduct; there is no need to make express provision as criminal behaviour can be addressed in the usual way.
1811. Whether a lease is qualifying depends on the ownership of the lease at the qualifying time, not on the date on which the certificate is executed. As such, the qualifying lease certificate will be an important legal document that will need to be securely kept and transferred to future owners of the lease on sale.
1812. The presumption relating to the qualifying lease ensures that landlords take a reasonable approach to recovery of costs relating to historical defects. The presumption means that a landlord may only treat a lease as non-qualifying once they have taken steps to obtain the qualifying lease certificate from the leaseholder. This prevents landlords from continuing to issue bills to leaseholders in the interim while the qualifying lease status is established.
1813. Where the landlord has exhausted all reasonable steps and complied with all prescribed steps to obtain a qualifying lease certificate and has been unsuccessful, then the landlord may assume the lease is non-qualifying until such a time as a valid qualifying lease certificate is provided.

Proposed use of power

1814. The power at sub-paragraph (2)(a) will be used to set out the steps that the landlord must take when attempting to obtain a qualifying lease certificate from the leaseholder.
1815. The power at sub-paragraph (3) will be used to prescribe requirements relating to the qualifying lease certificate, including the information that is to be contained within it, the form of the certificate, and the way in which the leaseholder is required to execute the certificate.

      Example The landlord in a relevant building becomes aware of a relevant defect. The landlord must assume that a lease is qualifying until they have taken all reasonable steps and complied with any prescribed steps to secure a qualifying lease certificate from the leaseholder.

Paragraph 14: Presumptions relating to landlord under qualifying lease

Effect

1816. Paragraph 14 makes provision about the determination of whether a landlord for a relevant building meets the contribution condition and whether a relevant landlord is responsible for relevant defects.
1817. Sub-paragraph (1) makes provision in connection with the contribution condition (to which see paragraph 3 of Schedule 8). It sets out that the landlord under the qualifying lease is to be treated as having met the contribution condition unless they have provided a certificate to the leaseholder which complies with prescribed requirements. This has the effect of requiring the landlord to provide a certificate demonstrating that they do not meet the contribution condition before being able to pass on costs to qualifying leaseholders.
1818. Sub-paragraph (2) provides a power which allows provision analogous to that set out in sub-paragraph (1) to be made in respect of demonstrating that a landlord was not responsible for specified relevant defects (to which see paragraph 2 of Schedule 8). The power will allow regulations to be made setting out that the landlord is treated as being responsible for identified relevant defects according to paragraph 2 unless they have provided a certificate demonstrating that they were not responsible for the defects.
1819. Sub-paragraph (1) states that the certificate must comply with any "prescribed requirements". This means that requirements that the certificate must meet may be set out in regulations made by the Secretary of State. Sub-paragraph (3) sets out further detail as to what the prescribed requirements in the regulations may include. These are: the information that is to be provided by the landlord in the certificate; the form of the certificate, meaning the way in which the certificate and the information contained within it are to be presented; and the execution of the certificate, meaning the way in which the certificate is to be provided, including any relevant timescales.

Background

1820. This is a new provision.
1821. Paragraphs 2 and 3 of Schedule 8 set out the circumstances in which landlords of relevant buildings are prevented from passing on any costs to leaseholders. Under paragraph 2, if a landlord was responsible for a relevant defect, they may not pass on any costs to any leaseholders in the building. Under paragraph 3, if the landlord under the lease meets the contribution condition, they will not be able to pass on any costs to qualifying leaseholders. The tests under paragraphs 2 and 3 apply at the qualifying time. For example, the conditions at paragraph 3 are satisfied if the landlord at the qualifying time met the contribution condition. If that landlord subsequently sells their interest in the building, the new owner of the interest in the building assumes the liabilities of the previous landlord and thus is treated as having met the contribution condition. In other words, new landlords assume the liability of the landlords as at the qualifying time.
1822. Whether a landlord was responsible for a given relevant defect, and whether they met the contribution condition, will most likely not be publicly available information. Whether a landlord was responsible for given relevant defect according to paragraph 2 will require information about the works in question that gave rise to the relevant defect. Whether a landlord met the contribution condition will require information about the structure of the landlord group, the financial position of the landlord and its group, and other relevant buildings owned by the landlord and its group. The landlord will therefore need to provide this information to leaseholders.
1823. Paragraph 14 and regulations made under it (as well as paragraph 16) will ensure full transparency in respect of this information. Full transparency is important as the information needed to determine whether the conditions at paragraphs 2 and 3 are met will not be readily available to leaseholders. Where building owners and landlords have used complex or opaque group structures, it would be possible to obscure the true picture without stringent transparency requirements.
1824. Paragraph 14 creates a presumption that the landlord is treated as having met the contribution condition unless they provide leaseholders with proof that they do not meet the contribution condition. This proof is to be provided in the form of a certificate which must comply with prescribed requirements. This means that the landlord under the lease will not be able to pass costs on to qualifying leaseholders until they have provided evidence to leaseholders proving that they did not meet the contribution condition. If the landlord does not provide this information, the landlord is legally treated as having met the contribution condition. Regulations will make analogous provision in respect of proving that a landlord was not responsible for relevant defects according to paragraph 2.
1825. If the leaseholder is not satisfied that the information provided by the landlord proves that they do not meet the contribution condition or was not responsible for the defect, they will be able to challenge this at the First-tier Tribunal. As with the provision of the qualifying lease certificate by the leaseholder under paragraph 13, knowingly providing false or misleading information is a criminal offence.

Proposed use of power

1826. The power at sub-paragraph (1) will be used to prescribe requirements relating to the certificate provided by the landlord, including the information that is to be contained within it, the form of the certificate, and the way in which the landlord is required to execute the certificate.
1827. The power at sub-paragraph (2) will be used to make provision which requires that a certificate is provided to leaseholders evidencing that the landlord was not responsible for given relevant defects, and that the landlord is to be treated as being responsible for creating the relevant defects unless such a certificate is provided.

      Example The freeholder of a building is part of a complex wider group structure. Before the freeholder of the building can pass on any costs relating to relevant defects to qualifying leaseholders, they must provide a certificate to leaseholders evidencing that they do not meet the contribution condition (that is, that, at the qualifying time, the landlord group had a net worth of less than £2,000,000 per relevant building owned by the group). If the certificate is not provided, or the certificate does not comply with prescribed requirements (which will be set out in regulations) then the landlord is treated as having met the contribution condition; this means that no costs relating to relevant defects can be passed on to qualifying leaseholders.

Paragraph 15: Information from tenants

Effect

1828. Paragraph 15 creates a power which allows the Secretary of State to make regulations requiring that qualifying leaseholders give prescribed information and documents to the landlord under their lease or any superior landlord.
1829. Sub-paragraph (2) sets out that the regulations can set out how the information or documents referred to in the regulations are to be provided.

Background

1830. This is a new provision.
1831. Paragraph 13 of Schedule 8 makes provision for the leaseholder to provide a qualifying lease certificate to their landlord, or any superior landlord, demonstrating that they are the owner of a qualifying lease. As discussed in the explanatory note to paragraph 12, superior landlords include any landlord with a superior lease over all or part of the building; this includes landlords such as the head lessee or freeholder.
1832. Regulations made under paragraph 13 will set out the information that is to be contained in the certificate, and the certificate’s form and execution.
1833. Regulations made under paragraph 15 will set out the information and documents that the qualifying leaseholder needs to provide to the landlord. Suitable evidence will need to be provided alongside the qualifying lease certificate supporting the self-certification of the lease as qualifying.
1834. There are other important factors relating to the qualifying lease that will need to be ascertained in determining the qualifying leaseholder’s potential liability (if any). Paragraphs 4 to 6 of Schedule 8 set out that the maximum qualifying leaseholder liability varies according to the value of the qualifying lease at the qualifying time. For example, a qualifying leaseholder outside Greater London is protected from all costs relating to relevant defects if the lease is worth less than £175,000. Paragraph 6(7) sets out that the value of the qualifying lease is determined according to regulations and is based on the most recent resale price of the property and the year in which that sale took place. Both the leaseholder and the landlord will need to know the value of the qualifying lease so that the landlord is aware of what costs they can pass on to the leaseholder, should they be entitled to do so (i.e., where no landlord for the building was responsible for the defects and where the landlord does not meet the contribution condition). The leaseholder will therefore need to provide information about the property’s most recent sale price and date to the landlord.
1835. In addition, paragraph 6(5) sets out that, for shared ownership leases, the permitted maximum is calculated in proportion to the leaseholder’s equity stake in the property. This information will also need to be provided to the landlord so that the landlord can determine what costs they can pass on to the shared ownership leaseholder.

Proposed use of power

1836. The power at paragraph 15 will be used to prescribe any relevant documents that need to be provided by qualifying leaseholders to their landlord alongside the qualifying lease certificate (to which see paragraph 13). This will ensure suitable and appropriate documents demonstrating that the lease is a qualifying lease are provided to the landlord.
1837. In addition, the power will be used to prescribe the information and documents that need to be provided by qualifying leaseholders to their landlord evidencing the most recent sale price of the property, and the year in which it was sold; this will allow the landlord to determine the value of the qualifying lease.
1838. Where the qualifying lease is a shared ownership lease, the power will be used to prescribe the information and documents that need to be provided evidencing the equity stake in the lease that the leaseholder had at the qualifying time.

      Example 1 A qualifying leaseholder needs to evidence to the landlord the value of their lease at the qualifying time. Under the regulations made under paragraph 15, they will need to provide to their landlord evidence of the most recent sale price of the property, and the year in which that sale took place. This will allow the leaseholder and the landlord to determine the value of the qualifying lease. Example 2 A qualifying leaseholders owns a shared ownership lease. They will need to provide evidence to the landlord of the value of their lease and the equity share at the qualifying time. Under the regulations made under paragraph 15, they will need to provide to their landlord the most recent sale price of the lease, the year in which that sale took place, and the equity share of the property. This will allow the leaseholder and the landlord to determine the value of the qualifying lease and the capped leaseholder contribution that applies to that lease (which will be determined in proportion to the leaseholder’s share in the lease at the qualifying time).

Paragraph 16: Information from landlords

Effect

1839. Paragraph 16 creates powers which allow regulations to be made requiring landlords of a relevant building (to which see section 117) to provide information and documents to certain other parties.
1840. Sub-paragraph (1) sets out that the Secretary of State may make regulations requiring a relevant landlord to give information or documents to a relevant tenant or to another person prescribed by the regulations.
1841. "Relevant landlord" is defined for the purposes of paragraph 16 in sub-paragraph (8) as a landlord under a relevant lease, where a "relevant lease" is further defined as a lease of a premises in a relevant building. As such, a relevant landlord for the purposes of paragraph 16 is any landlord under lease of a premises in a relevant building. The term "relevant landlords" includes the freeholder, any head lessee, and any further superior landlords.
1842. "Relevant tenant" is defined in sub-paragraph (8) as a tenant under a relevant lease. As explained above, a "relevant lease" is a lease of any premises in a relevant building. This means that paragraph 16 applies to any leaseholder in a relevant building, not just qualifying leaseholders.
1843. Sub-paragraph (1) states that the regulations may require that information or documents may be provided to an "other prescribed person", as well as to a relevant tenant, where "prescribed" means prescribed in the regulations.
1844. Sub-paragraph (2) sets out that the information and documents prescribed in the regulations can relate to any part of Schedule 8 and sub-paragraph (3) allows the regulations to set out how the information or documents are to be provided; this includes the timescales within which they are to be sent and the format in which they are to be provided.
1845. Sub-paragraphs (4) to (7) make provision for the situation in which a relevant landlord fails to comply with the regulations. Sub-paragraph (4) provides that where the regulations are not complied with, that the regulations may provide for prescribed costs (where "prescribed" means prescribed in the regulations) not to be payable under the service charge or to be met from a reserve fund. This means that where the landlord does not comply with the information sharing regulations made under paragraph 16, the landlord may be prevented from passing on certain costs to leaseholders through the service charge under the regulations. Sub-paragraph (4)(a) achieves this by providing for prescribed costs not to be regarded as relevant costs when calculating the service charge, where "relevant costs" has the same meaning as in section 18 of the Landlord and Tenant Act 1985; and by providing that they cannot be met from a relevant reserve fund, where "relevant reserve fund" has the same meaning as in paragraph 10 of Schedule 8.
1846. Sub-paragraph (5) creates a power to make regulations for and in connection with an application to the First-tier Tribunal should a landlord fail to comply with the regulations. Sub-paragraph (5) sets out that an application can be made to the Tribunal for an order determining whether the landlord has complied with the regulations. If the landlord has not complied, the Tribunal may order the landlord to provide information or documents under the regulations.

Background

1847. This is a new provision.
1848. Paragraph 15 creates a power to make regulations requiring information to be provided by the leaseholder to the landlord. Paragraph 16 contains analogous powers allowing regulations to be made setting out information that is to be provided by landlords.
1849. Paragraph 16 allows the regulations to specify that information and documents are to be given to leaseholders, as well as to prescribed persons. As discussed in the explanatory note to paragraph 12, a building can have multiple relevant landlords, for example a freeholder and a head lessee and multiple additional superior landlords. As well as sharing information between landlord and tenant, where there are multiple relevant landlords for a building it will be necessary for relevant landlords to share information between themselves. The power also allows for other persons to be prescribed in the regulations.
1850. Several key pieces of information will need to be provided by the landlord to tenants. Paragraph 14 makes provision in connection with a certificate that needs to be provided to tenants demonstrating that the landlord was not responsible for given relevant defects and does not meet the contribution condition. Regulations made under paragraph 14 will require the landlord to provide a certificate of a prescribed form to the leaseholder; paragraph 16 will allow regulations to be made requiring evidence in support of the information contained within the certificate to be provided.
1851. Other information not directly connected to the certificate in paragraph 14 will also need to be provided by the landlord to the tenant. In particular, paragraph 5 sets out that costs for relevant measures relating to relevant defects incurred in the five years leading up to commencement count towards the permitted maximum caps set out in paragraph 6. The landlord will need to inform leaseholders of any costs that have been incurred to date, and of the leaseholders’ maximum liability going forward.
1852. As well as providing information to tenants, relevant landlords for the building will also need to share information among themselves and the powers at paragraph 16 allow regulations to be made providing for this.

Proposed use of power

1853. The power at paragraph 16 will be used to make regulations requiring information and documents to be provided by landlords to leaseholders. This information will need to be provided alongside the landlord certificate mentioned in paragraph 14. Landlords will also be required to provide information in respect of costs incurred by leaseholders in the five years leading up to commencement in respect of relevant measures. Where a relevant building has multiple relevant landlords, provision will also be made requiring the sharing of information between such landlords. Provision will also be made in connection with an application to the First-tier Tribunal should the landlord fail to comply with the regulations made under paragraph 6.

      Example Following the leaseholder protections coming into force, the landlord must determine the costs that leaseholders have paid out in the five years leading up to commencement. Leaseholders in a ten-storey building in Manchester have each been towards a waking watch patrol. Following commencement, the landlord informs qualifying leaseholders in the building that they have each paid £2,000 to date in costs towards the waking watch. The landlord informs leaseholders that this means their maximum liability going forward in respect of historical building safety defects is £8,000.

Paragraph 17

Effect

1854. Paragraph 17 amends new subsection 6A of section 21 of the Landlord and Tenant Act 1985. New subsection 6A is inserted by section 112 of this Act (the Building Safety Act 2022).
1855. New subsection 6A of the Landlord and Tenant Act, as inserted by section 112 of this Act, provides that any regulations made under section 21 in connection with relevant buildings (to which see section 117 of this Act) do not need to include provision mention in subsections (2) and (3) of section 21.

Background

1856. This paragraph amends the Landlord and Tenant Act 1985.
1857. Section 21 of the Landlord and Tenant Act 1985 allows regulations to be made in connection with the provision of service charge information by landlords to leaseholders. Regulations under section 21 may be used in connection with the leaseholder protections provisions in requiring the landlord to provide information to leaseholders in respect of service charges which are subject to the leaseholder protections in Schedule 8.
1858. Subsection (2) of that section requires that the landlord must provide certain information to the tenant. Subsection (3) requires the landlord to provide a report to the leaseholder. Paragraph 17 disapplies these subsections in respect of regulations made under section 21 where the regulations relate to relevant buildings (as defined in section 117).

Paragraph 18: Anti-avoidance

Effect

1859. Paragraph 18 is an anti-avoidance provision. Paragraph 18 has the effect of voiding any contract or agreement which seeks to limit or override any of the provisions in Schedule 8.
1860. The paragraph makes clear that paragraph 18 has effect in respect of contracts and agreements "whenever made". This means that paragraph 18 applies in respect of contracts and agreements entered into both before and after commencement of the paragraph.

Background

1861. This is a new provision.
1862. Paragraph 18 ensures that the leaseholder protections provisions in this Schedule cannot be circumvented by contracts or agreements that seek to limit their effect.
1863. This means that, for example, if a leaseholder enters into a contract with their landlord agreeing to pay more than they are required to under this Schedule, that the terms of the contract purporting to require that are voided – the leaseholder cannot be required by any contract to pay more than they are required to under the Schedule.
1864. The provision applies equally to contracts that were entered into prior to the commencement of the provision. For example, if leaseholders had agreed in the past to pay their freeholder more than they are required to under this Schedule, then from the date on which the provision commences, that agreement is void and the leaseholders cannot be required to pay more than this Schedule dictates.

      Example In 2018, the leaseholders of a ten-storey block in Birmingham agreed to pay their freeholder £2,000 per year over ten years to remediate unsafe cladding. At the point of commencement of the provision, the leaseholders had paid £8,000 to remediate the cladding. Schedule 8 dictates that qualifying leaseholders cannot be charged for cladding remediation, that the non-cladding cap for leaseholders outside of London is £10,000, and any cladding or non-cladding costs paid in the past five years count towards the cap. Paragraph 18, when commenced, automatically voids the agreement the leaseholders entered into where that agreement seeks to restrict the provisions in the Schedule. This means that the qualifying leaseholders cannot be charged anything more for cladding remediation, as paragraph 8 of the Schedule specifically prohibits this. Because the leaseholders have each paid out £8,000 to date, their maximum liability in respect of non-cladding defects going forward is £2,000. Their freeholder would be entitled to charge them up to £1,000 (one tenth of the permitted maximum of £10,000) in respect of relevant measures relating to relevant defects, provided that those relevant measures do not relate to the remediation of unsafe cladding.