How developers can prepare now for the Building Safety Act: Part 1 of 3

July 22, 2022

In the first part in their series of articles on the Building Safety Act 2022, Ian Hardman and Amber Wright look at steps that can be taken to prepare.

The Building Safety Act received Royal Assent on 28 April 2022. While many of the provisions will be implemented over the next 12-18 months, the industry is being urged to get ready now.

Dame Judith Hackitt stated in a recent HSE Bulletin: “The clock is now ticking and the pace is accelerating. Change is going to happen this time – there’s no denying it anymore!”.

However, preparing for the changes is challenging. Much of the detail of the Act’s provisions will be contained in secondary legislation which is yet to be finalised. With aspects of the new regime unclear, this series of articles looks at what steps developers can take now.

1. Extended limitation periods: prepare for greater exposure to claims

Applies to dwellings/all buildings

What’s changing?

The Act includes new provisions to significantly extend the limitation period for breach of the duties contained in the Defective Premises Act 1972 (DPA) and these came into effect on 28 June 2022. S.1 of the DPA applies to the carrying out of work in connection with the provision of a dwelling and imposes a duty:

To carry out the work in a workmanlike/professional manner.
To use proper materials.
To the effect that when the work is complete, the dwelling must be fit for habitation.

The Act also extends the causes of action under the DPA to include work to an existing dwelling, by inserting a new section 2A into the DPA, which has a similar effect to s.1 above.

Claims under s.1 and s.2A of the DPA will be subject to a 15-year limitation period applying prospectively for work completed on or after 28 June 2022. Liability under s.1 of the DPA will also have a 30-year retrospective limitation period in relation to work completed before 28 June 2022.

Liability under s.38 of the Building Act 1984 will also be subject to the 15-year limitation period, applying prospectively, when this provision is in force. S.38 allows a claim for compensation for physical damage caused by a breach to the building regulations. It is important to appreciate that the DPA applies to all dwellings, not just flats in high-rise buildings, whilst the Building Act 1984 applies to all buildings in England and Wales, therefore, the scope of application is wider than just dwellings.

Action points:

Audit any new-build residential developments that were completed from June 1992 onwards to assess the possible risk of claims under the new 30-year retrospective limitation period.
Review document retention policies to ensure documents are retained in respect of work carried out during the extended limitation periods.
Consider liability of group companies. The Act introduces Building Liability Orders which can be made by the High Court to pierce the corporate veil of group structures in circumstances where it considers it “just and equitable” to do so. Where a body corporate (such as an SPV development company) incurs liability under the DPA or s.38 of the Building Act 1984 or as a result of building safety risks, the High Court can order that this liability is also the liability of another company within the group (for example a parent company or another company which shares the same parent company). This would apply where a development company has been dissolved or become dormant so that the Courts can make the building liability orders to effectively follow the money.
Consider the impact on the supply chain:
- Supply chains will also be at an increased risk of claims in respect of work carried out during the extended limitation periods. This may lead to an increase in prices to manage this risk.
- Consider whether contractual amendments are required to reflect the extended limitation periods.
- Consider what insurance is necessary and available to mitigate the risk of this increased liability. However, the hardening of the PI insurance market that has been evident over the last few years is likely to continue with high premiums, wide exclusions and the unavailability of cover commonplace.

2. Pay up or face the consequences

What’s changing?

The DLUHC has previously announced that over 45 developers have signed a pledge committing to remediate “life critical fire safety works” in buildings over 11m that the developers were involved in developing and refurbishing in the last 30 years in England. These developers have also agreed to reimburse any funding received from the government remediation programmes in relation to these buildings. For those developers yet to sign up to the pledge, the DLUHC has said it “will continue to pursue those who played a role in developing unsafe buildings”.

Action points:

Developers should be prepared for the tough new measures aimed at addressing failures to remedy historical safety defects. These include:

Introduction of secondary legislation preventing a person carrying out the development of land in England and imposing a building control prohibition regarding buildings or proposed buildings. This will prevent a person applying for building control approval or depositing plans, giving an initial notice, granting of building control approval, passing of plans etc. In a recent press release, the government explained these powers may be used: “to restrict irresponsible developers’ ability to build new homes, including if they refuse to take responsibility for fixing life-critical fire safety defects on all buildings 11 metres+ that they have played a role in developing or refurbishing in the last 30 years”.
S.126 and s.127 of the Act provides for the establishment of building industry schemes to secure the safety of people in or about buildings or improve the standards of buildings including “by securing that persons in the building industry remedy defects in buildings or contribute to costs associated with remedying defects in buildings”. Whilst we do not have the detail yet, the Act states that membership may be conditional upon remedying or making financial contributions towards remedying defects in buildings. Membership may also be conditional upon whether persons who a member contracts with are members of a scheme. Therefore, when these schemes are established, consider contractual provisions requiring contractors and designers to be members of these schemes and to maintain this membership throughout the duration of the project.

Final thoughts

Compliance with the Act will come at a cost and the Act introduces additional expenditure for developers and the supply chain generally. The residential property market will be subject to a new levy which will be implemented under s.58 of the Act through secondary legislation. The government has confirmed that the Building Safety Levy will be chargeable on all new residential buildings in England. This has widened the scope of the Building Safety Levy and is expected to raise an additional £3bn over 10 years from developers. Other costs include the BSR’s fees during the gateway process for higher-risk buildings and the fees that may be payable as part of membership of building industry schemes.

These significant changes will add further financial pressure on an industry that is already dealing with a number of challenges including the effects of Covid and Brexit together with material cost increases and labour shortages. Despite the significant time and cost of complying with the provisions failure to prepare early may lead to project delays and increased costs. Therefore, a proactive approach is advisable as new regulation and guidance is published over the next few months.

Ian Hardman is a Partner and Amber Wright is a Professional Support Lawyer at Shoosmiths.