While most new duties are not expected to come into force until next year at the earliest, landlords will want to start planning for them now to ensure they are not caught out.
For owners of residential buildings over 18m in height (considered a higher risk building for these purposes), there is a new concept of the “accountable person”. The accountable person is the person who is ultimately responsible for undertaking the repairs to the common parts. In more complex lease structures, there may be more than one accountable person, in which case the principal accountable person is the person responsible for the exterior and structure.
The accountable person is required to register the building. This applies to both new and existing higher risk buildings. For new higher risk buildings, it will be a criminal offence to allow the building to be occupied before registration occurs.
The accountable person then has ongoing duties:
To undertake an assessment of building safety risks (being a risk of fire or structural collapse) at regular intervals.
To take reasonable steps to prevent and manage building safety risks and undertake remediation works where needed.
To prepare a case safety report, which will contain the risk assessments and details of any steps being taken to manage risk.
To maintain information to provide to the regulator or to residents on request.
To engage with residents on fire safety issues and operate a complaints procedure.
The Act introduces the concept of the “golden thread” of information management. This is designed to ensure that information gathered through the gateways process under the Act at the planning and construction stage and, during the exercise of the accountable person’s duties, passes with the ownership of the building.
Residents also have new duties not to create building safety risks or interfere with fire safety systems; to provide information reasonably required by the accountable person; and to allow access to residential flats for safety inspections.
The costs of “building safety measures” will be implied into service charge provisions, allowing landlords to recover the cost of complying with their duties (but not the costs of remedial works themselves). However, landlords need to ensure the new prescribed building safety information is included on rent demands.
These duties should be taken seriously. There are two new criminal offences – failure to comply with a compliance notice issued by the regulator and failure to comply with a duty which creates a risk of death or serious injury.
The Act gives the secretary of state the power to set up a Building Industry Scheme. Developers or contractors who agree to undertake or to fund the cost of remedial works to their buildings will be able to become members of the scheme. The secretary of state will have the ability to prohibit non-members from undertaking development work if considered necessary to secure safety or building standards.
This should motivate developers and contractors to step up to their responsibilities, as it could create an obstacle to securing development funding.
In addition to the new criminal offences, the First-tier Tribunal now has the power to make the following orders:
Remediation orders are concerned with defects causing a risk of fire or building collapse, arising from the original development or subsequent remediation works. An application can be made to the FTT by the authorities or by any person with an interest in the building (for example, a residential leaseholder) and, if successful, orders will be made against the current landlord.
Remediation contribution orders require a party to make a contribution toward the costs of remediation works. The order can be made against those currently or previously responsible for the building. Importantly, the order can extend to group companies, associated partnerships, majority shareholders and even corporate directors of the party responsible.
Building liability orders will be used to enforce the duty, set out in the Defective Premises Act 1972, to ensure residential buildings are constructed in a workmanlike and professional manner, with proper materials, such that they are fit for habitation. Any person jointly liable under the 1972 Act or their associated persons (group companies, and so on) can be subject to an order. The limitation period for bringing a claim for breach of this duty has been extended to 15 years (or 30 years for existing buildings where the cause of action accrued prior to 28 June 2022 – a period designed to capture the installation of combustible products from the early 1990s). Anyone who suffers damage due to a failure to comply with building regulations will also have 15 years to bring a claim when section 38 of the Act comes into force.
Given the broad category of persons that can be subject to these orders, investors should investigate fire safety issues at the due diligence stage of acquisitions, particularly where original parties have been wound up or dissolved.
In early October, the Department for Levelling Up, Housing and Communities threatened legal action for the first time, under the 2022 Act against the owners of a 15-storey tower in Stevenage. It required the owner to commit to remediating fire safety defects within 21 days, following two years of delays. The press release indicated that it was looking at an associated pension fund and issued an unequivocal warning that it was examining another 23 cases where it did not believe sufficient progress had been made.
Restrictions on the recovery of costs
The restrictions on the recovery of service charge for fire safety defects were long awaited and provided much needed reassurance to leaseholders across the UK. They can be found in Schedule 8 to the Act, which is in force.
The restrictions do not impose a blanket ban on service charge for costs of remedial works to fire defects (where they would otherwise be recoverable under the terms of the lease). However, there are a number of hurdles a landlord will need to overcome before raising a demand.
The rules will apply where a landlord seeks to recover costs to remedy defects caused by works done or products used in buildings over 11m, that have caused a risk to safety of persons from the spread of fire or collapse. They will apply to the majority of residential leases of a term over 21 years with service charge provisions.
The first restriction prevents landlords (and superior landlords) from recovering service charge for works to remedy defects for which they are responsible. A party will be responsible where it was (or was in a joint venture with) the developer or undertook or commissioned the works relating to the defect. The 2022 Act extends that responsibility to persons associated with that party.
The second restriction depends on the net worth of the landlord’s group. Where the net worth of the landlord‘s group is more than the number of affected buildings in the group times £2m, the contribution condition is met and service charge cannot be charged.
The restrictions do not end there. The Act ensures that:
No service charge is payable on lower value leases (a lease worth £325,000 or below in London or £175,000 elsewhere).
No service charge is payable for cladding remediation.
No service charge is payable for fees associated with relevant defects, such as solicitors’ fees or fees for other professional services.
The balance of any service charge, after those restrictions have been applied, will be subject to a capped leaseholder liability of £15,000 for London properties and £10,000 elsewhere, with a further cap on the amount that may be charged in a single year.
The Act provides for the exchange of leaseholder certificates and landlord certificates, which should be used to establish whether a leaseholder has a qualifying lease and which restrictions apply to the particular landlord. There are strict requirements for when the certificates must be provided and landlords will be presumed to be responsible for defects and meet the net worth test until they serve them.
There is no doubt that the Act creates a brave new world, with which developers, residential landlords and their advisers will need to get to grips very quickly.
Authored by Katie Dunn and Paul Tonkin.
An earlier version of this article appeared in EG on 14 November 2022