Piercing the Corporate Veil: Relevant Liability and the Building Safety Act 2022

RE: 381 Southwark Park Road RTM Co Ltd v Click St Andrews Ltd (In Liquidation)

Developers often create ‘special purpose vehicles’ (‘SPVs’) in order to carry out developments. These SPVs are then wound up following the completion of the project. The creation of these SPVs grants its parent companies the ability to avoid liability for any defective works that may have occurred throughout the development of the project.

However, this ability has now been stripped from parent companies through section 130 of the Building Safety Act 2022 (BSA) and the introduction of Building Liability Orders (BLO). Where risk to building safety due to defective works throughout development is found, the liability can now be extended beyond the SPVs, to the associated parent company.

This ruling was seen in 381 Southwark Park Road RTM Co Ltd v Click St Andrews Ltd (In Liquidation). A brief summary of the facts of the case are as follows; A right to manage (RTM) company and leasehold owners entered into a freehold purchase agreement (FPA) with the previous owner where it was agreed that the previous owner would carry out work to the development, adding an additional storey. However, during the works, significant rainwater entered the property, leading to structural defects and fire safety risks.

The RTM company and leasehold owners succeeded in their claim for damages in respect of breaches of the FPA and section 130 of the BSA 2022. This case is significant as Mrs Justice Jefford ruled in the Technology and Construction Court (TCC) that there was a ‘relevant liability’ of the associated parent company under section 130 of the BSA 2022. This is the first time a High Court judge has reached this judgement which now paves the way for applications of BLO’s to be made in the future.

It should be noted that the judgement itself did not create a BLO and Mrs Justice Jefford further noted that the BSA 2022 falls short in outlining the procedure to be followed by a party seeking to obtain a BLO. The Act nonetheless makes ground-breaking reforms that gives residents and homeowners more rights, powers, and protections in relation to defective works carried out by developers who seek to avoid liability when in breach of contract and duty. The ruling delivers far-reaching protections for leaseholders from the costs associated with remedying building safety defects, and an ambitious toolkit of measures that will allow those responsible for building safety defects to be held accountable.

Contact Details

If you have any questions in reference to the above or any issues you are currently dealing with, do not hesitate to contact our Construction Litigation team using the details provided below.

Andrew Dickinson, Zoe Allen and Trent van Sittert

AndrewDickinson@chadlaw.co.uk 0113 225 8830

ZoeAllen@chadlaw.co.uk 0113 225 8837

TrentVan-Sittert@chadlaw.co.uk 0113 225 8811