What is a Building Liability Order & What Does it Do?
A Building Liability Order (“BLO”) is a legal remedy introduced under section 130 of the Building Safety Act 2022 (the “Act”). Section 130 empowers the High Court to make a BLO where it considers it just and equitable to do so.
This remedy was introduced in the wake of the Grenfell Tower tragedy in 2017, which claimed 72 lives and, amongst other things, exposed severe shortcomings in corporate liability in erecting defective premises.
In essence, a BLO enables the court to impose liability from one corporate entity to an associated company jointly or severally, even if that associated company was not a party to the original proceedings. This effectively permits the High Court to ‘pierce the corporate veil’, which is a significant development in both construction and company law.
Construction companies often operate within complex corporate structures, typically arranged as a web of interrelated companies.
At the top of this structure is usually a holding company, which owns shares in one or more subsidiaries. These subsidiaries may in turn hold shares in further entities, continuing down to the specific companies tasked with carrying out individual construction projects. These operational entities are known as special purpose vehicles (“SPVs”).
The holding company, which is usually the corporate entity under which the group’s assets are consolidated, does not typically carry out the construction work itself. Instead, the SPV executes the project. Once the project reaches practical completion, the SPV is often left dormant, ceasing trading, and any net proceeds it received are absorbed into the corporate group.
Historically, this structure has created challenges for leaseholders or subsequent purchasers seeking legal redress for construction defects. Their claims could only be brought against the SPV that carried out the work who are party to the construction contract, despite that entity often holding no assets by the time litigation arises as they are typically shifted immediately on practical completion. In practice, the funds from the project are retained higher up in the corporate structure, usually by the holding company.
Previously, claimants had little success in recovering those funds, as the holding companies were not party to the construction contracts. However, the introduction of the BLO has changed the landscape. Courts can now look beyond the immediate contractual parties and impose liability on holding companies within the same group, even where they were not directly involved in the project, provided it is just and equitable to do so.
Criteria for a BLO to be made
S130 of the Act outlines the criteria for a BLO to be made by the High Court. In short, an application for a BLO must show:
That there is a ‘relevant liability’
That the company against which the BLO is sought is an ‘associated company’
That the company was associated during the relevant period; and
The High Court considers it just and equitable to make a BLO.
1. Relevant Liability
Under s130(3) of the Act, a “relevant liability” means a liability that is incurred:
under the Defective Premises Act 1972, or s38 Building Act 1984 (which is not yet in force); or
as a result of a building safety risk
In the judgment of Mrs Justice Jefford DBE, she held that the following factors each gave rise to a relevant liability for the purpose of satisfying s130(3)(b):
the holding company’s guarantee to perform the obligations of the SPV under the freehold purchase agreement;
inadequate fire protection within the building; and
the structural adequacy of support beams within the building.
However, the meaning of a ‘relevant liability’ is likely to expand more over the coming years with the courts deciding what meaning to attribute to it and the above conditions are likely not to be the only sources of a relevant liability, but they are the first.
2. An Associated Company within the Relevant Period
Section 131 of the Act outlines which companies are to be deemed associate companies, and it broadly encompasses:
a company which controls the other, such as a parent company, or
companies which share a common controller, i.e. sister companies.
This meaning further extends to situations where control exists through shareholding, voting rights, entitlement to distributions or assets on a winding up, or the ability to direct the company’s affairs, either directly or indirectly.
It also includes control through nominees or subsidiaries and applies similarly to interests in LLPs and trusts.
The relevant period refers to the time frame during which these associations are considered, typically aligned with a specific transaction or tax event. In the context of construction companies, the relevant period could refer to a particular project.
3. That it is Just and Equitable to make a BLO
This element of submitting an application for a BLO is largely subjective and it is likely to turn on the individual merits of each case.
This is likely a pragmatic approach of the courts to consider the avenues of recourse available against the defendant in the first instance and if they consider that a BLO is required to adequately recover.
How this will affect construction companies’ corporate structures in the future
The introduction of BLOs as a remedy marks a pivotal shift in construction and company law, effectively dismantling the protective barriers to claim originally afforded by complex corporate structures. It eliminates the standard practice of using SPVs to isolate liability for defective construction projects.
This reform forces construction firms to re-evaluate their corporate structures and adopt more transparent and robust safety practices, ensuring that safety and accountability are prioritised over profit margins.
By dismantling the protective barriers of complex corporate structures, the Act aims to ensure that tragedies like Grenfell Tower never happen again.
How the first BLO was made – Adam Benedict’s Perspective
In a landmark case at the intersection of construction and company law, the Adam Benedict team, comprising of Adam Creasey (Managing Director), Grace Jenkins (Associate), and Harrison Carr (Trainee Solicitor), instructed Michael Levenstein of Gatehouse Chambers to act for the Leaseholder Claimants in 381 Southwark Park Road RTM Company Limited & others v Click St Andrews (in Liquidation) & others [2022] EWHC 2244 (TCC). Her Ladyship’s judgment can be found here and the official transcript can be found here.
The summary of facts:
The Claimants agreed to sell the freehold of the property to the First and Second Defendants and it was agreed that the Defendants would carry out an installation of rooftop flats.
The rooftop of the property was removed, and the Defendants installed a temporary ‘tin hat’ roof, which was later removed by the Defendants and replaced with a sacrificial membrane, which was unfit for purpose.
During this time, the property was subjected to the elements, including significant rainfall which resulted in significant water ingress into the roof void.
The water ingress caused severe damage to the individual flats, common areas and a major delay to the installation of the rooftop flats. The damage led a number of the leaseholders to have to leave their homes.
Experts determined that the damage caused to the property by the water ingress was as a result of the Defendants’ defective workmanship and negligence.
A (Brief) Procedural history:
July 2022 - The Claimants made a without notice application for a freezing injunction, which was granted by the order of Mr Justice Waksman.
August 2022 - Mrs Justice O’Farrell continues the Freezing Order at the return hearing for the freezing injunction.
August 2022 – The Defendants made a series of applications for the release of sums subject to the freezing injunction.
September 2022 – Statutory demand made by the Claimants against the Defendant
October 2022 – Defendant’s application to release funds subject to the freezing injunction
October 2022 – Formal proceedings issued
February 2023 – Freezing injunction was extended
February 2023 – Defendants’ application for summary judgment/ strike out was dismissed
May 2023 – Claimant’s application for summary judgment was dismissed
May 2023 – First Defendant enters liquidation
January 2024 – Pre-Trial Review
February – March 2024 – Trial
December 2024 – Judgment of Mrs Justice Jefford DBE granting a BLO
In her judgment, Mrs Justice Jefford DBE considered the submissions provided by the Claimants’ legal team and the expert evidence provided and came to the conclusion that the granting of a BLO was just and equitable.
Conclusion
A BLO is a legal mechanism introduced under section 130 of the Building Safety Act 2022, enabling the High Court to impose liability for building safety defects on associated companies within a corporate group, even if they were not directly involved in the construction work.
This represents a significant shift in both construction and company law, particularly following the Grenfell Tower tragedy, by allowing the court to “pierce the corporate veil” where it is just and equitable to do so.
BLOs target the common use of complex corporate structures in construction, where liability is often shielded within asset-light SPVs. Under a BLO, liability can be passed up the chain to parent or associated companies who control or benefit from the SPV’s activities.
Please note that this blog does not, nor is it intended to substitute legal advice. In considering any application for a BLO, it is imperative to seek specialist legal advice.
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