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Legal changes

The BSA gives effect to a number of important and far reaching changes.

At long last, the Building Safety Act 2022 is now in force. During its passage through Parliament, and before, the focus of much attention surrounding the introduction of certain sections of the Building Safety Act, from 28 June 2022, has been the introduction of a new Building Safety Regulator to introduce and clarify the obligations and liabilities of duty holders, and the extension of limitation periods under the Defective Premises Act 1972.

Further changes effected by the Building Safety Act which have received less comment relate to the introduction of section 2A into the Defective Premises Act, and further recourse against those responsible for defective buildings including Building Liability Orders, Remediation Orders and Remediation Contribution Orders. We will discuss some of the impacts of these changes in turn.

Extension of liability under the Defective Premises Act

Prior to the commencement of the Building Safety Act, claims could be pursued pursuant to section 1 of the Defective Premises Act against certain parties responsible for the design and construction of new dwellings which rendered those dwellings uninhabitable. Claims under section 1 had to relate to the provision of a new dwelling, such as a new build, or conversion of a building into new dwellings. The Defective Premises Act did not apply to works undertaken to existing dwellings, including extensions (Saigol v Cranley Mansions (1995)). The parties who owe a duty under the Defective Premises Act are those who, in the course of business, provide or arrange the provision of dwellings, and will include contractors and design professionals, those who commission buildings and also developers (Harrison & Others v Shepherd Homes Ltd (2011) EWHC 1811 (TCC)).

The introduction of section 2A extends the claims that can be brought under the Defective Premises Act for work carried out to buildings which contain a dwelling (including mixed use buildings) that have been refurbished or extended by a party in the course of their business, and includes common parts, and the section applies to buildings of any height. Section 2A of the Defective Premises Act applies to works completed after 28 June 2022, and the limitation period for pursuing a claim will be 15 years from the date of completion.

Building Liability Orders

One important change brought about by the Building Safety Act is the introduction of Building Liability Orders under section 130, which allows the High Court to extend the liability of a company primarily liable for a defect under the Defective Premises Act, section 38 of the Building Act 1984 or as a result ‘a building safety risk’ to ‘associated companies’.

The term ‘associated’ for the purpose of section 130 is defined by section 131. A company will be associated with another if “one of them controls the other” or “a third body corporate controls them both”. Accordingly, parent companies, including a company which subsequently purchases the party responsible for the defect, as well as sister companies, will be potentially liable.

A building safety risk is defined within this section as “a risk to the safety of people in or about the building arising from the spread of fire or structural failure.”

Building Liability Orders may also be obtained where the original entity has been dissolved or sold with any purchaser (even recent) becoming subrogated to any actions in respect of liability.

The Order can be granted where the High Court considers it is “just and equitable” to do so. This term has not been defined by the Building Safety Act. The accompanying legislative intention note states, “the court’s decision will be based on whether it is just and equitable to do so — in other words, whether it is right for that associated company to help to meet the building safety remediation liability of the failing landlord” and goes on to explain “it is unfair that innocent leaseholders have had to pay for remediation of building safety defects while those who caused the fire safety issues are able to exploit company law to escape liabilities that are morally theirs.”

How the courts will assess what is ‘just and equitable’ remains to be seen.

A Building Liability Order pierces the corporate veil that companies hide behind. It will far extend the scope of who will be responsible for ‘picking up the tab’ of defective works and provides a right of action in instances where those responsible are no longer solvent. We have seen that subsidiaries or SPV’s are often used by parent companies to be set up per development and subsequently dissolved to avoid liability, and it may be the case that parent companies take a more active role to ensure the compliance of the developer if they are to be held liable. One potential weakness of section 130, however, is the fact that an individual who owns a company that is primarily liable for a defect cannot be made personally liable.

Remediation Orders

Section 123 provides that the Secretary of State may make Regulations for the provision of Remediation Orders. Remediation Orders may be made by the First-Tier Tribunal in relation to buildings that are at least 11 metres in height.

Following an application by an ‘interested party’ (such as the regulator, local authorities, fire and rescue authorities, or a person with legal or equitable interest in the relevant building or any other person proscribed by Regulation), a landlord under the lease or any person party to the lease other than a landlord or tenant, must remedy specified relevant defects (i.e. defects which cause building safety risks), on a specified building, within a specified time.

These orders will be useful as the carrying out of remediation works will be a top priority for the safety of residents who require works to be undertaken promptly.

Schedule 8 of the Building Safety Act places limitations on the circumstances in which the remediation costs for the defects can be passed on to the leaseholders through additional service charges.

In circumstances where the landlord is responsible for the defect or has links to the developer, they will not be able to pass on these costs to the leaseholders. Where the landlord is not responsible and is not linked to the developer, some costs may be passed on to the leaseholders up to a cap of £10,000 and £15,000 within London for non-cladding defects after all other recovery options have been exhausted. Cladding costs may not be passed on to leaseholders.

Remediation Contribution Orders

Another new development is the introduction of Remediation Contribution Order provided for in section 124. Again, the First-Tier Tribunal may, on the application of an ‘interested person’ (as to which see above) make an order requiring a ‘specified body corporate’ to meet the costs incurred, or which are to be incurred, in remedying relevant defects in relation to a relevant building (i.e. a building in excess of 11 metres high or 5 storey) where it is ‘just and equitable’ to do so.

A relevant defect is defined as a defect that:

  • arises out of something done (or not done), used (or not used) in connection with relevant works (defined as construction or conversion works undertaken/commissioned by or on behalf of the Landlord or Managing Agent within 30 years retrospectively from 28 June 2022, or works undertaken after 28 June 2022 to remedy a relevant defect); and
  • causes a building safety risk (defined as (a) the spread of fire, or (b) the collapse of the building or any part of it.)

Specified body corporates (i.e. a company or partnership) have been defined as: (a) a landlord under the lease, (b) a person who was landlord at the qualifying time, (c) developers or (d) a person ‘associated’ with those body corporates. The term ‘associated’ is defined by section 121, but may include parent and sister companies, partners in a partnership (save for limited partners) and directors. Remediation Contribution Orders cannot be made against designers, architects or contractors (including design and build contractors).

Conclusion

The Building Safety Act gives effect to a number of important and far reaching changes. It is clear that these changes potentially afford greater protection to residents and provides them with a number of ways in which to seek redress where previously no or limited redress existed. That said, much of the detail as to how these remedies will apply will depend upon either (i) further supplemental secondary legislation, and/or (ii) the court’s clarification as to what is ‘just and reasonable’ in any given case. How insurers respond to these changes remains to be seen.

The introduction of this Act as well as the Government’s Building Safety Pledge creates an expectation of developer buy-in, and can be expected to affect reputations should they not accept accountability and discharge their duties.