Building Safety Act 2022: What leaseholders need to know

13th July 2022

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

In this briefing, Construction & Engineering experts Paul Hargreaves and Sue Harris focus and expand on those aspects of the new law of particular relevance to leaseholders.

Practical advice and how we can help

While much of the detail of the new regime is yet to be set out in regulations, some significant leaseholder protection and redress provisions came into force on 28 June 2022. These include details of who will meet remediation costs for historical cladding and non-cladding defects, and extensions to the time periods for bringing certain claims. We can expect to see these and other leaseholder protections starting to be tested in the courts and it remains to be seen how some of them, at least, will work in practice.

The Act is a complex piece of legislation, with more to come. Contact Paul or Sue for specialist advice if you think you may be eligible for any of the protections below, or are unsure about whether they apply to you.

Read on to find out more.

No service charge payable where landlord or associate responsible for defect

The Act provides that no service charge is payable in respect of a lease of any premises in a ‘relevant building’ (i.e. not restricted to residential use) in respect of a ‘relevant measure’ relating to a ‘relevant defect’ if a ‘relevant landlord’: (a) is responsible for the relevant defect; or (b) is ‘associated’ with a person responsible for a relevant defect.

Clearly, there are a number of definitions that need to be satisfied. They will need to be considered carefully in your particular circumstances:

• A ‘relevant building’ is a self-contained building, or self-contained part of a building, in England that contains at least two dwellings and is at least 11 metres high or has at least five storeys.

• A ‘relevant defect’ is a defect arising out of works carried out in the last 30 years which “causes a building safety risk”. This is not limited to cladding but encompasses a risk to the safety of people in or about the building arising from: (a) the spread of fire; or (b) the collapse of the building or any part of it.

• A ‘relevant measure’ means, in relation to a relevant defect, a measure taken to remedy that defect or for the purpose of preventing a building safety risk from materialising or reducing the severity of any incident resulting from a building safety risk materialising.

• ‘Relevant landlord’ means the landlord under the lease on 14 February 2022 or any superior landlord at that time.

• Where the landlord is a body corporate an ‘associated’ person includes any person who was a director of the body corporate at any time in the five year period ending on 14 February 2022. A body corporate is associated with another body corporate if: (a) at any time in that five year period a person was a director of both of them; or (b) on 14 February 2022, one of them controlled the other or a third body corporate controlled both of them. There are also various provisions in relation to partnerships.

• A person is “responsible for” a relevant defect if: (a) in the case of an initial defect (this is where the works relate to construction or conversion completed during the 30 years ending on 28 June 2022), the person was, or was in a joint venture with, the developer or undertook or commissioned works relating to the defect; (b) in any other case, the person undertook or commissioned works relating to the defect.

Qualifying leaseholder protections

In addition, ‘qualifying leaseholders’ are now protected from paying any costs for the removal of dangerous cladding, and the amount they can be asked to contribute in respect of other historical building safety defects will be capped at £10,000 (£15,000 in Greater London) and spread over 10 years. The cap may be higher or zero, depending on the value of the property on 14 February 2022 [1].

A ‘qualifying leaseholder’ is a leaseholder with a long lease of a property in a relevant building and, on 14 February 2022, the property was their main home or they owned no more than three UK residential properties in total. Where the leaseholder had to move out and sublet, the property will be covered if these criteria are met. The protections automatically transfer to any future buyers.

[Updated February 2023] Further, the relevant landlord (in this case defined as the landlord under the lease on 14 February 2022) cannot pass on remediation costs to qualifying leaseholders if, on 14 February 2022, the net worth of the ‘landlord group’ was more than £2 million multiplied by the number of relevant buildings in respect of which a member of the group was, on that date, a landlord under a lease of that relevant building or any part of it [2]. The Act defines ‘landlord group’ as the landlord and any person associated with them. Regulations which came into force on 20 July 2022 narrowed the definition of ‘associated’ persons in relation to this contribution condition. Inadvertently, this meant that sister and parent companies were excluded. This has now been rectified with an amendment to the earlier regulations. The result is that, with effect from 9 February 2023, a landlord which is a body corporate will be associated with another body corporate if, on 14 February 2022, one of them controlled the other or a third body corporate controlled both of them. Net worth is calculated according to a formula set out in the original regulations.

In practice, all of this means that it is now illegal to pass on to qualifying leaseholders any costs to remove unsafe cladding or any non-cladding costs above the cap. Outstanding invoices are therefore void. Landlords will need to fulfil a series of transparency and financial reporting requirements set out in the supporting regulations and provide a formal certificate before they can charge. Qualifying leaseholders will be able to confirm their new legal rights through a short certificate which will become available on the gov.uk website. We suspect this may be how freeholders check the status of qualifying leaseholders so it will be important to make sure you register if you qualify. Guidance will be issued by the government soon.

The former Secretary of State for Levelling Up, Housing and Communities recently wrote to freeholders, building landlords and managing agents reminding them of their new legal responsibilities and the consequences of non-compliance.

What if I am a non-qualifying leaseholder?

Leaseholders not covered by these protections should check whether the building’s developer has signed the Building Safety Pledge. As at 8 July 2022, 48 developers had signed this pledge committing to remediate life critical fire safety works in buildings over 11 metres that they have played a role in developing or refurbishing over the last 30 years in England.

In relation to fixing unsafe cladding, the next phase of the Building Safety Fund is due to open shortly. Under this scheme, the building owner can apply where the building is over 18 metres tall. There will also be a new scheme for buildings 11 to 18 metres tall. This will be funded by developers through a new Building Safety Levy. Guidance is expected from the government on this in the coming months. Details of the levy are yet to be set out in regulations. Among other things, the levy is expected to be imposed when developers make applications for building control approval in relation to a building in England of any height that contains one or more dwellings, or other accommodation such as hospitals and hotels.

Remediation orders and remediation contribution orders

Leaseholders, among others, will be able to apply to a tribunal for a ‘remediation order’, requiring a landlord to remedy a relevant defect in a relevant building by a specified time. The tribunal may also make a ‘remediation contribution order’ requiring a body corporate or partnership to make payments to a person specified in the order for the purpose of meeting costs incurred or to be incurred in remedying relevant defects. The body corporate or partnership could be the landlord, a person who was the landlord on 14 February 2022, a developer, or a person associated with a person in any of these categories. The Act also contains provisions concerning meeting the remediation costs of an insolvent landlord.

Extending the time periods for bringing claims

In a significant move, the Act extends the limitation period for claims brought 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). Claims could be made against anyone involved in the work, including landlords, developers, contractors, architects and surveyors [3].

The Act also expands the DPA to include refurbishment and other work to an existing dwelling (limitation period 15 years) 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 (limitation period 15 years).

‘Building liability orders’ allow the High Court to extend the liabilities of a body corporate, incurred under the DPA or section 38 of the BA or as a result of a building safety risk, to any of its ‘associates’ (sister or parent entities), making them jointly and severally liable.  Such an 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 High Court can also 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.

Other leaseholder protections

It has not been possible in this briefing to set out every conceivable element of leaseholder protection provided for in the Act, but other key measures include:

• A more stringent regulatory regime applying across the lifecycle of higher-risk buildings (at least 18 metres in height or having at least seven storeys and containing at least two residential units), from the planning stage up to and including occupation, including obligations on property owners and managers during occupation. Although this is welcome there will be a cost involved in this which we will expect to be passed on to purchasers of apartments in the purchase price but also in relation to service charges going forward.

• A new cause of action allowing leaseholders, among others, to bring claims for personal injury, damage to property or economic loss where there has been a failure to comply with a construction product requirement in regulations, the marketer/supplier of a construction product makes a misleading statement in relation to it, or a product is manufactured that is inherently defective (a 30-year limitation period applies to past defaults in relation to cladding products; otherwise it is 15 years). These provisions came into force on 28 June 2022.

• Government powers to compel companies to remediate the buildings for which they are responsible, including the ability to block non-compliant companies from the market.

• 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.

• A requirement that developers must provide new build home warranties to purchasers of new homes. Regulations (yet to be made) are expected to provide that the period of cover must be at least 15 years.

• A new homes ombudsman scheme that will provide dispute resolution for, and determine complaints by, buyers of new build homes against developers. There are powers to require developers to become scheme members.

Need advice or assistance?

If you have queries arising from any of the points covered in this briefing, please contact Paul or Sue, who will be very happy to help.

[1] No service charge is payable if the value of the qualifying lease was less than £175,000 (£325,000 in Greater London).

[2] There is a discrepancy between the wording of the Act on this point and the government’s FAQ document on leaseholder protections, which says that if the building owner or their wider company group have net wealth of more than £2 million per building they own (emphasis added), they cannot pass on the costs. The explanatory memorandum to the amended regulations also refers among others to a “£2 million per relevant building threshold”. This would seem to be suggesting that the £2 million figure is linked somehow to the value of each relevant building. However, this is not what the Act says. Care needs to be taken to make sure that all calculations are made in according with the wording of the Act itself and its supporting regulations.

[3] In Rendlesham Estates Plc and others v Barr Limited [2014] EWHC 3968 (TCC), one of Walker Morris’ cases, the court gave guidance on the interpretation of certain DPA provisions, including the meaning of ‘dwelling’ and ‘fit for habitation’. For a dwelling to be fit for habitation it must, on completion, be capable of occupation for a reasonable time without risk to the health or safety of the occupants and without undue inconvenience or discomfort to the occupants. A dwelling may be unfit for habitation even though the defect which makes it so is not evident at the time of completion. What is a reasonable time will depend on the nature of the defect.