The Building Safety Act 2022: Extension of Limitation periods

The extension of limitation periods relating to the Defective Premises Act 1972 and the Building Act 1984

The extension of these limitation periods has been the subject of discussions by the legal and insurance sector due to the increased period of liability, thus giving rise to a further risk of claims against companies involved with construction projects, and in turn, their insurers. In this article, we will explain what the extended limitation periods under the Building Safety Act 2022 (“the BSA”) are, what this means and how the insurance and legal industries are responding.

Provisions extending limitation

Claims under the DPA

Section 1 of the DPA allows homeowners and residents to pursue a claim against those responsible for constructing a new dwelling or new conversion which is not fit for habitation upon completion. Parties owing this duty are inter alia, contractors, developers, and design professionals.

Prior to the enactment of the BSA, the time for pursuing such claims was 6 years from the date of completion of the dwelling under s.1(5) of the Defective Premises Act 1972 (“the DPA”).

The BSA has enacted two important changes to the DPA:

• It extends the causes of action under the DPA to include claims for defective remedial works and maintenance (see s.2A).
• Section 135 of the BSA has inserted Section 4B into the Limitation Act 1980 (“the Limitation Act”) which extends the limitation period as follows:
  • to 30 years retrospectively (i.e. for any causes of action that have arisen within 30 years of the BSA coming into force on the28 June 2022 (“the commencement date”), and
  • 15 years prospectively from the Commencement Date (i.e. all claims that arise after the 28 June 2022.

It is important to note that any claims that have previously been settled may not benefit from these extensions. These extensions to the limitation period apply to any defects rendering the building not safe for habitation, not merely fire safety defects, or defects in a building over a certain height.

Claims under the Building Act 1984 (“the BA”)

Section 38 provides a statutory right of action for anyone suffering damage as a result of a breach of building regulations to bring a claim for damages. Although s.38 has never been brought into force, it would have had a limitation period of 6 years from the date of the completion of the dwelling. Pursuant to the amendments made within s.135 of the BSA, this limitation has been extended to 15 years prospectively for buildings completed after the Commencement Date.

On the 6 April 2023 provisions within the BSA relating to this section will be brought into force for the purpose of making regulations and harsher penalties will be inserted into the act for those found to be responsible for these breaches, including imprisonment and/or a fine. It appears that the introduction of s.38 of the BA may therefore be imminent.

Reaction from the legal industry

In the case of URS Corporation Limited v BDW Trading Limited [2023] EWCA Civ 189, BDW issued a claim against URS Corporation Limited (“URS”) for losses arising out of the negligent construction of a building.

URS argued that the claim should be struck out as there had been ‘no loss’ as at the time the claim was brought as BDW no longer had an interest in the building. After the coming into force of the BSA, BDW sought to amend its pleadings to bring a claim under the s1 of the DPA.

This was one of the first cases in which the court has considered the extension of limitation under the BSA, and the claims were allowed to be added.

However, notwithstanding the extension of the limitation periods, successfully pursuing claims may prove difficult due to the lack of relevant evidence.

For claims to succeed or even progress under the DPA, extensive documentation will be required from the time of construction (potentially dating back to 28 June 1992), which will be of concern to companies who do not hold these records and no longer employ the same staff.

There has been some consideration as to whether this extension of limitation would constitute a breach of Article 6 of the Human Rights Act 1998, in that there may not be a fair trial of those within the industry due to the absence of such documentation. Section135(5) of the BSA safeguards against this by providing that if the claim is lodged and the continuation of the claim would be in breach of the Defendant’s human rights (such as if sufficient documentation is not held), the claim must be dismissed by the court. This may create some commercial considerations for individuals and companies when pursuing such claims.

As a result of the extension of the prospective limitation periods those within the construction industry needed to implement changes to their record keeping and protocols quickly and be aware of their new obligations so that this information exists for the duration of this period and to protect their legal position should any claim arise. Standard form building contracts and sub-contractor contracts are required to be reviewed and revised to ensure that the limitation period within these contracts would also run for this extended period, so that any liability may be passed on to those responsible.

Limitation periods for new causes of action introduced by the BSA

The BSA also introduces new causes of action in the form of s.123 Remediation Orders, s.124 Remediation Contribution Orders and s.130 Building Liability Orders.

The applicable limitation periods are as follows:

• Remediation Orders and Remediation Contribution Orders: 6 years from the date the cause of action accrued (see s. 9 of the Limitation Act). When the cause of action accrued has not yet been dealt with by the courts, but it might be regarded as the date when the BSA came into force, namely the 28th June 2022.
• Building Liability Orders: 6 years from when the cause of action accrued, i.e. the 28th June 2022. However, the cause of action is reliant on the claim arising from the DPA or s.38 of the Building Act being in time.

There is no express prohibition on insurers pursuing a subrogated claim under these sections, however whether a court will consider it ‘just and reasonable’ to do so may be the subject of argument.

Reaction from insurance industry

At this stage, insurers are not applying limitations or exclusions to professional indemnity wordings. Insurers are seemingly taking a watching brief and in the short-term absorbing increased liabilities that may flow.

In the short term, the premium rating of policies also appears to be unchanged – but risk management questionnaires are being amended to ensure that record keeping policies are being updated and contractual liabilities are being passed down on a back-to-back basis.

Should claims volumes increase as a result of the BSA, initially premium rates will be amended, and should the affect be dramatic, then policy limitations could start to be applied and so clients need to take action to mitigate where possible.

Key takeaways for clients

• Review contracts with sub-contractors to ensure the limitation periods are in-keeping with the extensions introduced so that if any claims arise, liability may be passed down to those responsible.
• Ensure that all documents related to works carried out are retained for a period of at least 15 years in the event of a claim.
• Consider higher pricing to account for an increased risk of claims arising from the increased limitation periods.
• Ensure that you are aware if exclusions are incorporated into your policy and mitigate against the risk of those arising or being applied in the future.
• Be clear that any obligations are clearly defined and where it is necessary to liaise with other professionals, that the need for this is considered.

Summary

The extension of the limitation periods presents a challenging, document heavy and potentially expensive future for those within the construction industry. The continued review and revisions to existing and future contracts, an increased period for record keeping and the possibility that specific exclusions clauses could be applied to professional indemnity insurance policies for such liabilities in future years.

This insight was first published by Gallagher https://www.ajg.com/uk/news-and-insights/2023/may/the-building-safety-act-2022-extension-of-limitation-periods/