Whatever protections from legal costs government gives, leases will ensure that they are taken away again …
Liam Spender is a Trustee of the Leasehold Knowledge Partnership. Personally affected by the cladding scandal, Liam is a Solicitor-Advocate and Senior Associate at Velitor Law practising commercial litigation and arbitration in the City of London. Views in this article are personal and do not constitute legal advice. Liam is unable to take individual cases or to give legal advice to individuals.
Leaseholders have long been promised that the Building Safety Bill would be the vehicle to protect them from the ruinous costs of the current building safety scandal. Following a weekend of intensive press speculation, yesterday (5 July 2021) the Bill was finally published.
To the surprise of none and the consternation of all, the Bill in fact does not protect leaseholders from remediation costs – now or ever – in any meaningful way. In fact, it creates whole new categories of costs that are forced onto leaseholders through a plethora of new charges, backed with the force of this new law.
Contrary to the government’s repeated promises in recent months, there are no caps, no new sources of funds and no guaranteed means of forcing the regulators and developers – who literally built this crisis – from being held to account.
The Building Safety Charge remains a part of the new legislation, which may be a backdoor way of compelling leaseholders to pay for cladding remediation. Again, much will depend on how the regulations around the Building Safety Charge are drafted and what works can be included.
Clause 124 of the new bill purports to amend the Landlord and Tenant Act 1985 to protect leaseholders from the costs of remediating historic defects by requiring the landlord to try to recover insurance money, public grants or to make legal claims against a developer.
That protection is no protection in reality because it is at least a year away from coming into force. Many leaseholders cannot wait that long.
The scope of the protection is also entirely in the hands of the government. It will be contained in an as yet unpublished statutory instrument. That instrument may not cover the types of costs leaseholders are currently incurring.
It seems inevitable that whatever the government gives with one hand in terms of protection from costs, the terms of many modern leases will take away with the other.
This is because they typically require leaseholders to pay the landlord’s legal costs of pursuing precisely this type of claim.
There may be no recoveries a landlord can actually make to spare leaseholders from the costs, in which case leaseholders continue to have no protection. Clause 124 does not create any new money to pay the ruinous costs faced by leaseholders.
This lack of effective protection, coupled with the lack of further details concerning loans for 11-18 metre buildings, is a bitter disappointment. Leaseholders continue to face huge pressure and uncertainty about their future finances, but no further details have been provided on the loans scheme, as was repeatedly promised during the passage through Parliament of the Fire Safety Act.
Also published were some draft regulations providing detail around the Bill, an implementation plan for existing buildings and a response to the Commons Housing Communities and Local Government Select Committee pre-legislative scrutiny report into an earlier draft of the Bill, published in July 2020.
Leaseholders everywhere will be disappointed to see that many of the sensible proposals made by the Select Committee last year have not been taken up in the revised Bill laid before Parliament on 5 July.
In its response to the Select Committee the government disingenuously claims that it has prevented the costs of remediation of historic defects being passed on to leaseholders via the Building Safety Charge. And in a narrow sense, it has done that.
But what the government has not done is to stop the terms of leases outside the Building Safety Charge being used, as now, to require leaseholders to pay these costs. All that has happened is these costs have not been included in the Building Safety Charge, not that they have been prevented from being passed to leaseholders at all, which was the Select Committee’s intention.
Crucially, what the Bill also does not do is hold developers or regulators to account for the years of failure that have led us to the current situation faced by millions of leaseholders living in flawed buildings. Many may yet be bankrupted as a result.
It is disappointing that there is no published guidance or suggestion as to what the government proposes to do about the ruinous costs faced by leaseholders for defective cladding and other fire safety issues.
Also missing from the 5 July 2021 announcement is much of the detail about what the Bill actually means in practice. The Bill offers little more than a framework to be filled in by the government later, via statutory instrument.
While a few of those statutory instruments were published on 5 July, most of them are not yet published. There is a risk that Parliament is being asked to sign a blank cheque in favour of this, and future, governments.
The MHCLG page with the Bill and supporting documents published on 5 July is here:
The next step in ground-breaking reforms to give residents and homeowners more rights, powers and protections – making homes across the country safer. This will overhaul regulations, creating lasting generational change, setting out a clear pathway on how residential buildings should be constructed, maintained and made safe.
The Bill is a long and complex piece of legislation. This article only gives some first impressions. There is too much technical detail in the Bill to cover all of it in this post. This post offers a summary of the key points followed by an examination of the key details likely to be of interest to leaseholders, in the form of questions and answers, set out after the summary below.
Summary of the Bill
1. The Bill will apply to “higher-risk buildings” that are buildings more than 18 metres or more than seven storeys tall (clause 62(1)(a)) and which contain two or more sets of domestic premises (clause 62(1)(b)).
2. Clause 62 – and Part 4 of the Bill in which it sits – allows the government to change the definition of what counts as a higher-risk building at any time in the future. There is a process of consultation to be followed in order to do this, but it may mean a building can change classification over its lifetime, with enormous upheaval and expense for affected leaseholders.
3. A draft statutory instrument has been published that explains how to measure a building and what counts as a storey. This is largely in line with Diagram D6 in Approved Document B of the Building Regulations. However, it differs in that it appears to exclude undercroft parking.
4. According to the 5 July outline transition plan, the reforms in the Fire Safety Act 2021 – passed earlier this year – will come into force in around 2023. Those reforms will require every building with two or more residential premises to have its external walls assessed for fire safety, regardless of height.
There will need to be careful coordination between guidance under the Fire Safety Act and this Bill to ensure that lower-rise buildings are not caught up in an unsuitable, and overly conservative, regulatory regime intended for higher-rise buildings.
5. The Bill does not apply to any other building, but requirements in the Fire Safety Act 2021 – passed earlier this year – may still cause issues with assessment of safety risk in external walls. The government promises that a new standard – called PAS 9980 – which the British Standards Institution is currently developing, will introduce a sensible, risk-based approach to such assessments. PAS 9980 may not help, particularly if it continues to allow conservative, subjective and risk-averse judgments leading to huge costs for leaseholders.
6. The Bill applies to both new and existing higher-risk buildings. Existing buildings are to be phased into the new regime on a timetable yet to be announced, but not likely before around 2024-25.
7. The Bill will replace local councils with a Building Safety Regulator with responsibility for both approving the plans for new higher-risk buildings and regulating higher-risk buildings during their lifetimes (Part 3). Some of the new regulator’s functions will include:
a) overseeing the planning and construction of new higher-risk buildings;
b) maintaining a register of higher-risk buildings under construction and in occupation;
c) granting building assessment certificates demonstrating that any higher-risk building;
d) the ability to serve enforcement notices against accountable persons requiring them to comply with regulatory requirements; and
e) the ability to apply to impose a special manager on a building that does not comply with the new regulatory regime.
8. The Bill requires every higher-risk building to have at least one accountable person. An accountable person is defined as someone with a legal interest in the common parts of the building or an obligation to maintain the common parts of the building (clause 69).
The accountable person will be responsible for various requirements such as registering the building with the Building Safety Regulator, ensuring it has a building safety assessment certificate, and for carrying out works to ensure that the building meets the standards set down by the Building Safety Regulator, which will most likely change over time.
9. The accountable person is expected to appoint a Building Safety Manager to oversee the day-to-day compliance with the new regime laid down by the Building Safety Regulator (clauses 78-82).
10. It is possible for a higher-risk building to have more than one accountable person. An example may be where a housing association has a head lease for part of a building containing affordable housing whilst the rest of the building is let on long leases to private owner-occupiers.
In such cases, one of the accountable people is to be designated as Principal Accountable Person with overall responsibility for ensuring that the entire building meets the necessary standard (clauses 68 to 71).
Where there is more than one accountable person, there are duties of cooperation and information sharing between each of them and the Building Safety Regulator (clause 26) and between each other (clause 118 and Schedule 3).
It also remains to be seen, and this will require careful and precise drafting and guidance, how the accountable person under the new law will interact with the responsible person under the Fire Safety Order. They will each have responsibilities in relation to the internal and external common parts of higher-risk buildings. Duties are also imposed on accountable persons, responsible persons and the Building Safety Regulator to cooperate to achieve statutory safety objectives.
How this new regime will work where existing (and perhaps future) lease terms do not map exactly in line with the Bill remains to be seen and may lead to expensive litigation where rival accountable persons and responsible persons cannot agree, particularly where large amounts of money are involved.
11. As with the previous draft of the Building Safety Bill, the new law allows the accountable person to make a charge – to be known as the Building Safety Charge – to leaseholders of higher-risk buildings to cover all costs of compliance with the new regime (clause 120 and Schedule 7).
12. Clause 120 alters existing and future leases by requiring leaseholders of higher-risk buildings to pay a separate service charge, the Building Safety Charge. This is considered in further detail below. In simple summary, it will make living in high-rise residential buildings much more expensive than at present. In particular, the charge as currently drafted requires leaseholders to pay all of the fees associated with this extensive new system of regulation via the new Building Safety Charge.
13. The weekend press coverage also comes true: the government has decided to improve the availability of legal remedies for defective buildings. This reform comes in two parts. First, the government will bring into force section 38 of the Building Act 1984. Secondly, the limitation periods under both section 38 of the Building Act 1984 and section 1 of the Defective Premises Act 1972 will be extended from 6 years to 15 years. This change applies retrospectively. The changes will come into force 2 months after the Bill receives Royal Assent, so in approximately mid-to-late 2023.
14. Unfortunately, this is subject to a loophole for developers where a court considers that a developer’s human rights are infringed by this change to limitation periods. The very unusual drafting of the clause may severely limit the effectiveness of these reforms.
15. The Bill also makes other important reforms, such as requiring mandatory consultation with residents and the mandatory supply of building safety information along with service charge demands. The Building Safety Regulator is also required to have a tenant representative to represent the tenant interest. Unfortunately, a lot of this seems to be top-down imposition rather than being a genuine opportunity for leaseholders and short-term renters to express their views and have those views taken into account.
16. The Bill introduces part of the promised levy on developers. Clause 57 allows the Building Safety Regulator to collect a levy on “Gateway 2” applications (i.e. planning approval) for all future higher-risk buildings. However, that money is not ear-marked for anything, so may be swallowed up by the Building Safety Regulator’s running costs.
17. Finally, there are a host of other technical changes to the law, which are beyond the scope of this post. They include a new homes ombudsman and statutory code of practice for developers, changes to the regulation of architects, building product safety certification and various technical reforms to the way Building Regulations will be made in the future.
Q&A on key points for leaseholders
How do I know whether I live in a higher-risk building?
A draft statutory instrument published on 5 July 2021 explains the measurement, which is similar to that used for eligibility for the Building Safety Fund. Height is measured to the finished floor level of the top occupied storey, which is the same measure used in Diagram D6 of Approved Document B accompanying the Building Regulations.
A storey is defined as anything above ground level. The measurement appears to differ to diagram D6 because it appears to be trying to exclude undercroft parking (parking partly at and partly below ground level).
There is also risk that the combination of height plus storeys includes within the Building Safety Bill regime buildings which are not eligible for the current Building Safety Fund. That is because the Building Safety Fund only uses height, not number of storeys, as the eligibility standard. There may be buildings with more than seven storeys that are nevertheless less than 18 metres to the finished floor height of the top occupied storey, depending on the car park configuration and other factors.
The draft statutory instrument is here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/997754/Scope_draft_regulations.pdf)
When will the new law come into force?
The government estimates that the new law will clear Parliament around this time next year. Parts of it will then gradually come into force over the next two to three years, perhaps up to 2025 or later.
The actual timetable may vary depending on how quickly the Building Safety Regulator sets the required new standards.
The government’s indicative implementation schedule is available here: https://www.gov.uk/government/publications/building-safety-bill-transition-plan
A building can start off outside the new regime but become higher-risk?
Yes, Part 4 allows the government to amend the definition of higher-risk building having gone through various consultation steps, albeit consultations with people whom the government has appointed to their posts.
The aim of this appears laudable, to ensure that the new regime keeps pace with changing building technology and perhaps changing climate risks.
Parliament should nevertheless be reluctant to give the government this power. The MHCLG Advice Notes have shown how misconceived advice, even with the best of intentions, can cause havoc for leaseholders and the housing market. Allowing changes is dangerous, particularly if it is a knee-jerk reaction to a future Grenfell.
Even with the impressive looking statutory consultation mechanisms in the Bill that must be activated before a change in classification will occur, the government will still be choosing the people who give advice to change classifications.
If the government is to have the power to impose the onerous and costly restrictions accompanying designation as a higher-risk building, then it should be subject to much tighter statutory constraints and Parliamentary oversight.
What does the Bill do about cladding?
In a word: nothing.
It makes changes to future building regulation of higher-risk buildings and future classification of building products.
It does not do anything to address directly current leaseholders facing issues with cladding and other fire safety defects.
As explained below, arguably it does not do enough to help future leaseholders who may be caught up in a future scandal like those surrounding asbestos and cladding.
What does the Bill do to protect leaseholders from the costs of historic defects?
Theoretically, clause 124 of the Bill protects leaseholders from the costs of historic defects by amending the Landlord and Tenant Act 1985 and requiring the landlord to take “reasonable steps” to recover money before billing leaseholders for certain types of work.
The “reasonable steps” include making claims on insurance policies, guarantees and claims against developers and others.
The types of work in question are not mentioned in the Bill itself, but will be set out later by statutory instrument. This new protection will extend to all leaseholders, not just those in higher-risk buildings, and will be embodied in a new Section 20D of the Landlord and Tenant Act 1985.
This clause 124 has obviously been inserted in response to some of the amendments proposed to the Fire Safety Act by, among others, the Bishops and the Liberal Democrats.
The protection offered is nevertheless wholly inadequate, for the following reasons:
1. It will not protect leaseholders until it comes into force. On the government’s proposed timetable, that will not be until 2023 at the earliest, which will be too late for leaseholders facing bills now.
2. The new section 20D does not require the government to make any money available or for the landlord to actually make any recovery, only to take “reasonable steps”, which may be as little as writing a letter and accepting the first rejection of the request, as is currently the case now. There may be no money available to recover, “reasonable steps” away or not. Common examples will include where a developer has gone bust or the term of a new build warranty has lapsed.
3. In any event, most modern leases require leaseholders to pay the landlord’s legal costs. If the landlord does have to take legal action, then leaseholders will have to pay those costs via the service charge. Such costs may run to hundreds of thousands of pounds. The litigation may not succeed, in which case the landlord will most likely have to pay the defendant’s costs, which will in turn be passed on to leaseholders via the service charge.
Isn’t there a new legal right in relation to building renovations?
Yes, clause 125 inserts new section 2A into the Defective Premises Act 1972. That new section requires anyone undertaking renovation work to do the work properly and to use appropriate materials, in the same way as section 1 of the Defective Premises Act 1972 requires for new buildings.
What is happening to limitation periods?
As reported in the press over the weekend leading up to the announcement, the government has extended limitation periods. This has been done in two ways. First, section 38 of the Building Act 1984 will be brought into legal effect two months after the Bill receives Royal Assent, perhaps in mid-to-late 2022, depending on when the new law receives Royal Assent.
Secondly, the time period for bringing claims under section 38 of the Building Act 1984, section 1 and new section 2A of the Defective Premises Act 1972 will be extended from six years after the building is completed to 15 years after the building is completed.
These extended limitation periods will also come into effect in around mid-to-late 2022, depending on when the bill receives Royal Assent.
The Bill provides a 90-day safe harbour for extended 15-year limitation periods which expire around the time the section is brought into force (ie two months after Royal Assent). The safe harbour gives at least 90 days to prepare and issue a claim.
Unfortunately, given we know that the Act is likely to become law around July 2022 or later, this limitation period will only catch buildings completed up to around July 2007, assuming everything runs to time.
Even the government itself admitted over the weekend that the problem may date back as far as 2000, which implies we need a much longer limitation period than 15 years.
The 90-day safe harbour is also a very short amount of time to prepare what will be an extremely complicated claim, whether under the Building Act 1984 or under the Defective Premises Act 1972.
How does section 38 of the Building Act 1984 help?
Section 38 of the Building Act 1984 provides that there is a claim for damage flowing from breach of the Building Regulations in force at the time the building was constructed.
Section 38 is a very strangely worded provision. It does not identify who in particular is liable for the breach. Section 38 also provides that the government can make regulations providing certain defences to builders or excluding certain categories of damage from claims.
If these exclusions extend to economic losses caused by breach of duty – as is currently the case for Building Inspectors and Approved Inspectors following Murphy v. Brentwood – then commencing this provision will be of little practical use.
In simple terms, it may mean that if you can show that the Building Regulations were not followed – for example, because the building is missing fire breaks and other compartmentation – then you may have a claim against the developer, possibly the Approved Inspector or Building Inspector – for the costs of installing those developers.
Where this new claim will not help is where the fault is not with the Building Regulations but with retrospective changes via the government’s Advice Notes.
For example, the Building Regulations still permit ACM and HPL cladding to be used on buildings less than 18 metres tall. The government’s Advice Notes, which inform the EWS1 process, say this cladding should not be used on any building. Given that contradiction, it is unlikely that any court is going to hold a developer liable for materials that comply with Building Regulations today and in the past.
Section 38, if it applies to Building Inspectors and Approved Inspectors, may hold open the way to imposing liability on people who signed off on defective buildings, or else their insurers. This would overturn the rule in Murphy v. Brentwood D.C.
How does the Defective Premises Act 1972 help?
Section 1 of the Defective Premises Act 1972 requires a developer, and others directly involved in construction, to build a building that is reasonably fit for habitation. Fit for habitation means reasonably capable of being occupied as intended.
As mentioned above, new section 2A of the Defective Premises Act 1972 will extend this duty to include building renovations.
As with the changes to section 38 of the Building Act, this is a permanent change that will extend the limitation period to 15 years in relation to all residential building claims from the date the Act is passed, as well as the retrospective extension for buildings within 15 years plus 90 days of this clause coming into force, in roughly Autumn 2022.
However, the claims under the Defective Premises Act 1972 are not a magic bullet. This particular claim has been held not to extend to Building Inspectors or Approved Inspectors, which is where section 38 of the Building Act 1984 may help.
Being a statutory tort claim, it is also not clear if all the types of damage sustained by leaseholders may be recovered from the defaulting developer. There may be some dispute over whether economic losses, which may include increased insurance premiums, loss of property value and waking watch costs, can be recovered from developers under this section.
Do developers have a Human Rights Act get-out-of-jail-free card?
Yes. Clause 126(5) contains unusual drafting saying that a court must refuse a claim if that would prejudice the defendant’s human rights, because it requires a defendant to answer for a claim that used to be time-barred, ie a claim made in relation to a building completed more than 6 years before the new law comes into force.
The drafting is unusual because normally legislation would not mention such an issue in the text of the law itself. It would be left up to a defendant to raise the point in litigation and for the court hearing the claim to decide it in the usual way, by reference to the Human Rights Act 1998 and case law.
Including it in the Bill in this way adds nothing to any defendant’s rights, which already exist independently of this proposed new law. Including it may perhaps lead the courts to interpret it as meaning that human rights trump the extended limitation periods for buildings built more than six years before the Bill comes into force. We cannot know until it is argued in court.
All this language will achieve is to create years of delay wasted in preliminary litigation skirmishes while the courts, including at least the Court of Appeal if not the Supreme Court and perhaps even the European Court of Human Rights itself, decide what the clause actually means in practice.
It is also doubtful whether there is any material interference with human rights from retrospectively changing a limitation period. All limitation does in relation to the particular claims in question is bar the pursuit of these claims after a certain time, currently six years. It does not extinguish these claims, merely preventing them from being pursued. Allowing a fair trial even after extending the time bar would not seem to be a disproportionate interference with any defendant’s human rights, but it will ultimately be a matter for the courts to decide.
It would, however, be better if this language was deleted from the clause and the matter left for the courts to decide in the ordinary course of litigation. That may yet cause delay while the issue is determined, but it is better than sending confusing messages in the language of the Bill.
Is litigation really the answer?
In a word: no.
Litigation is only worth pursuing if the claimant has the time and financial resources to fight a battle against a defendant who can afford to pay. The claimant also needs to be willing and able to pay the defendant’s costs in the event that the claim is unsuccessful. Many leaseholders are not in that position.
It is not unusual for complex litigation to take years and involve multiple trips to Court to make applications before trial, followed by years of appeals. Litigation involving insurers is notoriously difficult to settle because insurers generally avoid reaching commercial settlements unless there is a risk of an adverse legal precedent being set against them.
Otherwise, insurers are often happy to litigate to see if they can avoid paying out.
A famous recent example being the dispute between the Financial Conduct Authority and various large insurers over business interruption insurance and whether it responded to COVID-19 shut-downs or not. The FCA was forced to take to the High Court and then the Supreme Court because the insurers refused to reach a commercial settlement with either the insureds under those policies or the FCA.
Leaseholders should not have to take these kinds of risks. Particularly since they are most likely to be the people who will end up paying the bill under the terms of their leases.
Litigation may be part of the solution where there are viable claims. The new limitation periods may encourage quick settlement where the developer knows it has a weak hand and does not want the adverse publicity. Unfortunately, that is not most buildings caught up in the current building safety crisis.
Litigation may also provide a solution where the government arranges upfront funding in exchange for taking an assignment of viable claims and pursuing those responsible itself. That takes the leaseholder out of the picture and allows the government to aggregate a large number of similar claims it can then leverage to extract settlements or to pursue to set the right kinds of legal precedent to avoid the need for litigation over the majority of claims.
Overall, litigation will not solve the problem of defective cladding or missing internal fire safety measures. Only upfront funding can do that. Better litigation remedies are only one piece of the solution.
What should the government have done about leaseholders’ remedies?
While the Bill makes some bold moves with the commencement of section 38 of the Building Act 1984 and the extension of limitation periods, these reforms do not go nearly far enough. An opportunity is missed here.
The government could easily have taken the opportunity to import sensible Australian-style reforms into English law.
These reforms, at a minimum, would include implying new terms into building contracts and the general law to:
1. Impose positive duties on the developer and other construction professionals to avoid causing economic loss to the eventual inhabitants of a building;
2. Impose a positive duty to build buildings according to published designs; and
3. Require anyone involved in residential construction to carry mandatory insurance for the length of any applicable limitation period.
Other, bolder reforms, such as putting the NHBC and other new-build warranty schemes on a statutory basis would also help focus minds on the consequences of poor construction quality.
Bolder still would be to impose a permanent levy on the building sector in the form of a penalty for all of the damage that has been done to leaseholders and residential home buyers in the past few years. Not only as a result of cladding, but also in respect of selling houses leasehold and failing to build houses and flats properly.
The money from that levy would go to paying for cladding and fire safety rectification works. It may also cause the building industry to think twice about its products in the future.
How will the Building Safety Regulator help?
In principle, having one body responsible for the planning and regulation of higher-risk buildings should help bring much needed clarity. It should also ensure that nothing falls between the cracks of the current patchwork of bodies responsible for building safety.
Nevertheless, there are still at least two key risks to how effective the Building Safety Regulator will be in practice. The first is money and the second is the continued reliance on private building inspectors even under the new regime.
As regards money, the Building Safety Regulator will be part of the Health and Safety Executive. If the new Regulator is not funded properly it will be nothing more than a paper tiger.
The second issue is that the Bill still allows private Approved Inspectors (to be renamed as Registered Building Control Approvers) to conduct the building control work during the construction of higher-risk buildings, albeit subject to two new important safeguards.
The first new safeguard is that the Building Safety Regulator will oversee a new professional standards regime for such inspectors. The second is that certain functions – which are to be prescribed by legislation – can only be performed by, or after consulting, inspectors appointed by a local authority or the Building Safety Regulator.
While these reforms are welcome, they do not go far enough.
The long-standing decision of Murphy v. Brentwood District Council shields building inspectors, both private and local authority, from legal liability in respect of defects in their work. This protection inevitably affects their approach to their work. It remains to be seen whether the regulations to be made when section 38 of the Building Act 1984 comes into force will continue, or remove, the Murphy protection.
The new regulatory regime for professionals does not address this lacuna in the law. Unless the Building Safety Regulator is aggressive in enforcing the new professional standards required of Registered Building Control Approvers, future purchasers in a defective building will be no better off than today, even with extended limitation periods.
How will the Building Safety Charge work and will it be more expensive for me?
The rules for the new Building Safety Charge are set out in clause 120 and Schedule 7 of the Bill. The new charge is implied into all leases in higher-risk buildings by a series of amendments to the Landlord and Tenant Act 1985, including a new schedule to that Act.
In simple terms, this will operate as a separate service charge, with separate accounting periods, accounts and demands. The government appears to have conceded that the money can be intermingled with an existing service charge account, but otherwise there will be significant duplication of effort – and expense – to leaseholders in operating this parallel system. In particular, the Building Safety Charge year may not match the service charge year, which will be an administrative nightmare for both leaseholders and managing agents.
Crucially, the Building Safety Charge allows the accountable person – most likely the landlord – to pass on all of the costs of complying with the new Building Safety regime, including the costs of all fees payable to the Building Safety Regulator.
This will increase the costs of living in a rise building, potentially by many thousands a year in the most complicated cases. The government’s Impact Assessment published along with the bill estimates these charges at £16 a month. The government has obviously not spent time living in many buildings managed by large managing agents.
The charge remains payable within 28 days of written demand, albeit by reference to a budget and other information which the landlord must provide, failing which the tenant may withhold payment until that information is provided.
Theoretically, the Building Safety Charge excludes the costs of doing works to do the building, including where these are required under clause 84 to meet the regulatory requirements set out by the new Building Safety Regulator (see paragraph 1(4)(b) of Schedule 7, to be inserted as Schedule 2 to the Landlord and Tenant Act 1985).
This provision appears to be what the government has in mind when it says that historic costs will be excluded from the Building Safety Charge.
This protection is less effective than it appears. Whether or not these works are covered under the Building Safety Charge, they are likely to be covered under the terms of the repairing covenants in leases for the building.
These covenants usually require leaseholders to pay to meet statutory requirements or the directions of any competent authority, as many leaseholders have found out over cladding and other issues.
So, the costs will be payable by leaseholders, perhaps following a section 20 consultation under the Landlord and Tenant Act 1985. The only change is one of form rather than substance, which will be of no use to leaseholders who may still face ruinous costs in the future.
And we should be concerned about the future. As above, Part 4 gives wide-ranging powers to a future government to change the definition of “higher-risk building”. The Bill itself gives sweeping powers to the Building Safety Regulator to make changes to the regime over time. If these powers are misused in a similar way to the Advice Notes, this could result in huge costs for leaseholders when – not if – there is another building safety scandal.
The fact that the Building Safety Charge will allow management expenses to be recovered, which should already be covered by the service charge which will remain payable, may mean that unscrupulous agents take the opportunity to double-dip and charge management fees twice over.
The Building Safety Charge comes with its own separate consultation requirements, which unfortunately are a carbon copy of the already inadequate and widely abused section 20 major works consultation requirements applicable to other types of variable service charge expenditure.
While there are information rights for leaseholders, unfortunately, the government has missed another trick and adopted the antiquated section 21 and section 22 Landlord and Tenant Act 1985 regime.
The measures only require “reasonable facilities” for inspection to be made available, when what should be made available is a real-time online database containing all relevant information, for both Building Safety Charge and service charge expenditure.
It is also unclear how this new charging regime will work in multi-building developments where some buildings are higher-risk buildings and others are not.
This may give scope for landlords and managing agents to increase costs for all leaseholders even though those in lower-rise buildings are not covered, and not legally obliged, to pay toward the costs of the new regime.
Can I be jailed if I won’t let my landlord into my flat under this new law?
Clause 95 of the Bill places a duty on residents of higher-risk buildings (which would include tenants of sub-let flats) to follow rules and guidance laid down by the accountable person and the Building Safety Manager.
Clause 97 allows the accountable person to request access to a leaseholder’s flat to conduct inspections of the common parts or to assess whether the leaseholder has complied with the duty under clause 95. Access can be requested with 48 hours’ notice in writing.
If the leaseholder does not grant access, the accountable person can apply to the County Court for an order that access is granted. If the order is not followed, the leaseholder could end up being in contempt of court, which is punishable by a fine or imprisonment.
Clause 96 allows the accountable person to issue something called a “contravention notice” if requirements laid down by the accountable person are not met. These notices can be issued to residents of the building who owe duties under clause 95. They may require the resident to spend money. If the resident does not comply, the accountable person can take the resident to the County Court for an order. Again, breach of a court order is potentially punishable as a contempt of court.
The bottom line
Overall, the Bill is a hugely complicated piece of legislation that will have effects for years to come. It will certainly make it more expensive to live in high-rise buildings.
Notwithstanding the government’s recent attempts to blame lenders, surveyors, insurers, fire engineers and managing agents for taking too conservative a view of building safety, this significant new piece of legislation is likely to prompt further risk-aversion as it beds down.
While there are some promising reforms in terms of better rights for leaseholders, ultimately this is a device for which the batteries are not included.
There are various key reforms that do not go far enough, for example in relation to buyer’s rights for shoddy construction and regulatory failure.
Opportunities have been missed to improve leaseholder access to information and consultation requirements in relation to building safety expenditure in particular, and service charge expenditure in general. These rights should be digitised and made easier for leaseholders to exercise and harder for landlords and managing agents to ignore, as is often the case now.
The Bill is, however, a starting point. If the government is willing to depart from the obstinate approach it adopted during passage of the Fire Safety Bill; to listen and take heed of the wise counsel of many outside Whitehall, then there is a real opportunity here to make a much better hand of it for current and future occupants of these buildings.