18/02/2022
Michael Gove’s recent demand that developers chip into a further £4bn fund has been met with consternation across the development sector, particularly as the Government has indicated that where developers refuse to make payments towards this extra fund, they may no longer enjoy the benefits of Government support or services.
Meanwhile, the Building Safety Bill is due to go to House of Lords’ Committee Stages, beginning on 21 February 2022. New amendments to the Bill[1] give a clear indication of how Parliament is approaching the question of building safety, and in particular who pays for remediation of “relevant defects”.
We summarise below the key proposed amendments, whilst noting these are only proposed amendments and subject to further changes as the Bill progresses through Parliament.
Prohibitions on carrying out development
Proposed new clauses give the Secretary of State power to make regulations which would prohibit a “person of a prescribed description” from carrying out development of land in England and/or impose a building control prohibition in relation to persons of a “prescribed description”. These powers would be for any purpose connected with building safety or building standards.
Unhelpfully, “persons of a prescribed description” are not defined in the proposed amendments, which simply state that it means “prescribed by regulations under this section”. It may apply to persons who have been found to be in breach of building safety. Alternatively, it may be the means by which the government will prohibit those who do not contribute to the extra £4bn fund.
Service charges – limits on tenant liability to pay
There are new amendments aimed at limiting recovery of certain service charge amounts relating to “relevant defects” from tenants. A relevant defect is anything done (or not done) in connection with relevant works which cause a building safety risk. Building safety risk is a risk to safety of people in or about a building arising from the spread of fire or the collapse of the building or any part of it.
The proposed restrictions would apply to “qualifying leases”, which are essentially long leases of ‘relevant buildings’. A relevant building is a self-contained building (or self-contained part of a building) that contains at least two dwellings and is:
- At least 11 metres in height
- has at least five stories, or
- of a description prescribed by Regulations made by the Secretary of State.
There is a form of sliding scale in respect of these service charge payment limits.
No Service Charges: where the Relevant Landlord itself was the developer or contractor, or is “associated” with the person responsible for a relevant defect, or where the Relevant Landlord meets one of the “prescribed conditions”. Again, prescribed is not defined; and
Permitted Maximum Service Charge: Where a) and b) do not apply, a Permitted Maximum Service Charge will be imposed (the maximum applying to the total amount of relevant service charges going back a maximum of five years from commencement of the Building Safety Bill (or, if later, when the relevant person became the tenant under the lease).
The Permitted Maximums are:
- Greater London - £15,000
- Elsewhere - £10,000[2]
Liability of associated body corporates
Further proposed amendments are aimed at allowing recovery of remedial costs (arising from building safety risks) from “associates” of the original body that has liability for defects[3] resulting from building safety risk. The definition of “associates” is wide, and includes corporate bodies that have control over the original body, or share directors, or a third party has control over both bodies.
Construction Product and Cladding Product Liability
New amendments also provide for liability in relation to construction product requirements or cladding product requirements.
In relation to construction products, the proposed amendment would apply where:
- A person fails to comply with a construction product requirement
- The construction product is installed in a relevant building, and
- The failure to comply is the cause of, or one of the causes of, the building or dwelling becoming unfit for habitation.
Liability under this proposed section has a 15 year limitation period (from the date when the works were completed).
In relation to cladding products, the proposed amendment would apply where:
- a person fails to comply with a cladding product requirement applicable at the time of construction, or
- a person who markets or supplies a cladding product makes a misleading statement in relation to it, or
- a person manufacturers a cladding product that is inherently defective, and
- the product is installed in a relevant building and is the cause, or one of the causes, of the building or dwelling becoming unfit for habitation.
This provision carries a 30 year limitation period from the date the works were completed.
Conclusion
These proposals signify Parliament’s wish to shift liability for the costs of works to remedy building safety defects onto developers, landlords and their ‘associates’. It must be remembered, however, that these are only proposed amendments, and the Bill is yet to go through further stages before receiving Royal Assent (which is expected between July and September this year).
Footnotes
[1] Published on 14 February 2022
[2] (Higher value properties have increased Permitted Maximums of £50,000 (where the value of the qualifying lease is £1m to £2m) and £100,000 (where the value of the qualifying lease exceeds £2m).
[3] Under Defective Premises Act 1972 or section 38 of the Building Act 1984
