Building Safety Levy consultation: What do developers need to be aware of?

A consultation on the design of the proposed Building Safety Levy (BSL) was launched on 22 November 2022 and ran until 7 February 2023. This consultation sought the views of developers, local authorities and other stakeholders on the design of the levy, delivery and collection options, as well as evidence of possible impacts on housing supply and regeneration and possible exclusions from payment of the levy.

On 23 January 2024, the Government issued its response to the consultation. Below are the highlights that developers need to be aware of, as well as further points of consideration.

What is the proposed Building Safety Levy?

Following the Grenfell tragedy, the Building Safety Act 2022 introduced powers to impose a levy on certain new residential buildings in England to raise revenue to be spent on building safety. The BSL is expected to raise £3bn over 10 years or more which will be used to help fund the remediation of cladding in unsafe residential buildings between 11 and 18 metres in height where developers cannot be traced or identified.

The proposed BSL will apply to all new “relevant buildings” in England which require building control approval, regardless of height. Relevant buildings are defined as consisting of or containing:

• one or more dwellings; or
• other accommodation (including temporary accommodation, such as hotels and hospitals).

What do developers need to consider?

Though there is no confirmation as of yet as to when the BSL will come into force, it would be prudent to consider now how these responses may potentially affect developments going forward.

1. Developers will need to be aware of where they will be in terms of the lifecycle of a development when the levy is due – the Government indicates that developers will have “some flexibility” in respect of deciding when the payment is made, however, it must be paid ahead of a completion certificate being issued or a final certificate being accepted for the development.
2. The BSL was initially limited in scope to “higher risk” buildings identified by the new building safety regime – the subsequent extension of the scope to all residential buildings significantly widens the net and the number of developers and stakeholders affected. The level of preparedness on the part of developers must therefore be requisitely robust given the BSL’s potentially significant impact.
3. Once the levy is in force, developments that have already applied for building control approval or initial notice on or after the launch date will be subject to the levy charge if they don’t meet an exemption requirement. A sharp eye will therefore need to be kept on the launch date as currently, the Government proposes no grace period after the BSL comes into force – after this date, developers will have to factor the cost of the levy into their plans ahead of seeking planning approval.

Note that with regards to affordable housing, although the Government intends for affordable homes to be excluded from payment of the levy, there is currently no proposal for a discounted levy rate to apply to the entirety of a development purely because that development provides a specified proportion of affordable homes.

What are the next steps?

The Government has launched a further technical consultation on the BSL. This is open until 20 February 2024 and covers the methodology for levy collection, the collection process, disputes and appeals and further exclusions.

If you want to express your views, ensure you take part in the consultation before this deadline.

Comment

We still do not yet know what exact form any levy will take. However, the responses do reflect the direction of travel the Government is taking when it comes to remedial works. Whilst the mantra from the Government on developers was to “do the right thing” and remove the costs from leaseholders, the acuteness of the problem made the need for intervention by the Government unavoidable.

The setting up of the Building Safety Fund with public money represents one temporary solution, however, the BSL (along with the Developer Remediation Contract) arguably symbolises the Government’s attempt to shift the burden of remedial works away from the taxpayer and leaseholders and onto developers.

The BSL represents a potentially significant added cost and administrative burden to developers. This is in addition to existing charges on the building industry, including the Community Infrastructure Levy, Residential Development Property Tax and other development charges that now apply, including carbon offset contributions and (in certain geographical areas) requirements for water and nutrient neutrality. Developers will have to provide details at the building control application stage to allow the levy to be calculated – however, no further guidance is offered at this stage as to what details will need to be provided (i.e. whether these are “over and above” any details that ordinarily need to be provided at the planning stage).

In its responses to the consultation, the Government appears aware of the potential burden of the BSL on developers. However, beyond the proposed exclusions there appears little relief. It appears that the levy will be enforced until the £3bn target is reached, however, the Government offers no comment here as to whether the levy will be axed once this target is reached.

One big point still remains unanswered – the amount that will be charged. Further clarity will hopefully be offered here soon, and we will report back on any further developments as they unfold.

Co-authored by trainee solicitor, Joseph Martin.