The £46.5m Urban Splash judgment shows how far building safety liabilities can extend through a corporate group, with lessons for both clients and contractors, says Paul O’Kane
Urban Splash is one of Manchester’s most recognisable developers. Its contribution to the regeneration of the city over the past three decades is beyond doubt. From the transformation of former industrial buildings to the creation of new neighbourhoods, few developers have had such a visible influence on the city’s revival.
That makes the recent judgment against it particularly significant. Last week (5 November), the First-Tier Tribunal (FTT) ordered Urban Splash Ltd and four associated entities to pay £46.5m towards fire safety remediation at seven Manchester buildings.
The decision is another illustration of the extensive reach of the Building Safety Act 2022 (BSA), but also establishes some important limits.
How wide is association?
Developers have traditionally used separate companies to undertake individual projects, limiting the potential exposure of the wider business to liabilities arising years after completion.
The BSA makes substantial inroads into that protection. Under section 124, remediation contribution orders (RCOs) can be made against developers, certain landlords and associated companies where the Tribunal considers it just and equitable.
The definition of association is remarkably wide. Two companies can be associated simply because they shared a director at any point during the five years preceding 14 February 2022. Common control can also establish association.
The uncertainty has been how readily the Tribunal might refuse an order once association is established.
Following Triathlon Homes (another significant case covering this area), many commentators took the view that the grounds for resisting an RCO on the basis that it was not just and equitable were extremely limited. The FTT had suggested that it was difficult to imagine circumstances where an associated company capable of paying should leave remediation costs with the taxpayer.
The Court of Appeal was more cautious, suggesting that there might be exceptions, including where companies were associated merely through a common director, potentially involving a charity.
The Urban Splash ruling now gives that qualification some substance.
Who pays and who does not?
The Tribunal refused to make RCOs against two family investment companies despite their association with Urban Splash. Their assets and activities were genuinely separate from the development business.
It also rejected claims against entities within a residential investment fund, although for differing reasons concerning statutory association and the interests of independent investors.
By contrast, Stubbs Mill LLP, a separate development vehicle established after the defective buildings were completed, was made jointly and severally liable. Although it had no involvement in their construction, the Tribunal found substantial commonality of control and commercial and financial connections with the wider Urban Splash business.
The distinction matters. Establishing association is only the first step. The nature of the relationship and whether it is fair to impose liability remain separate questions.
For developers and their associated businesses, this is an important development. The just and equitable test may provide a more meaningful defence than earlier commentary suggested.
The government’s share of the bill
The Tribunal also reduced the publicly funded remediation costs recoverable by 10% to reflect historic government regulatory failures identified by the Hackitt Review and Grenfell Tower Inquiry.
This was not a finding that government caused 10% of the defects. It was an exercise of the Tribunal’s discretion under section 124.
“Challenging costs years later, when the original defects may no longer be available for inspection, is considerably harder without properly developed expert evidence.”
It is a potentially significant finding which developers facing government recovery claims will undoubtedly examine, although it does not establish a general entitlement to a similar reduction.
Was the remediation excessive?
Urban Splash also challenged the extent and cost of the remediation, arguing that public funding had encouraged unnecessarily expensive solutions.
The figures were striking. At Burton Place, costs increased from approximately £9m to almost £23m. At Moho, expenditure rose from an initial funding approval of around £9.9m to more than £18m.
The Tribunal rejected the challenge, but the quality of the expert evidence was important. Some of Urban Splash’s proposed alternative costings were excluded because they lacked supporting fire engineering evidence. Its fire safety expert also accepted that the adopted schemes generally fell within the range of reasonable professional opinion.
The Tribunal placed considerable weight on the contemporaneous scrutiny undertaken by project professionals, cost consultants and the Building Safety Fund.
There is a practical lesson here. Those potentially liable for remediation costs need to scrutinise the proposed scope, technical solutions and expenditure as works progress. Challenging costs years later, when the original defects may no longer be available for inspection, is considerably harder without properly developed expert evidence.
Contractors should take note
Developers facing substantial remediation liabilities will inevitably look to recover their losses from contractors and consultants involved in the original construction.
“For contractors and developers alike, understanding how group companies are controlled, financed and operated is becoming increasingly important.”
The BSA has extended the limitation period for qualifying historic claims under section 1 of the Defective Premises Act 1972 to 30 years. Where the original contractor is insolvent, claimants may also pursue associated companies through building liability orders (BLOs).
The recent Crest Nicholson v Ardmore Construction decision illustrates the risk. Following an adjudicator’s award of approximately £14.9m against an insolvent contractor, the high court made BLOs against seven associated companies.
Although BLOs operate under a different statutory association test, the court must similarly consider whether extending liability is just and equitable.
Restructuring or insolvency is therefore unlikely, by itself, to protect the wider group where businesses remain closely connected. Equally, Urban Splash demonstrates that genuinely independent companies may have grounds to resist liability.
For contractors and developers alike, understanding how group companies are controlled, financed and operated is becoming increasingly important. The BSA has significantly reduced the protection afforded by separate corporate structures, but Urban Splash suggests that protection has not disappeared altogether.
Paul O’Kane is a partner at Squire Patton Boggs.
