Building Safety Act 2022: What developers need to know

23rd June 2022

The Building Safety Act 2022 (the Act) received Royal Assent on 28 April 2022. We recently provided an overview of the key elements of the Act after the final published version became available.

In this briefing, Construction & Engineering experts Tom Peel, Deborah Walls and Inam Hasan focus and expand on those aspects of the new law of particular relevance to developers.

Practical advice and how we can help

While much of the detail of the new regime is yet to be set out in regulations, there are some important provisions, such as those on extended liability and remediation contributions, that will apply from 28 June 2022.

Developers should review their and any related companies’ potential exposure now in light of these provisions and also consider whether there is scope for claiming against third parties. Potentially relevant documents should be retained and document retention policies reviewed/amended to reflect the longer time periods (while ensuring compliance with relevant data protection law). Third party contractual arrangements and protections, in addition to insurance cover, should also be reviewed/updated.

Please contact Tom, Deborah or Inam if you have any queries about the Act and how it may affect you, or need help with strategy, contract review, updating policies/procedures or staff training.

Extended liability

One of the most controversial and far-reaching changes introduced by the Act is the extension of the limitation period for bringing claims under section 1 of the Defective Premises Act 1972 (DPA) from 6 to 30 years (for work already completed) and from 6 to 15 years (for work completed in the future). The new provisions mean that claims could be made against anyone involved in the work, including building owners, landlords, developers, contractors, architects and surveyors.

A court hearing a claim brought retrospectively must dismiss it in relation to any defendant “if satisfied that it is necessary to do so to avoid a breach of that defendant’s Convention rights”. It remains to be seen how this will play out in practice. Potential claimants who find themselves right up against the 30-year limitation period have an extra year in which to bring proceedings. The Act does not undo claims that have already been settled or finally determined by a court or arbitration.

The Act also expands the DPA to include refurbishment and other work to an existing dwelling and brings section 38 of the Building Act 1984 (BA) into force, allowing claims for compensation to be brought for physical damage (injury or damage to property) caused by a breach of building regulations. The limitation period for both is 15 years.

The above provisions come into force on 28 June 2022.

In another key development, the Act introduces building liability orders allowing the High Court to extend the liabilities of a body corporate (company or LLP), incurred under the DPA or section 38 of the BA or as a result of a building safety risk, to any of its ‘associates’, i.e. sister or parent entities, making them jointly and severally liable. Note that a building liability order may be made in respect of a body corporate that has been dissolved, and continues to have effect even if the body corporate is dissolved after the making of the order. The provisions on building liability orders will in theory capture those companies that are behind special purpose vehicles often used in property development transactions, for example, even where the SPV itself has been dissolved after completion of the development. On application, the High Court will also have the power to order a body corporate to provide information and documents relating to an “associate” to enable the applicant and others to make, or consider whether to make, an application for a building liability order. It remains to be seen how these various provisions will work in practice.

These provisions come into force on 28 June 2022.

Remediation contributions

The Act introduces the concept of a ‘remediation contribution order’ under which a specified body corporate or partnership (the landlord, developer or a person ‘associated’ with them) is required to contribute towards the costs of remedying certain defects in buildings that contain at least two dwellings and are at least 11 metres high or have at least five storeys. In this context, ‘associated’ includes sister or parent companies but also extends to partners in a partnership and directors. This section is due to come into force on 28 June 2022.

There are also provisions (yet to be fully set out) requiring landlords to explore alternative funding sources before passing on the cost of certain remediation works to leaseholders. This includes taking reasonable steps to ascertain whether monies may be obtained from a third party in connection with the undertaking of the works and, if so, to obtain the monies from the third party – including making a claim against the developer or designer of the building.

Blocking developers from the market

The Act allows for regulations to be made placing prohibitions on development and building control for any purpose connected with securing the safety of people in or about buildings in relation to risks arising from them, or improving the standard of buildings. Essentially this will force those in the building industry to remedy defects in buildings or contribute to the associated costs. The implication is that those who do not sign up to a building industry scheme for that purpose would be subject to the prohibitions.

New ‘gateways’ for higher-risk buildings

The Act establishes a more stringent regulatory regime for higher-risk buildings [1], overseen by the new Building Safety Regulator (the Regulator) sitting within the Health and Safety Executive (HSE) [2]. The Regulator will be the sole building control body for higher-risk buildings.

There are three gateways at key stages of the design and construction phase. Planning gateway one does not form part of the Act and became operational in August 2021. Gateways two (before building work starts) and three (when work is completed) will be stop/go decision points that must be passed before a development can progress to the next stage.

Draft regulations setting out the proposed procedural requirements at each stage will be consulted on in due course, now that the Act has been passed. This government factsheet provides more detail on what can be expected. A key theme is that compliance with building regulations can no longer be seen as a tick-box exercise and dutyholders (see below) should be taking a holistic approach.

According to the government’s original transition plan, gateways two and three were expected to come into force in 18 months’ time. However, this HSE webpage setting out the Regulator’s expected operational timetable says that new buildings where work starts on or after 1 April 2023 must follow the gateway approval process during design and construction.

The dutyholder regime

New regulations will place building safety duties on those who procure, plan, manage and undertake building work including clients, principal designers, designers, principal contractors and contractors, i.e. the same dutyholders identified by the Construction (Design and Management) Regulations 2015 for health and safety duties. The government has indicated that the regulations will apply to all work to which the Building Regulations 2010 apply, and that enhanced duties of cooperation, coordination, communication and competence will apply for building work associated with higher-risk buildings.

As with the gateway regime, draft regulations will be consulted on in due course, now that the Act has been passed. In the meantime, this government factsheet provides more detail on what can be expected.

There will also be regulations imposing a requirement on principal designers, principal contractors and anyone carrying out any design or building work to be competent for their roles. There will also be a duty on those who appoint them to take reasonable steps to ensure the people they appoint meet the requirement. See the government’s factsheet on industry competence for more detail.

Tougher penalties for non-compliance

Developers should be aware of the Regulator’s increased enforcement powers. Disobeying a compliance or stop notice will be a criminal offence under the BA, with a maximum penalty of two years’ imprisonment or a fine or both. For contravention of building regulations, the time limit for section 36 notices requiring removal or alteration of non-compliant work is extended from 12 months to 10 years.

Notably, where an offence under the BA is committed by a body corporate with the consent or connivance of any director, manager, secretary or other similar officer (or any person who was purporting to act in any such capacity), or is attributable to any neglect on their part, that person as well as the body corporate commits the offence and is liable accordingly.

Building safety/developer levy

The Act gives the Secretary of State powers to impose a levy on applications for building control approval (and certain other applications/notices) for the purpose of meeting any building safety expenditure. The government’s factsheet on the levy and the July 2021 consultation on its design both indicate that it will apply to developments within scope of the gateway two regime, i.e. higher-risk buildings. However, the relevant section of the Act refers to buildings in England consisting of or containing one or more dwellings or other accommodation and so does not appear to restrict the proposed levy to higher-risk buildings. We will continue to monitor and report on developments.

The golden thread

As part of the stricter regulatory regime applying to higher-risk buildings, there will be a duty on those responsible for the building to put in place and maintain a ‘golden thread’ of information that is accurate, accessible and up-to-date. This includes dutyholders (such as developers) during the design and construction phase. This golden thread will need to be created before building work starts and must be kept updated throughout design and construction. It is then handed over to the ‘accountable person’ who is responsible for the building in occupation. Draft regulations, to be consulted on in due course, will set out the specific requirements. This government factsheet provides more detail on what can be expected.

New homes ombudsman

The Act makes provision for the establishment of a new homes ombudsman scheme which will provide dispute resolution for, and determine complaints by, buyers of new build homes against developers. A framework for the scheme is set out in Schedule 9 of the Act. According to the government’s factsheet, developers will be required to become and remain members of the scheme.

New build home warranties

The Act also requires developers to provide new build home warranties to purchasers of new homes. The Secretary of State may (by regulation) impose certain requirements, including as to the kinds of defect which the developer must agree to remedy and the policy of insurance. The regulations must provide that the period of cover under the policy of insurance must be at least 15 years beginning with the day on which the relevant interest is granted or disposed of. Regulations regarding financial penalties for failure to comply with the requirement to provide a warranty must provide that the amount of the penalty (excluding interest or any additional penalty) may not exceed the greater of 10% of the value of the relevant interest at the time the person granted or disposed of it, and £10,000.

Insurance

The professional indemnity insurance market has seen tighter restrictions on the indemnity which insurers have been and will be willing to provide going forward. Moves away from indemnity limits applicable to each and every claim, to claims in the aggregate, added to by general fire safety and cladding products exclusions, mean greater financial liability for developers, contractors and other professionals to meet claims liabilities. Many do not have the resources to meet historic liabilities no longer covered by their professional indemnity insurance. Going forward on developments, there may be greater interest in using project insurance to overcome the shortcomings of current professional indemnity insurance. It remains to be seen if this becomes a more viable option in a landscape of greater building control.

Need advice or assistance?

Please contact Tom, Deborah or Inam if you have any queries about the Act and how it may affect you, or need help with strategy, contract review, updating policies/procedures or staff training.

[1] During the occupation phase these are defined as at least 18 metres in height or having at least 7 storeys and containing at least two residential units. The definition during design and construction is similar but awaiting clarification – previously published draft regulations included care homes and hospitals meeting the same height threshold, and the government is now consulting on this and other related definitions/technical points.

[2] The HSE’s landing page on building safety can be found here.