The Building Safety Act 2022 Update

Update on The Building Safety Act 2022

The Building Safety Act 2022 has now come to pass and contains the new amendments that all developers and building owners have been waiting to hear after the Act received its first reading at the House of Commons in July 2021.

This Act comes in response to the Grenfell Tower disaster and Dame Judith Hackitt’s subsequent Independent Review of Building Regulations and Fire Safety and marks the biggest overhaul in building regulations in nearly 40 years.

The aim of the Building Safety Act 2022 is to include a series of amendments that will have a dramatic effect across the whole of the housing chain, from developers through to leaseholders.

It is true that there will be repercussions, but for who and to what extent has now come to light.

What are the implications for developers?

Building safety fund for cladding remediation

As a result of this latest legislation, there will be a higher expectation that developers will be obligated to repair their own properties and are required to make financial contributions to a dedicated fund from this year onwards. This fund aims to cover the full outstanding cost to remediate unsafe cladding on 11-18 metre residential buildings (currently estimated to be £4bn).

An additional Residential Property Developer Tax has also been introduced to help pay for the government’s Building Safety Fund and is expected to raise around £3bn over 10 years. The tax seeks to add a 4 per cent surcharge onto developers’ corporation tax if they make more than £25m in profit.

The Cladding pledge

In reaction to ‘life critical’ fire safety issues within the building industry, developers are being strongly urged by the government to sign up to the cladding pledge. This is a pledge committing developers to repair historical cladding issues dating back 30 years and for those that do not sign up, there will be serious consequences. The Act will now seek to use its powers of applying the building safety levy to more developments across the country and charge higher rates which could even stop developers from trading all together.

 The ‘waterfall’ effect

Primarily, developers may be expected to make payment for historical remediation works (cladding and non-cladding), if it has occurred at the design or building stage of a property. However, in the event that the developer is absent, the responsibility will then fall to the building owner. In the exceptional case that the building owner does not have the means to pay for any remaining non-cladding defects, they will then be legally able to recoup some costs from leaseholders in their building to help pay for works required.

That said, freeholders are refrained from passing on charges related to cladding remediation onto leaseholders who are now protected by the Act.

What are the implications for Leaseholders?

For buildings where the freeholder cannot pay, leaseholders will be protected by a cap on non-cladding work. The caps are £15,000 in London and £10,000 outside the capital. Any costs paid out by leaseholders towards these fixes in the past five years will now count towards the cap, meaning some leaseholders will pay nothing more.

This cap also extends to the amount that social housing tenants have to pay for repair work through their service charge and will mirror Florrie’s Law, which was introduced in 2014.

To further spare the leaseholder from excessive costs, certain proposals from the draft versions of the Act have now been forgoed, such as the designation of the Building Safety Manager (BSM). This was due to the rationale that the cost of appointing a BSM ranging between £50 – 90K could be potentially placed on leaseholders.

Another pivotal amendment regarding leaseholder protection is the intention of extending the right for leaseholders to claim compensation from those who caused the safety defects for up to 30 years, marking a significant increase in developer liability. This will no doubt bring challenges regarding the retrieval and retention of documents in support of these claims, but future claims could be aided by the introduction of the Golden Thread of information.

 What is the Golden Thread?

Proposed in the draft Building Safety Act, the Golden Thread of information endeavours to improve transparency and promote trust in the building industry once again. It is a live document of information on new buildings. This includes how the building was designed, built and is being operated during its lifecycle, which is accessible to leaseholders at any given point. This is in the hopes of holding the building industry accountable.

 What does the future hold for the housing industry?

Who is or is not responsible seems to have been addressed to some extent in this latest Act, by making those responsible for ‘life critical’ fire safety issues pay for the remediation works and taking all responsibility away from the leaseholder.

There is still some way to go but with this latest Act, it has definitely caused a shake-up within the housebuilding industry, and with the introduction of the Golden Thread of Information, there should now be a shift in how developers operate and how properties are built, managed and lived in, which would be for the better.

More may need to be done, and public funding could still be a possibility, but it seems the government and the construction sector could be on the right track to put the problems of the cladding crisis behind them.