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Lords Committee raises concern about lack of data on landlords who passed on costs to leaseholders due to legislative error

Friday 3 March 2023

The cross-party House of Lords Secondary Legislation Scrutiny Committee has raised several concerns in its most recent report after considering the Building Safety (Leaseholder Protections) (England) (Amendment) Regulations 2023 (the Regulations).

The Regulations correct an error in a previous instrument to ensure that the value of parent or sister companies within a group are taken into account when the net worth of a company within the same group which is the actual landlord is considered under the Buildings Safety Act 2022, as part of the process for assessing liability for the costs of remedying certain historical building defects (excluding dangerous cladding). The previous instrument contained an unintentional drafting error which excluded parent and sister companies from being considered as associated with the landlord, which meant that landlords could avoid the net worth threshold of £2 million above which they must not pass on costs to leaseholders for repairing historical defects.

While welcoming the correction of the error, the Committee’s report raised several concerns:

  • The lack of data on the number of landlords who may have benefited from the mistake. The Department of Levelling Up, Housing and Communities (DLUHC) said that one parent company had avoided liability because of this error. Asked how many landlords had benefitted from the mistake in total and had succeeded in passing on costs to leaseholders, however, the Department told the Committee that it was aware of “very few cases” and that it would be “inappropriate” to share this data because it was “less than completely reliable”. The Committee expressed regret at this position and found the absence of a mechanism that allows for the accurate monitoring of the impact of the Department's error worrying. In addition, the lack of reliable data renders it impossible for the Committee or for Parliament to form a view of the extent of the problem the Regulations rectify.
  • No compensation for leaseholders who have to pay remediation costs as a result of the Department’s mistake and no plans to alert these leaseholders to the possibility of applying to a tribunal to seek cost recovery. DLUHC told the Committee that the Government would not be compensating leaseholders who have already paid remediation costs, but that affected leaseholders could seek to recover costs incurred via an application to the First-tier Tribunal for a remediation contribution order. There are currently no plans to raise awareness and alert potential claimants of this, however. The Committee expressed regret at the lack of plans to alert affected leaseholders to the appeal route and concluded that the Department should consider how affected leaseholders could be identified, and how they could be informed, in a targeted way, that an appeal route is available to them to recover costs.
  • A potential lack of resources at DLUHC having contributed to the unintentional error. The Committee was concerned that a potential lack of resources at DLUHC may have been a contributory factor in the legislative error occurring and indicated it would be writing to the Minister to seek assurance that such mistakes would be avoided in future. The Committee will also ask the Minister whether protection for affected leaseholders could be introduced retrospectively through primary legislation and, if so, whether this route had been considered.

Lord Thomas of Cwmgiedd, Member of the Secondary Legislation Scrutiny Committee said:

“We welcome the correction of the unintentional drafting error in the previous instrument on this issue, but the fact remains that the error is a serious one with real-life consequences for the individuals affected, as landlords often structure a group of companies so that buildings are held by different companies within the group.

“The information we received from the Department did little to allay our concerns, particularly regarding the lack of data available on the number of landlords who may have benefitted from the error and may have passed on remediation costs to leaseholders; and the lack of engagement with those affected on how they can reclaim incurred costs. In addition, the lack of data hampers the ability of this Committee and of Parliament to carry out effective scrutiny of the legislation and to assess the extent of the problem it seeks to rectify.

“We have suggested the House may wish to get clearer information from the Minister on the concerns raised in our report. We have also asked the Minister about the possibility of introducing retrospective primary legislation to provide protection for leaseholders affected by the original error.”

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