On appeal from the First-Tier Tribunal (FTT), the Upper Tribunal has decided that a Tribunal-appointed "independent manager" cannot be the 'Accountable Person' in respect of a higher-risk building under the Building Safety Act 2022 (BSA). The case is Solomon Unsdorfer v Octagon Overseas Limited and others [2024] UKUT 59 (LC).

This means the independent manager cannot carry out building safety obligations (such as removal of flammable cladding), which remains the responsibility of the Accountable Person (which could be the landlord). Significantly, this decision does not affect management orders already in place, but there is plenty to think about when those orders expire. Here, we consider what this case will mean for the appointment of managers going forward.

Solomon Unsdorfer v Octagon Overseas Limited and others

This was an appeal from the FTTconcerning a residential estate in East London comprised of 5 buildings (the Estate). The parties had asked the FTT to determine who were the Accountable Persons and, of these, who was the Principal Accountable Persons (PAP) for the purpose of the BSA, (see below). This is the first reported decision of the FTT– and now the Upper Tribunal – on the identity of Accountable Persons. The second part of the application, concerning the identity of the PAP, remains to be determined by the FTT.

The parties included the freeholder and various leaseholders and the independent manager for the Estate, Mr Unsdorfer. Mr Unsdorfer had applied to the Building Safety Fund for financial assistance to carry out remedial work to the cladding. His application had been denied because he was not an Accountable Person, and therefore not responsible for building safety work under the BSA.

The FTTfound that an independent manager appointed under s.24 Landlord and Tenant Act 1987 (LTA) could not be an Accountable Person under the BSA. Mr Unsdorfer then appealed to the Upper Tribunal.

What is an independent manager?

Long leaseholders of residential flats can apply to the tribunal for the appointment of an independent manager, where the landlord of the building has been at fault on specified grounds (S.24, LTA). The independent manager would take over management responsibilities for the building, from the landlord, and would be supervised by and answerable to the tribunal.

Clearly, this is a very important tool for leaseholders who are dealing with poor management by their landlord (or their managing agents). However, if the poor management relates to a building safety risk at a high-risk building (e.g. arranging a waking watch, removing flammable cladding), then the independent manager cannot take control of these functions. Perhaps, surprisingly, responsibilities for this will stay with the Accountable Person (who cannot be the independent manager), and may well be the defaulting landlord.

What is the BSA regime?

Everyone in the property sector will be acquainted with the mammoth legislation that is the >BSA, and the considerable secondary legislation that has amended and clarified it. Brought into force following the tragic Grenfell fire, its fundamental purpose was to ensure the safety of residents whilst protecting them from the costs of making their buildings safe. The obligation to comply with duties under the BSAis the responsibility of the Accountable Person, who is required to be registered with the Building Safety Regulator.

Building Safety risks

Building Safety risks are defined in theBSAas a risk to the safety of people in or about a building arising from the spread of fire, structural failure, or any other prescribed matter (S.62, BSA). Commonly, this would include cladding works. An Accountable Person must put measures in place to prevent building safety risks, and reduce the severity of any incident that does happen. Therefore it is crucial to identify who this is.

Who is the Accountable Person?

As we set out in our previous insight, 'Building Safety Act 2022: Replacing managers in higher-risk buildings, an Accountable Person is broadly:

  1. The person who is under a relevant repairing obligation for any part of the common parts of the building under a lease or by virtue of an enactment. This will normally be the landlord or a superior landlord; or
  2. where there is no person with a relevant repairing obligation, the person who has the legal estate in possession of any part of the common parts of the building. Management bodies therefore can be the Accountable Person.

If a building has only one Accountable Person, they are the PAP. However, where there is more than one Accountable Person, the PAPis the Accountable Person who:

  1. Holds a legal estate in possession in the relevant parts of the structure and exterior of the building; or
  2. is within section 72(1)(b) because of a relevant repairing obligation (within the meaning of that section) in relation to the relevant parts of the structure and exterior of the building.

What did the Upper Tribunal decide?

TheFTThad found that the independent manager could not be an Accountable Person for the purposes of theBSA. On appeal the Upper Tribunal agreed, and found that:

  1. The FTTwas correct. The independent manager could not be an Accountable Person for the purposes of the BSA;
  2. This is because the manager did not satisfy either of the criteria in s.72 BSA, as they do not hold a legal estate in possession in any part of the common parts, nor are they under a repairing obligation (under a lease or by virtue of an enactment) in relation to any of the common parts. The obligations on an independent manager come from the tribunal, not the lease.
  3. As an independent manager cannot deal with building safety matters under the BSA, responsibility for building safety matters is likely to lie with the landlord whose bad behaviour led to the need for a manager to be appointed in the first place (under S.24, LTA);
  4. In this case, therefore, the independent manager could not deal with the cladding replacement;
  5. Where a management order confers building safety responsibilities on independent managers and that order was made before the commencement the BSA, it will not be affected. So the independent manager under an order pre-dating the BSAcan continue to carry out building safety responsibilities (here the Upper Tribunal disagreed with the FTT, which had held that all management orders were affected, regardless of when they had been made).

In the Explanatory Notes to the BSA, it was noted that building safety was intended to be kept discrete from other management functions. The Upper Tribunal's decision ensures that this separation is felt in practical terms.

Why is this a problem?

Counsel for the independent manager summarised the problem well in submissions:

"[Counsel for the independent manager] suggested that the exclusion of a tribunal appointed manager from the status of Accountable Person produced such an absurd and inconvenient result that it cannot have been the intention of Parliament. The consequence of the FTT'sconstruction [he] submitted, was that "managers of higher-risk buildings would at a stroke be stripped of the majority of their management responsibilities, in particular those relating to the most serious risks in the building". Management of those parts of a building which represented the greatest safety risk would revert to the original landlord. A professional manager, vetted by the FTTbefore appointment and held by it to high professional standards, would be replaced by a landlord whose past conduct had warranted them being stripped of the management of their own property."

The BSAdid provide one solution – the Building Safety Regulator could ask the tribunal to appoint a "Special Measures Manager", expressly to undertake Part 4 duties instead of the Accountable Person (s.102 and Sch.7, BSA). These provisions recently came into force and it remains to be seen how effective this solution is in practice.

Key takeaways

  1. This means that leaseholders of higher-risk buildings may fall between a rock and a hard place where it comes to building safety and defaulting landlords. As the BSAis designed to keep building safety responsibilities and management separate, an independent manager cannot deal with building safety obligations under Part 4 of the BSA(such as carrying out cladding works) – those remain with the Accountable Person, who may well be the defaulting landlord.
  2. Whilst the tribunal has encouraged landlords to work together with independent managers to ensure that necessary works are completed, this may seem like an unsatisfactory solution in practice.
  3. The alternative is that a special measures manager is appointed under the BSA.
  4. Where a management order was already in place before the BSAcame into force, interested parties should consider how they will approach the renewal or variation of the order when it expires:
    1. The Upper Tribunal has suggested that no order could be made, meaning that the independent manager continues to carry out all the functions in the order (including building safety functions) until there is an application to discharge the order;
    2. If a landlord wants the order discharged so that the building safety functions revert to them as the Accountable Person, they will need to persuade the FTTthat there will not be a recurrence of the circumstances which led to the order being made, and it is just and convenient to discharge the order.

Read the original article on GowlingWLG.com

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