Urban Splash: When is it just and equitable to order Remediation Contribution Orders?

The First-tier Tribunal (Property Chamber) issued a milestone decision under section 124 of the Building Safety Act 2022 (BSA) in Secretary of State for Housing, Communities and Local Government v Urban Splash Limited & Others.

The proceedings concerned seven applications for Remediation Contribution Orders (RCOs) to recover the costs of remedying serious fire-safety defects across seven high-rise residential developments in Manchester built or converted by Urban Splash between 2000 and 2008: Burton Place, Chips Building, Christabel House, Emmeline House, Moho Building, Sylvia House, and The Box Works.

The Tribunal ordered five Respondents to pay a total of £46.5m on a joint and several basis. The vast majority is payable to the Secretary of State to reimburse the Building Safety Fund (BSF), while £741,594 is payable directly to the management company for remediation costs incurred outside the BSF. Applications against four of the group entities were dismissed, while claims against two architects were withdrawn following a significant pre-trial settlement.

Urban Splash is not a signatory to the Government’s Developer Remediation Contract (DRC). That may help explain why the Secretary of State pursued RCOs directly in this case. For signatory developers, the DRC provides an alternative route by which Government seeks reimbursement of BSF funding and secures developer-funded remediation. Where that contractual route is not available, the statutory RCO jurisdiction becomes a more obvious mechanism for seeking to move public remediation costs back to the developer and associated entities.

Background on multi-party Remediation Contribution Orders

This is the most significant case of direct Government involvement since DLUHC v Grey GR Limited Partnership in May 2024 where a remediation order was sought under section 123 to force the remediation of defective cladding works on the converted Vista Tower office block in Stevenage. That was later subject to a section 124 Remediation Contribution Order of £13.2m in Edgewater (Stevenage) Limited & Ors v Grey GR Limited Partnership which was upheld on appeal to the Upper Tribunal.

The key feature of that case was the sheer number of parties against whom the order was made – 76 parties who were investors in the pension scheme owning the building and associated entities, and that the order was made on a joint and several basis.

The “just and equitable” test

Despite a number of cases on Remediation Contribution Orders, nearly all cases have upheld that it was just and equitable to make the RCO against associated entities, and so provide little helpful analysis on where the edge of that test lies – under what circumstances would a court decline to make an RCO?

The Urban Splash case does just that – the FTT granted RCOs against five group or connected entities but declined to make orders against four others. The judgment extends to 260 pages, and a significant portion deals with the just and equitable test against each of the nine entities, providing detailed analysis on how the FTT considers the test should be applied to group and associated entities.

Parties where a Remediation Contribution Order was made:

Urban Splash Limited (R1) – the original developer that constructed or commissioned all seven developments.

As the developer that brought the defective buildings to market and profited from them, R1 stands at the very top of the perceived hierarchy of responsibility under the BSA. The Tribunal held that R1’s insolvency and cessation of active trading did not insulate the developer from RCO liability. Furthermore, R1 continues to hold economic value for the group through approximately £68m in retained tax losses.

Urban Splash Developments Limited (R2) – became the primary active development arm of the group after a major group restructuring in 2013.

It admitted being an associated person with R1. Although R2 did not build the original seven properties, the Tribunal determined that it represents the commercial successor and continuation of R1’s property development enterprise. It shares substantial continuity of ownership, management, personnel, brand identity, and commercial purpose with R1. Leaving costs with the public purse while allowing the active development business to continue unburdened would contradict the core cost-allocation policy of the BSA.

Urban Splash Group Holdings Limited (R3) – Ultimate Parent Company. Incorporated during a 2019 reorganisation, R3 sits at the apex of the corporate structure as the ultimate parent company.

As the ultimate holding company, R3 is the entity through which ultimate ownership and control of the Urban Splash enterprise reside. It shares the same directing minds as R1 and directly derives economic benefit from R1’s retained tax losses. The Tribunal held that a parent company controlling the group enterprise should stand behind the developer rather than shifting historical liabilities onto the taxpayer.

Urban Splash Work Limited (R4) – Commercial Property Arm – a longstanding commercial property investment and asset management arm within the group.

While R4 focuses on commercial holdings rather than residential development, it is a core constituent of the same property-centred enterprise, operating under common ownership and control. It shares group-wide financial interdependencies and economic benefits with the developer.

Stubbs Mill LLP (R11) – Associated Property LLP – a limited liability partnership formed in 2014 to redevelop the Stubbs Mill property in Manchester using tax relief (BPRA).

R11 disputed it was an associated person, but the Tribunal held it was associated with R1 under section 121(8) of the BSA. Its five members (the “Urban Splash 5”) comprised the senior executive leadership of Urban Splash, who also held five of the six directorships of parent company R3. Furthermore, Stubbs Mill was acquired from R2, developed by group entities, and financially integrated into group borrowing pools (serving as cross-collateral for loans alongside R4). The Tribunal found that the collective control exercised by the Urban Splash 5 over R11 meant R3 could secure its affairs. Under the “just and equitable” test, as a vehicle owned and controlled by the group’s key leaders that benefited from group financing, R11 was required to share joint liability.

Analysis:

The number and variety of the entities sought, and the changes in the corporate structure over time, are helpful in providing guidance on the likely application by the FTT in future RCO applications.

The FTT is clearly willing to grant orders against the original developer entities, ongoing developer entities, and the ultimate holding company – this is consistent with the line of previous RCO case law and isn’t surprising.

Stubbs Mill LLP is perhaps the most interesting example of the orders granted – while this entity had been hived off from another respondent and had directorships common to the group, what seemed more persuasive was there being a genuine commercial function of that entity to other parts of the group in terms of financing and security, and the fact it was effectively subject to control by another respondent.

Of the orders not granted, the family investment vehicle TBI 2000 Limited shows that the FTT was willing to draw a line where assets (notionally) held by directors in a personal capacity should be beyond reach of an RCO. It may be that, in this case, the FTT was satisfied that the RCOs granted could be covered by recourse to the group entities. However, this may inadvertently drive developers to restructure accordingly to avoid RCO liability, contrary to the strong public policy behind the orders available under the BSA. Clearly such decisions are background and fact driven, but an interesting point to note here. It would be interesting to see what the FTT’s approach would be if such an entity were the only real option for an RCO that would otherwise leave remediation costs with the taxpayer.

The exclusion of the joint venture entity TM Freeholds Limited, despite a common director, shows the FTT’s reluctance to penalise an innocent co-investor, particularly where the function of the entity was not related to the developments. There were analogous examples in the FTT decision in Edgewater v Grey where some Respondents were exempted for similar reasons.

The two SURE entities, while associated by common directorships, were largely third-party investment vehicles and an RCO would penalise genuine investors with no involvement in the historic liabilities. Further, the LLP being a regulated entity under the FCA was a clear line the FTT was unwilling to cross.

Other notable points:

Reasonable remediation: One issue raised by the Respondents was that the availability of public BSF funding led to “over-remediation” and “gold-plated” schemes. The Tribunal rejected this, finding that the works fell within the range of reasonable professional responses to severe compartmentation and external wall defects discovered during opening-up works. In the context here, given RCOs were made against close group entities including the original developer, this may have attracted little sympathy when the developer had the ability to remediate itself – voluntary remediation as a concept has been looked upon favourably by the courts in the wide interpretation of damage under the Civil Liability (Contribution) Act 1978.

Reduction for Government responsibility: R1–4 contended that central Government bore responsibility for systemic regulatory failures, flawed guidance (such as Approved Document B), and enforcement shortcomings highlighted in the Hackitt Review and Grenfell Inquiry. While a “contributory negligence” style argument may be viewed as a bold argument with the Government as claimant, interestingly the Tribunal accepted that Government shared responsibility for creating the regulatory climate that allowed the crisis to happen. Exercising its broad “just and equitable” discretion under section 124, the Tribunal reduced the BSF-funded claim amounts by 10% across all buildings. This reduction applied only to public BSF expenditure, not to the costs incurred directly by the Moho management company.

Proving quantum: The Tribunal rejected the idea that an RCO application should be treated like a TCC final-account dispute in which every variation, prolongation item or loss and expense claim must be reconstructed through primary contractual documentation. The applicant still bears the burden of proving that the costs were incurred and were reasonable, but a prima facie case can be established by the overall evidential matrix: competitive procurement, professional contract administration, QS review, BSF scrutiny, payment evidence, invoices and expert cost assessment. Once that platform is in place, a respondent needs positive evidence showing that particular costs, categories of cost or aspects of the adopted scheme were unreasonable. A request for more substantiation, without an affirmative alternative valuation or technical justifications to demonstrate that alternative, less costly solutions were viable, will not usually be enough. The waking watch costs at Moho show the boundary of that pragmatic approach: although the Tribunal accepted that a waking watch was likely to have been necessary and that expenditure had been incurred, the claim failed because there was no equivalent professional, commercial or expert scrutiny demonstrating that the amount claimed was reasonable.

Evidence collection: R1–4 criticised the Secretary of State’s defect evidence, arguing that the original construction had often been removed or concealed before the litigation experts were instructed, that neither fire expert had observed the original intrusive inspections on site, and that the applicant was relying heavily on historic reports, photographs and limited openings. The Tribunal accepted that the evidence was imperfect, but held it was sufficient. Contemporaneous investigations by appropriately qualified professionals, design information, photographs, BSF material and professional reports could properly be relied on, particularly where R1–4 had not produced positive evidence undermining the underlying findings. The Tribunal also accepted that large residential buildings cannot realistically be stripped back in full and that representative openings, combined with professional judgment, may support wider inferences about repeated construction defects. The practical warning is obvious: parties should preserve the evidence before remediation removes it, but imperfect evidence will not necessarily defeat an RCO claim if there is a coherent documentary and expert platform.

Future steps:

Prospect of an appeal? Given the size of the claim, there will plainly be a strong incentive to appeal. Although the FTT is not usually where major construction disputes are fought, it is the forum selected by the BSA for RCO applications and the appellate courts have so far been slow to interfere with the FTT’s evaluative judgments in this area. The Government may also be concerned by the 10% deduction for systemic regulatory failure, given the potential read across to future attempts to recover BSF expenditure. The more difficult point may be the Tribunal’s observation that, if a developer could prove that it built in accordance with the standards applicable at the time, Government responsibility might justify greater weight, with around 20% suggested as an outer limit. That raises a sharper fairness question than the Tribunal had to decide on these facts: if a developer can show that it built fully in accordance with the regulatory standards and statutory guidance of the day, is it just and equitable to make that developer liable for an RCO at all, rather than merely reducing the amount recoverable? That issue is likely to be revisited in future RCO claims, particularly where alleged defects arise from later changes in understanding, guidance or risk appetite rather than non-compliance at the time of construction.

Relevance to parallel TCC claims, including BLOs and DPA claims:

The decision will be important beyond RCOs. The FTT’s analysis of association under section 121(8) is likely to be cited in Building Liability Order (BLO) claims, because the equivalent association wording in section 131(4) is materially the same. The distinction between influence and control, and between R10 and R11, is particularly useful for parties considering whether a group or connected entity can be brought into a BLO claim or whether it has a credible answer on association.

There are important differences between an RCO in the FTT and a claim under the Defective Premises Act 1972 (the DPA) in the TCC. An RCO is a discretionary statutory cost-shifting remedy focused on whether it is just and equitable to require a specified body corporate or partnership to meet costs incurred, or to be incurred, in remedying or otherwise in connection with relevant defects. A DPA claim for damages requires proof of duty, breach, causation and loss, and will usually engage limitation, contribution, betterment, mitigation and the ordinary compensatory principles in a different way. The decision in Urban Splash may help with association, reasonableness and evidential themes, but it should not be treated as a substitute for the evidence needed to plead, prove or defend a DPA claim in the TCC.