Building Safety Bill, 05 July 2021: key provisions and how they affect residential developers
After much consultation on the Draft Building Safety Bill, it was surprising to see the introduction of brand new provisions within the proposed Bill, published on 5 July 2021, particularly those affecting limitation periods.
New provisions relating to ‘Remediation and Redress’
The limitation period is the duration in which a person can bring a claim in respect of damages. The Limitation Act 1980 sets out certain restrictions, so that claims brought after a fixed period of time are no longer actionable and the defendant has a complete statutory defence in relation to those accrued causes of action.
The statutory limitation periods are of course highly relevant to claims brought against various parties since the Grenfell Tower Tragedy (in June 2017) for alleged fire safety defects in external wall systems of residential apartment buildings. Many developments that are the subject of such claims were completed more than 6 years ago, meaning that any claims are now often outside the statutory limitation period of 6 years and claimants are “out of time” to recover damages.
The limitation rules have put homeowners in conflict with original developers that may rely on limitation defences in response to claims. The Building Safety Bill now published proposes to extend rights for homeowners, so that they have a longer period to bring a claim. This significant proposal poses a number of practical problems for all parties who must manage and respond to claims.
Amendments relating to service charges in respect of remediation works
It’s clear that the Building Safety Bill is seeking to protect the interests of homeowners as far as possible. A new provision (at section 124) has been inserted in relation to service charges so that landlords cannot automatically recover the cost of remedial work directly from homeowners. Instead, landlords must take “reasonable steps” to obtain monies either from available grants or from pursuing third parties, before pushing remediation costs onto homeowners. This provision means that fire safety/cladding matters are likely to become more litigious going forward, as building owners/landlords are now likely to formally review their legal relationships with original developers and commence claims that have not been notified until now.
Amendments to the Defective Premises Act 1972 and the Limitation Act 1980
Currently, one potential right of action for purchasers of homes which suffer from defects is to bring claims under s.1 of the Defective Premises Act 1972 (the DPA). This requires a person (including a corporate body) taking on work in connection with a dwelling to undertake the work in a good and workmanlike or professional manner, with proper materials and to make the completed dwelling fit for habitation. The time limit currently for bringing claims for breaches of the duty in s.1 of the DPA is 6 years from the time the dwelling was completed, or from the completion of any further work in respect of the defects. This 6-year time period means that many potential claimants were time barred from making a claim under the DPA because the works in question were completed so long ago. Another potential right of recovery exists with a claim in negligence, which has a potentially longer limitation period, but it is generally not possible for a homeowner to succeed with negligence claims against developers due to legal principles around the recovery of damages for property defects which are considered to be in the nature of “pure economic loss”.
The Building Safety Bill proposes to extend the limitation period for claims under s.1 of the DPA from 6 years from the cause of action to 15 years. It is notable that this affects any claim where a dwelling meets the test under the DPA as being “unfit for habitation” due to defects – i.e. the proposed reforms are not limited to the fire safety/cladding claims that have emerged from the Grenfell tragedy. It is likely that significant fire safety failings will render dwellings “unfit for habitation” as a key plank of this concept concerns being able to occupy the dwelling for a reasonable period of time without significant risk to the health and safety of the occupant. The proposed change in the time limit will have both retrospective and prospective effect, which means that it will affect all ongoing claims and also resurrect those that had previously expired.
This is obviously a gamechanger for claimants, who in many cases have now been given a right of recovery that they otherwise had lost due to a limitation period expiry under the existing rules.
Key implications for developers
Changing the law substantially in the ways proposed in the Bill will have major implications for the housebuilding industry at large, with a number of practical implications for potential defendants:
- Claims that had previously been discounted by developers as being out of time could now be resurrected due to the retrospective effect of this new law. Whereas previously developers could adopt a strict legal stance and discount claims that related to matters more than 6 years old, they are now exposed to a greater number of potential claims because of the longer limitation period that claimants will have to bring an action. This increases developers’ exposure to potential claims, both for legacy issues and going forward.
- The change in law could also make such claims harder to defend, because a number of developers may have lost key personnel or key documentation in relation to these matters due to the passage of time. Many companies only retain documents under a retention policy for the same length of time that matches their potential liabilities. These companies did not expect to still be liable for these matters and the unavailability of these documents may affect the merits of any defences to the claims.
- The 15-year period will make it more difficult for developers to seek contribution claims from other parties at fault, particularly anyone that they were in contract with (such as the contractor and architect). The contract that the developer entered into with these parties will either be by way of simple contract (which has a 6-year limitation period) or by deed (which has a 12-year limitation period). If the developer finds itself defending a claim that is 12-15 years from the cause of action under deed (or 6-15 years from the cause of action under a simple contract), it may not be able to pass those losses onto anyone else. Some relief may be offered by bringing a claim via the Civil Liabilities (Contribution) Act 1978, which potentially offers a further two years to bring a contribution claim from the date of a court judgment or settlement. Specific rules apply to such contribution claims and assessments must be made on a case by case basis.
- Even if the developer could make a contribution claim against third parties, it may be difficult to recover under those parties’ insurance. Often contracting parties are only liable to maintain professional indemnity insurance for the same duration as their liability in contract, which will not be as long as the potential 15-year liability for DPA claims proposed under the Building Safety Bill. This will mean that developers may have a shortfall in financial recovery when claiming against others, even if such a claim is possible. It is also worth noting that professional indemnity insurers are now routinely limiting or excluding the cover they offer to professionals on fire safety/cladding claims, to either ringfence their liability to a fixed aggregate figure (rather than offering insurance on an each and every claim basis) or excluding cover altogether for such matters. It is therefore incumbent that any party hoping to recover contingent losses from an original contractor or designer is aware of these pitfalls and takes prompt action to notify claims against such parties as soon as possible.
- Developers may also face renewed claims from subsequent purchasers following freehold sales. Subsequent purchasers of the freehold to blocks of apartments will benefit from the same cause of action under s.1 of the DPA as individual leaseholders, even where there is no contractual relationship between the original developer and a subsequent freehold purchaser.
- The Grenfell tragedy has already accelerated a hardened market in professional indemnity insurance. This has made it more difficult and costly for design professionals to obtain such insurance. It is likely that the Building Safety Bill will increase this trend, and potentially more design consultants will self-insure, restrict the scope of work that they carry and/or tighten up their terms and conditions of engagement to limit or exclude their potential liabilities.
- We also expect to see an increase in cases where the term “fitness for habitation” under s.1 of the DPA is considered by the courts. This will be a key argument in the success of any claim under this provision, particularly with regard to the fact that this change of law does not just affect cladding claims, but all claims where a dwelling is considered unfit for habitation.
- We also expect to see elements of the Human Rights Act 1998 and the European Convention on Human Rights (the ECHR) argued in claims brought under s.1 of the DPA where the new limitation provisions apply. This could ultimately result in claims being taken to the European Court of Human Rights (ECHR) by a developer defendant or insurer.
There are a couple of safeguard provisions proposed in the Bill which are said to be in the interests of fairness, with respect to the s.1 DPA claims. Where a claim has already been dismissed or dealt with, a claimant cannot resurrect an old claim.
Also, there will be a new provision under the DPA which states that, where an action would have been time barred but for the new 15-year limitation period, and the retrospective nature of that new period would breach a defendant’s rights under the Human Rights Act 1998 (HRA), (which would include, for example, the right to a fair trial), the court must dismiss that claim. In other words, the retrospective application is only applicable to the extent that it does not infringe rights under the HRA. As the rights enjoyed under the HRA are not limited to living individuals but also apply to corporate bodies, this could prove to be a fertile battleground. By way of example, this provision may be relevant where the developer no longer has the information available to it to properly defend its position. We anticipate that this subsection also seeks to deal with live proceedings where a claim under the DPA either hasn’t been brought (because it would have been out of time) or has been brought and defended on the basis of limitation. There is an established line of case law under the ECHR which limits the extent to which new legislation is capable of extinguishing a claim or defence already advanced in proceedings. It is worth noting that the European Court of Human Rights is not part of the European Union’s infrastructure and will remain relevant post-Brexit, as will the Human Rights Act 1998.
The Building Safety Bill also gives the claimant a few other potential new rights to bring a claim by creating the following additional provisions:
- s.38 Building Act 1984 – this grants a civil right of action for any breach of the building regulations. This provision, however, does not apply in relation to any building erected before this right of action comes into force, which will limit its impact.
- s.2A Defective Premises Act 1972– any person who undertakes works to refurbish an existing dwelling or convert an existing building into a dwelling, must see that it is done in a good and workmanlike or professional manner, with proper materials so that the dwelling is fit for habitation. This provision is intended to cover refurbishment projects such as Grenfell Tower, where the refurbishment works were defective as opposed to the works relating to the original provision of dwellings. Any party who conducts their work according to such instructions will have discharged this duty, except where that party has a duty to warn their employer and fails to do so.
Both of these provisions are yet to be brought into law but will have a 15-year limitation period too. Unlike claims under s.1 of the DPA, which relates to the work in connection with the ‘provision’ (as opposed to refurbishment) of a dwelling, the amendment to s.38 of the Building Act 1984 and new s.2A of the DPA will not have retrospective effect and will not, therefore, attempt to retrospectively impose obligations that did not apply to developments completed in the past.
Although the changes are broad ranging, they will not be a complete panacea for all homeowners in cladding disputes. There is no automatic compensation and all claims will have to be substantiated. Claims in respect of alleged building defects will often be expensive for claimants to pursue and they are likely to be contested by large companies who are legally represented. There are likely to be various developments now alleged to suffer from fire safety defects where the relevant works were completed longer than 15 years ago and affected claimants will still have no viable causes of action to pursue their claims. There is also no recourse if the developer has since become insolvent. If the developer has insufficient funds to compensate the claimant, the claimant will be left having to carry on with their loss and homeowners may still suffer the ultimate costs of repair via lease service charge provisions.
We don’t know as yet when the Building Safety Bill will achieve royal assent and become law. Before then it has a consultation process in the House of Commons and House of Lords, and it is possible that some revisions will be made to the proposed legislation before it comes into effect. The implementation date will also determine for claimants whether they are able to benefit from the 15-year extension, or whether their claims will still be out of time.
The Bill provides a slight recourse if the claimant has less than 90 days to bring a claim from the implementation, as they will be given 90 days as a fixed minimum period in which to obtain legal advice and prepare their claim.
Tips for residential developers
In the meantime, there are some immediate steps that developers should take in preparing for the implementation of the Building Safety Bill:
- Carry out a due diligence exercise of any potential liabilities that may arise from the changes in law, particularly with respect to those projects where claims were previously dismissed as being out of time, but could now resurface due to the retrospective effect of the proposed 15-year extension to the limitation period for claims under the DPA.
- Identify whether claims for recovery/contribution in respect of potential liabilities are now more viable against contractors and designers, as the extended time limit for claims under s.1 of the DPA equally applies to original developers who appointed such parties to design and build dwellings and may have their own claims against these parties under s.1 of the DPA. These claims should be notified as soon as possible, in order to avoid pitfalls relating to material changes insolvency or insurance cover that may affect recovery targets.
- Revise any document retention policies, so that records are kept for a longer period to match the proposed extended duration of the 15-year liability period and make sure that any documents that were due for destruction are preserved.
- Revise your terms and conditions with third parties to maximise the duration of their liability. This can be done by getting contracts executed as a deed, however, this will only provide a limitation period of 12 years. To obtain 15 years back to back liability with your contracting parties you may need to include indemnity provisions in all agreements as the time limit for an action under an indemnity only begins to run from the date that a loss is established and the limitation period can be up to 15 years.
Do you need more information regarding the new provisions which have been introduced?
If you have any further questions or need any assistance with implementing these next steps, please do not hesitate to contact a member of Gateley Legal’s specialist team.
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