Operation of the Building Safety Fund
Introduction
This case concerns an appeal by Redrow Plc, Redrow Homes Limited & HB (WM) Limited (together “Redrow”), against the Secretary of State for Levelling Up, Housing and Communities (the “State”).
Redrow sought permission to bring judicial review proceedings in order to challenge a decision by the State on 26 August 2022 to allocate funds from the Building Safety Fund (the “BSF”), a decision which it had previously opposed.
The appeal highlights a number of key issues over the operation of the BSF, where a developer had actually intended for remedial works to be funded without the State’s involvement.
Background
Redrow were the developers of two high rise buildings in Birmingham known as “Hemisphere” and “Jupiter 2” (the “Developments”). The purchasers of flats in the Developments acquired an interest in a buildings insurance policy with East West Insurance Co Limited (the “Insurer”).
The Developments were later found to contain cladding defects which required extensive remedial work. Redrow were initially informed on 14 April 2022 that the Insurer accepted liability of the defects in respect of Hemisphere, however Jupiter 2 was not confirmed until 15 September 2022. In the meantime, the management companies for the Developments made an application to the State that the remedial works be funded by the BSF.
On 25 May 2022, Redrow informed the State that as insurance cover had been confirmed for Hemisphere, and was expected for Jupiter 2, they did not require BSF involvement. However, the State responded to say that in order to ensure the works continued at pace, the BSF would remain involved. A subsequent dispute arose between Redrow, who did not want to repay the BSF (where insurance was likely to cover the works), and the State, who were concerned about delays to the start of the remedial works (resulting from any insurance claim). The State maintained its position that the works should be funded by the BSF.
There was then a further complication. Insurers said they would not be paying out to the leaseholders because a decision had been made to fund the works out of the BSF, and Redrow were liable to reimburse the BSF those sums.
In any case, in September and October 2022, remedial works, funded by the State from the BSF commenced. The State then sought to claim those costs back from Redrow.
The Appeal
The principle grounds of the appeal included whether (i) the State’s decision was lawful, and (ii) the procedure was unfair. This article does not deal with two other grounds of whether there had been a delay, and whether Redrow had the necessary standing.
Lawfulness of the decision
Redrow argued that the State was obligated to follow the BSF guidance when operating the BSF, and that it had failed to do so. It alleged two key failures:
- To take account of the insurance position in that no allocation should have been made from the BSF where an insurance claim was ongoing. Money shouldn’t have been allocated because there was no evidence of an inability to pay, which was a necessary condition of funding from the BSF; Redrow were (in theory) able to pay.
- The State prioritised urgency of remedial works over everything else, when it could have waited for the insurance position for Jupiter 2 to be resolved.
The Court rejected the first proposition and observed the BSF guidance did not require evidence of third parties being pursued to a point of exhaustion before a funding application could be made. Rather the BSF guidance anticipates these claims may be ongoing at the time of any application.
Although liability for one of the Developments had been accepted by the Insurer, there was no unqualified promise to reimburse the costs of remedial works, or indeed any offer of cash. There was no indication that the monies would be available in time for the start of works.
The Court also rejected the second point on the basis that urgency to remediate fire safety defects was a core reason for the application of the BSF. The State was entitled to say that an acceptance of liability by Insurers, without payment and without commitment of a date for payment, was not enough to jeopardize the carrying out of remedial works.
The Court concluded the State’s decision to allocate from the BSF was lawful.
Fairness of the decision
Alongside an argument over lawfulness, Redrow also complained they were not able to participate fairly in the decision to allocate funding from the BSF.
The Court concluded this was unfounded though on the basis that Redrow had every opportunity, through a number of letters to the State, to make their case. It was relevant to the Court’s decision that the State had made the following points clear in correspondence:
- All reasonable steps had been taken to pursue other sources of funding.
- The insurance position did not need to delay the remedial works – if there was a recovery from Insurers it could be set off against the funds paid out of the BSF.
- Redrow had never indicated they would carry out the remedial works themselves.
- A timetable had been set for the start of the remedial works and it was imperative that a decision was made in advance.
In light of the above, the Court rejected Redrow’s argument that the State’s decision was unfair.
Conclusion
Alongside the other grounds of the Appeal, the Court found that the decision by the State was lawful and in accordance with the BSF guidance.
Further, the process adopted was fair as the State’s decision was the culmination of a transparent process involving the applicants.
Analysis and points to note
Of course, one might argue that the law is not expected to be “fair” so long as it is applied correctly. However, it is clear from this decision that all avenues of recovery don’t need to be exhausted before an application is made to the BSF. If, as is commonly the case, there is a possibility for remedial works to be covered by insurance, that is not by itself enough to prevent the BSF kicking in.
If, therefore, developers are notified by the State that an application has been made to the BSF, and they do not wish to be required to reimburse the BSF (which may create cash flow issues), it is imperative for them to engage promptly and to put forward their case clearly. If they intend to carry out the works themselves (and where there may be a cost saving in doing so), this should be made clear with no uncertain terms. Equally, if there are other funding avenues available and/or if there has been a cash offer by insurers for remedial works, this should be highlighted.
This article forms part of our Breaking Ground series. For more information on the series, contact Andrea Lynch.