Building Safety Bill Update: new proposals and how they affect residential developers

The Secretary of State for the Department of Levelling Up, Housing and Communities (DLUHC), Michael Gove, has recently announced a ‘new approach’ to tackling the building and fire safety crisis affecting multi-occupancy residential buildings with the tagline “Developers Must Pay”. 

Mr Gove has also issued a letter, addressed to ‘the Residential Property Developer Industry’ which sets out the Government’s expectations for developers to engage with discussion to help resolve the issues. Embedded to this note are links to Mr Gove’s statements (video and Hansard record), and his letter to the industry. Links to both of the announcements from the LLUHC’s website are as follows:

• Gov.UK: Government forces developers to fix cladding crisis
• Gov.UK: Government sets out new plan to protect leaseholders and make industry pay for the cladding crisis

This note focuses on the legal implications of the latest government press releases, and provides a steer on the issues developers should be considering now in the lead-up to the round table discussions that Mr Gove is seeking with 20 of the UK’s largest house builders and developer trade bodies.

Mr Gove closed by saying that the 20 largest builders and developer trade bodies will be invited to an “industry round-table” which will be followed by “ongoing negotiations” with all in scope before Easter to give developers “the chance to do the right thing”, but that if this is not successful a solution will be imposed and that solution will be a legal one if necessary.

What are the implications?

Although the precise details of the proposals are awaited, the change of approach that Mr Gove has announced crosses a number of fronts and represents a significant shift in attitude within the DLUHC, not least because it appears that the Treasury has refused any further expansion of taxpayer contributions to funding for cladding / fire safety remediation works.

We address the implications under each of the four headings contained in the more detailed press release issued by the Government on Monday:

Remediation costs

Mr Gove announced that the government will not make more tax funding available beyond the £5.1bn already announced and the industry will be made to “pay to fix all of the remaining problems and help to cover the range of costs facing leaseholders”, particularly those who manufactured combustible cladding.

At the same time, owners of apartments in smaller buildings (11m-18m) “shouldn’t have to pay a penny” towards the cost of remediation. To this end, the loan scheme for medium-rise leaseholders will be scrapped and the government is committed to protecting leaseholders from the cost of remediation, going so far as to say “no leaseholder living in a building above 11 metres will ever face any costs for fixing dangerous cladding and…we will pursue statutory protection for leaseholders and nothing will be off the table”;

It may be that some of the more draconian legal changes (detailed below) will be held off if there is positive engagement with these proposals. We suspect that the threat of those proposed legal changes is the stick being used to secure this additional funding from the industry.

The proposal for roundtable discussions to take place before Easter are aimed only at Developers and “industry trade bodies”, and there is no mention of large institutional building freeholders being invited to take part in such dialogue. From our experience, many of our developer clients are willing to undertake remedial works, but there is often a dispute with building owners about the appropriate scope of remedial works, particularly in buildings below the 18 metres height threshold. For example, original developers might be prepared to undertake remedial works to identified shortcomings in the installation of cavity barriers, but they are often not willing to fund the replacement of combustible material in external wall systems of buildings under 18 metres in height. This may not an unreasonable position to adopt, where it is arguable that such materials did not contravene the prevailing Approved Document B guidance or functional requirements of the Building Regulations. We consider the issue of developer engagement on funding remedial works to be entwined with the question of what scope of works, to use the Government’s own words, are “proportionate” and “necessary”. It will be interesting to see what mechanisms the government might propose in order to resolve remedial scope disputes between original developers and current building owners, to ensure that ‘common sense’ is restored (see later section) and remedial work is not stalled.

Despite being singled out for criticism, material manufacturers are notably absent from the Government’s invitation to attend round table discussions. Developers might reasonably consider that the product manufacturers should also have a seat at the round table and be invited to put forward their own proposals to assist remediation work efforts.

Protecting leaseholders

The main proposals announced yesterday are:

Additional £27m Funding for Fire Alarms in place of Waking Watch: this is provisionally a welcome announcement and presumably will lead to an expansion of the Waking Watch Relief Fund, which encourages the use of upgraded fire alarm systems rather than costly manned waking watches. This is also a rare area where further funding appears to have been sanctioned by the government, rather than being sought from developers or leaseholders.

Protections in Law against Forfeiture and Eviction due to Historic Fire Safety Costs: this will, presumably, involve restricting management companies’ and landlords’ ability to threaten forfeiture and eviction for historic expenditure.

Whilst this may appear to be welcome news for leaseholders (and mortgage companies – who will often step in to pay such costs to protect their security) it is merely stripping landlords of a means of enforcement rather than absolving leaseholders of the liability altogether. Further, the liabilities for those historic fire safety costs won’t simply disappear if, in practice, they can’t be recovered from all leaseholders. This will then lead to shortfalls in service charge accounts that will either need to be made good by other leaseholders or will lead to many resident management companies (and building owners) becoming insolvent if not addressed properly.

Pursuit of Developers: A dedicated team is being established within the Levelling Up, Housing and Communities Department to “expose and pursue those responsible”, with commercial consequences (such as removal from the Help to Buy Scheme already meted out to Rydon Homes for being “closely connected to the company that refurbished the Grenfell Tower”) for those that are found to be responsible but who refuse to help.

In our view, restricting access to government support such as procurement and the Help to Buy Scheme represents the most substantial of these commercial threats and is particularly relevant to the largest housebuilders, who are likely to utilise the broadest range of governmental support in the delivery of their schemes.

It is difficult to see how the use of planning powers could be used to force developers to remediate specific developments. Planning decisions are often devolved to local government and would require significant coordination across the state as a whole in order to have a meaningful impact. Equally, the delivery of housing is also high on the government’s agenda and restricting new housing developments to fix problems with existing ones would smack of “cutting off the nose to spite the face” and would only further compound the chronic under-supply of new homes. Furthermore, any planning decision which took such a punitive approach could be at risk of judicial review which would be both costly and difficult for the government to control.

One way in which this could be effective, and which would deliver on another stated government goal, would be to increase the social housing allocation for developments brought forwards by developers who drag their feet on fire remediation. Again though, we expect that such measures will have limited effect, as both the Government and local authorities will be reluctant to make planning conditions so onerous that developments don’t proceed at all.

Amendments to the Building Safety Bill to Retrospectively Extend Claims Against Developers to 30 years: this announcement is extremely significant and represents a highly draconian and authoritarian approach to try to crack the problem of limitation periods restricting recovery.

Notably, this would extend well beyond fire safety and any building which could be called “unfit for habitation” due to defects within the 30 year timeframe could be the subject of a claim by residents, irrespective of whether those residents are original purchasers.

You can find our initial analysis on the implications of the retrospective extension of the limitation period for claims under the DPA here which details the serious implications such a step would have, made only worse by the extension from 15 years to 30 years.

It is unclear whether this change is the “solution in law, if necessary”, noted in the Government’s announcement, if the residential development industry refuses to fund further cladding remediation or if it has in mind further possible solutions. We will await such developments with interest and they may well depend on the Government’s view of what progress is gained from the round table discussions.

Restoring common sense

A number of immediate changes are planned with the aim being to “restore common sense to the market” i.e. to control the abundance of caution exercised by lenders and building safety assessors in the wake of Grenfell which has had a significant impact upon hundreds of thousands of leaseholders unable to sell or re-mortgage their apartments pending completion of recommended remedial works.

The key suggestions are:

Replacing the Consolidated Advice Note with the new PAS 9800 Standard: The Consolidated Advice Note has been widely criticised for failing to appreciate the scale of the problem of combustible cladding and fire safety issues, failing to provide for any cost-benefit analysis of proposed remediation once a building was deemed unsafe and for destroying confidence in the approvals issued by building control over the last 40 years.

The new PAS 9980 has been developed by the British Standards Institute and draft copies are available for consideration online. It appears that the government’s intent is for PAS 9980 to become part of the mandatory fire safety measures for new high and medium rise developments in future legislation and is designed to assess the safety of residents within the relevant building, rather than focusing on compliance with building regulations.

When first released, PAS 9980 was also criticised for failing to provide a detailed criteria with which to assess the performance of external wall systems and instead placing too much emphasis on the subjective (and often overly cautious) views of individual building safety assessors (of which there are far fewer than needed). We therefore expect that, although there is a lot more detail in PAS 9980, the previous problems of over-caution and expensive solutions for medium and high-rise buildings will not change even when PAS 9980 comes into force. It may be the case that these issues are addressed to some degree when the latest version of PAS 9980 is released this week.

Adapting the Building Safety Fund: the Building Safety Fund will be “adapted” to maintain consistency with the new approach and there will be a “higher expectation on developers” to fix their own buildings, and leaseholders will be provided with more information directly on the progress of BSF applications. The BSF was another area which proved fertile ground for criticism and questions following Mr Gove’s statement and Mr Gove conceded that “allocations from the building safety fund so far have been slow and are behindhand”.

In our view, the BSF simply isn’t set up or funded to deal effectively with the various complex property ownership structures present in medium and high-rise buildings and so this announcement will be welcome news if it means that the BSF treats developments on a “case by case basis” rather than trying to shoehorn every development into a “one size fits all” approach.

A Renewed Focus on Cost Effective Measures: Although lacking any detail, Mr Gove suggested that the “vast majority” of medium rise buildings (11m-18m) are safe and many of those that are not can be made so through the use of “existing or new” fire safety measures such as sprinklers and fire alarms.

Whilst the concept of encouraging a common-sense risk-based approach to such buildings will be welcomed by building owners, leaseholders and management companies alike, the proposals will require much more detail to be effective. As noted above, it is likely to take more than updated Government guidance for buildings in this category to persuade the owners of such properties to ‘row back’ from major remediation plans, when a great many building owners have already been advised by professionals that such major works are reasonably required. Both mortgage lenders and building insurers will also take some persuading that EWS1 certificates should be reviewed and remedial proposals should be revised where previous remedial plans have been proposed in reliance of expert advice.

It will be interesting to see exactly how the Government proposes ‘to audit’ remediation decisions and what mechanisms they may adopt to compel building owners to scale down remedial plans where appropriate.

Indemnifying Building Safety Assessors: The government has focused on criticisms of the EWS1 form system and in particular alleged over-reliance on it by lenders who have often required a suitable EWS1 certificate before they will lend on medium and high-rise flats.

To allay alleged over-caution by building safety assessors in providing these certificates, the government proposes to indemnify building assessors against negligence claims, together with proposals to “audit” the findings of their reports directly. The aim of this is supposedly to “ensure that expensive remediation is being advised only where it is necessary to remove a threat to life” and that the changes will allow building safety assessors the “confidence to exercise their balanced professional judgment”.

This is another proposal which could create more issues than it solves. It does nothing to address the hundreds or even thousands of reports already issued by building safety assessors which, in their honest professional opinion, recommend serious and significant remedial works. It seems highly unlikely that those same professionals will alter their previous advice in light of these proposed changes, as doing so would simply open them up to criticism for being overly cautious in their previous advice. Equally, this proposal does not incentivise either developers or their advisors to take a second look at those developments where these solutions are already being implemented and we anticipate that the industry will be reluctant to incur further costs reviewing remedial works currently well underway.

The proposal to audit reports by building safety assessors is another measure which is difficult to imagine being implemented. Not only would the government need to expend cost to effectively resource those audits (a cost which will likely be borne by residents or the taxpayer) but there is already a severe lack of inspectors qualified to undertake such audits.

Reducing Insurance Premiums: Mr Gove recognised the issue of spiralling insurance premiums currently being paid by leaseholders to insure what is, ultimately, the freehold owner’s building and has indicated that Lord Greenhalgh will be talking to Baroness Morgan of Cotes and others in the Association of British Insurers to ensure that more insurers “do the right thing”. In making this statement Mr Gove praised the actions of Aviva, which has offered specific insurance products aimed at the residents of at risk blocks of flats.

The Royal Institute of Chartered Surveyors: in his announcement Mr Gove voiced criticism of the approach taken by RICS towards fire safety to date, saying “there have been all sorts of difficulties with that organisation in the past, but I am now hopeful that we are on a more positive footing. We have the potential to take steps to improve the governance of the institution, but I am hopeful now that, given some of the conversations we have had, including with lenders and others, we can be on a more positive footing.”

It remains to be seen what steps the government could take should it not receive the right reaction from RICS and we anticipate that this threat will be used to push the RICS to change its guidance in order to limit the aforementioned over-reliance on EWS1 forms.

Fairer and safer housing

Although not a particular feature of Mr Gove’s statement to the commons, the government’s website announcement contains a commitment to putting forward the recommendations of the Hackitt Review and commencing the Fire Safety Act, expected in the course of 2022.

The Hackitt Report is available here and its influence can already be seen in the various draft regulations which are set to follow the Building Safety Bill and can be found here.

Conclusions

Michael Gove’s house move to the DLUHC is definitely complete and yesterday’s announcement gives us an idea of the new direction the government will take to try to resolve the ongoing fire safety crisis.

The cynical view may be that Mr Gove and the government are looking to buy some political favour with such announcements and there may well therefore be some scepticism about how much of this will ultimately come into fruition.

Whether such cynicism proves to be accurate or not, it is clear that the Government is now looking to the residential development industry to foot the majority of the cost of future fire safety remediation works and is offering much more stick than carrot in return.

Whilst a number of the proposed measures affect advisors and specialists more than developers, the proposed changes to the limitation periods contained in the Defective Premises Act 1972 represent one of the most serious and significant retrospective changes to law ever contemplated by parliament and, if implemented, will broaden the scope for historic claims to be brought against developers, whether fire related or not. The practical and evidential difficulties that this proposal would create when bringing and defending claims before the courts doesn’t appear to be of any real concern to politicians.

We await the outcome of the proposed “round-table” discussions with interest and will provide further updates on any significant developments in the coming months.