March 2022 cladding update (2)

As part of the BSB’s progress through the House of Lords, additional proposed amendments to the bill have now been put forward for discussion at the Report stage – which is due to begin on 29 March 2022.

Further amendments may yet be tabled, but in the meantime we outline below some of the new key changes proposed over the past few days. As a short summary, these:

• Seek to further strengthen leaseholder protections and expand upon remediation powers
• Re-introduce the proposed clauses relating to recovery for the use of defective construction products
• Scrap the role of “Building Safety Manager” and the proposed “Building Safety Charge” that would have been levied on leaseholders
• Propose a compulsory New Build Warranty system for new homes.

Further strengthening leaseholder protections and remediation powers

As we have previously reported, one of the key planks of the Government’s change in focus has been to propose that most long-leaseholders will generally not be required to pay for the costs of remediating building safety defects in relevant buildings through their service charges, and, in certain instances would only be required to pay up to certain caps for non-cladding works.

As a reminder:

• a “relevant building” is one that is 11m or over in height and contains at least two residential dwellings, and which has been constructed, converted, or had works done to it, within the last 30 years; and
• “relevant defects” are defects arising out of those relevant works which have caused a “building safety risk” (defined as a risk to the safety of the people in the building relating to the spread of fire or the collapse of the building or any part of it). This is, of course, a broad definition and the legislation does not provide any further guidance at this stage as to how such risks will be identified or judged.

The Building Safety Regulator, local authorities and certain others (such as those with an interest in the property) will be entitled to obtain “Remediation Orders” from the Court to require the landlord to perform remedial works. “Remediation Cost orders” will also be able to be obtained to require certain persons to pay for such works.

In the above context, the new amendments proposed in the last few days include the following:

• Under the Government’s further proposals, among other things:

  • the scope of the leaseholders who will be covered will expand to include those who own up to three properties (ie so that small-scale “buy-to-let” leaseholders will be covered, as well as owner-occupiers). Further, leaseholders in “low cost” properties (£175,000 outside London and £325,000 within) will be unable to be charged for any relevant costs, and nor will leaseholders in properties where the landlord meets certain “contribution condition” criteria as to their net worth value (£2m+ per relevant building owned).
  • the definition of relevant landlord will now include those with contractual repairing obligations under a lease other than the landlord or tenant (such as a property manager), so that Remediation Orders may also be made against those entities.
  • the definition of relevant works now captures works done to remedy a relevant building safety defect (ie in case such remedial works were themselves defective) and makes it clear that “works” includes the provision of professional services in accordance with such works.
  • a methodology is proposed for calculating building height to determine if a relevant building is covered by the sections.
  • the pool of people against whom Remediation Costs Orders may be made will be extended to cover the landlord, the person who was the landlord as at 14 February 2022; the developer of the building, or any person “associated” with these entities. (“Developer” is stated to mean the person who undertook or commissioned the construction or conversion of the building (or part of the building) with a view to granting or disposing of interests in it).
  • the relevant sections of the bill relating to service charges and Remediation Orders etc (currently clauses 119 to 127, and Schedule 9) will now come into force two months after the BSB receives royal assent, rather than as part of the standard longer 12-18 month transitional period that covers most of the bill.

• From non-Government peers, new proposals that would:

  • grant even further protections to leaseholders (such as reducing the amount that leaseholders would pay to a peppercorn or reducing the caps; extending the protections to multiple-unit residential buildings of any height, not just 11m+; and creating a new duty on the Accountable Person to ensure they act in leaseholders’ best financial interests when performing their duties under the Act).
  • prohibit developers who have not completed historic fire safety remedial works within five years from developing land in England;
  • require local authorities/Government to review all relevant buildings in their area and perform remedial works if they are “reasonably satisfied” the building requires such works, and the landlord has not performed them. If the local authority takes this step (i) they would be deemed to become a person to whom a duty is owed under the Defective Premises Act and under the proposed new construction products clauses, allowing them to take steps to recover from third parties; and (ii) the costs of remedial works would also be “enforceable as a debt” against the developer of the property.
  • establish a “Building Safety Cost Panel” and a new regulatory regime to allow that body to issue “Building Safety Costs Orders” relating to building safety remedial works and liability for the same; and to establish a fund to cover remediation costs if no liable person can be found. This appears to be a wide-ranging alternative to the Government’s proposals.

It remains to be seen, however, whether non-Government-backed amendments will be accepted.

Finally, in the above context, the Government has recently published a “Leaseholder Protections” Factsheet - Building safety leaseholder protections factsheet - GOV.UK (www.gov.uk) - which explains the Government’s view as to how its leaseholder protection and remediation costs recovery proposals will work in practice. This states that the Government expects the BSB to be finalised and pass into law by summer 2022.

Re-introduction of clauses relating to new causes of action etc for use of defective construction products

As noted in our last update, the version of the BSB published after the House of Lords Committee Stage had omitted some of the amendments previously proposed regarding new causes of action or costs recovery routes due to the use of defective construction products etc. Similar proposals have now, in effect, been included again in an updated format.

These clauses are also now intended to come into force two months after the bill receives royal assent.

Other changes

The majority of the further proposed amendments are technical and are aimed at drafting changes or minor amendments for consistency. However, some proposed changes which may be of interest include:

• Clarification and expansion of provisions relating to the proposed Building Industry Scheme: new sections make it clear that the scheme’s purpose includes to ensure that persons in the building industry remedy defects or contribute to costs of remedying defects in relevant buildings; and sets out that regulations will provide for scheme membership conditions including those relating to remedying of defects in properties which a relevant entity has a connection; and for making contributions towards meeting remedial works costs regardless of whether there is any connection with the building.
• Removal of Building Safety Manager and Building Safety Charge: one key change is the removal of the proposed “Building Safety Manager” role, and the separate “Building Safety Charge” in relation to higher-risk buildings. The “Building Safety Manager” concept was originally proposed by Dame Judith Hackitt in her report, but it appears that concern had been raised that the role, and the concept of the “building safety charge” would simply create further unnecessary cost burdens on leaseholders. The “Accountable Person” role for higher-risk buildings remains, and that person or entity will be responsible for performing all relevant obligations: it is anticipated that guidance will be published by the Government to assist Accountable Persons in performing their duties in future.
• New build homes warranty: new clauses will be introduced to create a new build warranty that developers must obtain and provide to purchasers, with a financial penalty for failing to do so. Regulations will provide further detail regarding the requirements for the warranties, which are stated to include the risks which the developer must cover; nature of the policy of insurance and its cover period and minimum terms; the solvency of the insurer/underwriter and the service standard to be provided by the insurer etc.
• Contractual arrangements review: a clause proposing that the Regulator be obliged to keep under review risks arising from construction industry contractual arrangements – including payment conditions / retentions clauses.

We will continue to monitor the progress of the draft bill.