March 2022 Building Safety update

This cladding update covers four recent developments:

1. Building Safety Bill: a revised draft of the Building Safety Bill has been published, upon the conclusion of the “Committee Stage” in the House of Lords.

2. DLUHC update to residential development industry: the DLUHC has issued a new open letter to the Home Builders Federation on 7 March, providing an update in relation to discussions with the residential development industry. The HBF responded on 11 March.

3. Cross-party Committee for Levelling Up, Housing and Communities’ Report into the Government’s cladding remediation proposals.

4. Remedial works: Sanctions on Russia and the potential impact on supply of construction materials.

1. House of Lords Committee Stage – amendments to the Building Safety Bill

As anticipated, in a revised draft of the Building Safety Bill published after the House of Lords Committee stage, the focus was on the Government’s proposed new amendments. These are, in the main, included in the revised draft of the Bill (with two key exceptions, which we discuss below). The draft Bill still has to progress through the Report and Third reading stages in the House of Lords, and will then be sent back to the Commons for further review, so there may be further changes and additions.

What has been included in the Revised draft Bill by the House of Lords?

Of the various amendments proposed by the Government and other peers to be put before the HoL Committee, the following key changes have ended up in the new amended version of the Bill so far:

• New powers against developers regarding planning permission and building control sign off: New wide-ranging powers for the Government to block planning permission (even where this has previously been granted) and Building Control sign off for developers. These proposed powers have been drafted broadly, noting that such prohibitions can be imposed for any purpose connected with securing building safety or improving building standards.
• Extension of the scope of the proposed Building Safety Levy: this will now apply to the construction of any multi-occupancy residential building, and not just “higher-risk buildings” (ie properties over 18m in height). The details surrounding the schematics of the Levy scheme will be dealt with in secondary legislation, and further information is yet to be published about this, with the revised Bill itself providing no further guidance than previously noted.
• Liability for associated companies and individuals: These clauses are detailed and complex but, in short, they would give the Courts the power to make associated companies and associated individuals (as variously defined in the Bill) contribute to the cost of remedial works via “building liability orders”. This is one of the more controversial amendments proposed by the Government (rivalled only by the 30 year retrospective limitation period for Defective Premises Act claims), given the wide-ranging implications and the fact that it appears to break away from existing legal principles underpinning company law (e.g. limited liability and the corporate veil).
• Certain developers/landlords to pay for remedial works for buildings over 11m: These amendments envisage that developers who still own a building (over 11m) that they built or refurbished, or “relevant landlords” linked to an original developer, will be required to pay to fix historic building safety issues in their properties. If the property has been on-sold and there is no “relevant landlord”, the current landlord will then be required to pay for such works, if possible. Among other measures, these form part of extended provisions intended to ensure that as far as is possible, long under-leaseholders in buildings 11m+ do not pay for remedial works, either at all, or at most at a cap of £15,000 (which would include sums already paid). These proposals in relation to 11m+ buildings are obviously another key area of concern for the industry, particularly when you consider that “relevant defect” (which is defined widely in the Bill) appears to go much further than the current Government regulations for lower height buildings.

The above amendments are designed to target developers and landlords. At this stage, however, two other key Government proposals relating to product manufacturers have not (at least as yet) made it into the revised Bill. As a reminder, the amendment paper proposed (i) a specific right of action for property owners against product manufacturers who used defective products on a home that has since been found unfit for habitation (also benefiting from a 30 year retrospective limitation period) and (ii) a power to impose “Cost Contribution Orders” on product manufacturers who have been successfully prosecuted under the Construction Products Regulations (which will be brought in by the Bill). It is unclear at this stage whether this omission has been deliberate or inadvertent (particularly as Hansard records suggest that these clauses were discussed and agreed in Committee). The Government’s intentions in this regard may hopefully become clearer at the Report Stage in the House of Lords.

2. Letter from DLUHC to the Home Builders Federation – 7 March 2022

The DLUHC issued a new open letter to the Home Builders Federation on 7 March, providing an update in relation to discussions with the residential development industry

Further to the Government’s letter dated 10 January 2022 to developers (which as you may recall asked for an industry proposal / contributions for remediation works to 11m – 18m buildings), the Government has this week written to the Home Builders Federation (HBF), which represent a number of private sector homebuilders. This letter responds to a proposal from the HBF in relation to the remediation of 11m plus buildings, which included (subject to certain conditions and parameters) a proposal from HBF developers to fund and resolve fire safety concerns on buildings over 11m (on a proportionate and risk based approach).

Whilst the Government’s letter welcomed the commitment, it stated that this fell short of “full and unconditional self-remediation” that Gove / leaseholders expected and noted that no full funding proposal had been put forward. The letter asks HBF to work with the DLUHC to come up with a fully funded plan by the end of March and that Gove expects developers to make public commitments as part of this process. The letter notes that if an agreement is not reached by the end of March, the Government will “impose a solution in law and have taken powers to impose this solution through the Building Safety Bill”; that appears to refer to the recent amendments to the Bill summarised above.

The HBF responded in letters on 11 March to Richard Goodman at DLUHC and to the Secretary of State, expressing concerns about a lack of data about building safety, and requesting a more “proportionate” approach to building safety assessments.

We continue to monitor the Government’s updates and expect there will be a further statement from Gove towards the end of this month.

3. Cross-party Committee for Levelling Up, Housing and Communities’ Report

The cross-party Committee for Levelling Up, Housing and Communities’ Report into the Government’s cladding remediation proposals was published on 11 March.

This reflects the Committee’s response to the proposals outlined by DHULC in Mr Gove’s January 2022 statement. In short, the Committee’s Report signals that they consider that the Government needs to do more to ensure that no leaseholder should have to pay for any costs, and also that the focus on recovery from developers/landlords and manufacturers is too narrow and that the approach needs to be widened to consider other industry participants.

The Report recommends, among other things, that:

• The Government should remove the “costs cap” on non-cladding defect costs for leaseholders and scrap its piecemeal methodology for funding remediation costs by building height or by type of leaseholder, and instead implement the Committee’s recommended “Comprehensive Building Safety Fund” which should cover all costs of remediating building safety defects on buildings of any height where the “polluter” cannot be found.
• Developers and manufacturers are not the only entities who have contributed to the building safety crisis, and the Government should identify all relevant parties who played a role “such as product suppliers, installers, contractors and sub-contractors. It should legally require them, as it has done for developers, to (i) contribute payment to put right any individual faults in which they played a part and (ii) contribute to a collective funding for building remediation”.
• VAT should be removed on building safety activity.
• Insurers should also be required to contribute to funds for remediation as they covered the actions of developers who failed to comply with building safety, and have since received increased premiums despite remediation works being undertaken.
• Overseas developers and foreign firms must be held to account by the Government.
• New amendments should be proposed to the Building Safety Bill to ensure that where the “polluters” still exist, they must also compensate leaseholders for remediation and interim costs already paid out, and must pay for works that have been started or specified. If the “polluter” no longer exists or cannot be identified, funding for building remediation should also compensate leaseholders for costs they have already paid out, including interim measures and the costs of increased insurance premiums.
• The Government should ensure that there is PI cover for those conducting PAS 9980 external wall fire risk assessments, and report back to the Committee on the impact of PAS 9980. The Committee also considered that it should be the Building Safety Regulator, and not building owners, who determines whether a building would need such a fire risk assessment or not.

It remains to be seen what the Government may do in response to these recommendations, but the DHULC has said that the report would be carefully considered and responded to.

4. Russia Sanctions and impact on the construction industry

The ongoing war in Ukraine will of course be on everyone’s minds, and the impacts will affect businesses worldwide, as well as those so tragically directly impacted by the Russian invasion. The construction industry will be no exception to this and we expect that supply chain disruption resulting from the invasion may become more prevalent as the weeks go by. For instance, there have been statements this week from the London Metal Exchange on the shortages of base lightweight materials (such as aluminium, nickel, tin and zinc etc) and their proposals to deal with any shortages. From a fire safety perspective, there is a risk that this could impact ongoing cladding remedial works.