Commercial real estate solicitors, Primas Law, break down regulation changes in The Building Safety Act 2022, including mandatory warranties for new build homes, and what this means for developers.
The Building Safety Act 2022 (‘BSA 2022’) is the largest reform of building safety regulation since 1984 – We now know that the purpose of the Act is to “secure the safety of people in and about buildings and to improve the standard of buildings”.
This is not a standalone piece of legislation, but instead works by amending existing legislation in order to introduce new provisions, with the aim of improving existing law and the applicability of the existing law.
Commenting on what this means for developers, Nataliya Healey, Real Estate Partner at Primas Law, said:
“The Building Safety Act 2022 will have a wide impact across the construction and development sectors, it is therefore essential that necessary steps are taken in preparation. It is expected that secondary legislation that are yet to be implemented could provide further changes, so developers should monitor these closely to ensure that they are compliant with the law.
“In relation to the changes in the limitation period, developers ought to be aware that although we have seen a sharp increase in the overall volume of claims, the information that is available to potential claimants from 30 years ago, particularly with the changes in technology, means that the question of sufficient evidence is difficult and we believe that is where claims are likely to fall down.
“It is essential that developers review the current terms of their warranty to determine future compliance conditions. We would also recommend that developers review their professional indemnity insurance to ensure there is no period of time that developers are left without insurance.
“We also encourage developers to be mindful of potential upcoming changes to professional indemnity insurance. If professional indemnity insurance is to be carried for 15 years to align with the Mandatory New Home Build Warranties, the market reaction in terms of cost premiums, cost of building and therefore sale of buildings is likely to rise. This may not necessarily be the case, however, it is essential that asset paperwork is collated, and any gaps are identified and closed.”
What’s new?
The Act includes changes to multiple pieces of legislation including a number of major amendments for developers going forward:
The Building Safety Regulator (“BSR”)
One of the key measures introduced by the Act is the implementation of the BSR, which is a new appointment as part of the Health and Safety Executive. The BSR is responsible for supervising building safety in England, aiming to increase competency within the industry.
The BSR must provide “such assistance and encouragement to relevant persons as it considers appropriate with a view to facilitating their securing the safety of people in or about higher-risk buildings in relation to building safety risks as regards those buildings”.
The principal role of the BSR is to oversee higher-risk buildings, whilst identifying those who are legally accountable for the safety of the buildings in addition to allowing the prohibition of development by identified persons, if required.
Developers must be aware that this scheme can allow the BSR to prohibit developers based on conduct. This may result in developers being prohibited from applying for planning consent and building regulations irrespective of whether an existing application has been sought.
Mandatory New Home Build Warranties
In attempt to provide increased protection to homeowners and leaseholders, developers are now required to provide new build warranties for 15 years from the date of the purchase. It’s important to note that this is required 15 years from the date of purchase, not the date of completion which may have occurred much earlier.
The New Build Home Warranties must be given to a freehold purchaser or a purchaser with a lease of 21 years or over, and there will also be a warranty required in respect of any common parts of the building. The warranty does not only apply to new builds, but also to building conversions, and must be backed by insurance.
Developers must also remedy any defects or meet the costs of remedy. It is important that developers are aware that contaminated land is included as a defect.
The Secretary of State is yet to provide a number of parameters for the new warranty scheme, which we would advise developers to follow closely and keep up to date with.
These include:
- Prescribing a minimum insurance cover excess and term;
- The types of defects that will be covered by the warranty;
- The requirements surrounding the solvency of the insurer;
- The requirements of the standard of service provided by developers; and;
- Rules relating to the assignability of the policy
It’s important to note that the Secretary of State can impose a financial penalty on those who fail to provide warranty, which will be either 10% of the purchase price or up to £10,000.
The New Home Ombudsman
The New Home Ombudsman scheme is open to all developers, with a fee payable to members to fund the scheme. It is to be used by owners of new build homes and in instances where the homeowner has exhausted the claims procedure without success.
The ombudsman can then order the developer to compensate the homeowner by way of financial benefit, an apology or an explanation, or other action at the ombudsman’s discretion.
The ombudsman is also able to order the developer to improve their service if standards of conduct or quality are dissatisfactory. As mentioned above, developers can now be prohibited by the BSR on the basis of conduct and should therefore take this into account when assessing the quality of their service.
Amends to the Building Act 1984
While the BSA 2022 was coming into force, it made a number of amendments to the Building Act 1984 surrounding higher-risk buildings, which include the insertion of certain provisions to ensure that the 1984 Act is aligned with the 2022 Act.
These amendments are designed to increase the requirements for higher-risk buildings, which are those standing at 18 meters or seven stories high, from the ground up. Developers should therefore be aware that for the purposes of BSA 2022, basements and underground facilities are not included.
It should also be noted that the Secretary of State may amend what it means to include other structures at any given time. However, currently, both temporary and permanent buildings constitute higher-risk buildings if they meet the height threshold.
The new Act introduces ‘Registered Building Inspectors’ which introduces a much more structured and controlled system into this area of law. All inspectors/approvers will be listed on the central register if admitted. Conditions may be imposed on a registration, which may include location, or the type of work being carried out, and sanctions, including financial penalties will be imposed if necessary.
The change in limitation period for claims
The Building Act 1984 allows a person to sue if a building does not meet Building Regulations. As a result of the BSA 2022, the limitation period for claims has been increased from six or 12 years (depending on how they were appointed) to 30 years before 28 June 2022 and 15 years after 28 June 2022.
Although this change may seem drastic, gathering all the information required may lead to some difficulty which is likely to result in reducing the volume of these claims.
In order to take legal action, Section 38 of the Building Act 1984 must be applied, however, this section was never actually brought into force, making the amendment to the Building Act in regard to the increased limitation period merely theoretical. This may brought into force at a later date to allow the new limitation period to be actionable.
As Section 38 cannot yet be applied, local authority inspectors are unable to be sued, however, inspectors who have not met building regulations and are in private practice, can.
Higher Risk Buildings
The definition of a ‘building safety risk’ is one that increases the risk of spread of fire or structural failure. The Act defines higher risk buildings as those of 18 meters or seven stories high and also includes those with two or more residential units.
The Act enforces a number of new changes for developers, including the requirement to provide a Building Regulations Certificate prior to occupation. This is applicable for new, high-risk buildings, additional residential units in an existing building, or a change to an existing building which results in it being high-risk as defined above.
If the developer fails to obtain the Building Regulations Certificate before occupation they are considered as having committed a criminal offence, which can be up to two years in prison and/or a fine, in addition to causing a strain on business reputation (and in turn, may constitute unsatisfactory conduct in the eyes of the BSR).
Prior to occupation of the building, developers must also ensure that the building is registered with the Building Safety Regulator, and they must have a valid Building Assessment Certificate, as this can also amount to a criminal offence, carrying the same potential charges.
Obtaining the Building Assessment Certificate requires the developer to comply with the following:
- Produce the safety case report for the building
- Provide information relating to the mandatory reporting system
- To demonstrate compliance by each accountable person with their duties and;
- To provide a copy of the Residents’ Engagement Certificate policy
It is important to note that the Building Assessment Certificate must be displayed in a conspicuous position, must be the most recent certificate and must provide information about the building and accountable persons. Failure to do this is a criminal offence.
Remediation of Defects (Building Liability Orders)
The Building Safety Act also introduces a number of remedies in relation to defects, including Building Liability Orders (“BLO’s”).
BLO’s can only be made by the High Court, to extend the liability or the remediation of defects if the liability exists under the Defective Premises Act 1972, which requires that residences are fit for human occupation. A BLO could extend the liability of a developer, but, as mentioned above, Section 38 of the Act relating to this is not currently in force.
This means that the liability can only currently be extended for building safety risk, such as spread of fire or structural collapse. The BLO extends the liability of the original party to include associated companies, preventing companies from intentionally being shut down to escape liability.
Remediation of Defects
For Remediation of Defect, the Act applies to buildings that reach 11 meters in height or five stories of a self-contained building (or part of a building). The building must be subject to a qualifying lease and held by a person by whom it is their principle home.
The remediation applies to “relevant defects which arise from relevant works during the relevant period causing a building safety risk”.
This is broken down to:
- Defects – anything that is done or not done
- Relevant works – the original construction or conversion of an existing building into a self-contained building
- Building Safety Risk – fire or structural failure
- Relevant period – 30 years retrospectively or 15 years prospectively from 28 June 2022.
It is important for developers to be aware that if the Court issues a Remediation Order relating to relevant defects, this will be against the Landlord. The Landlord can then claim contributions from the developer.
For more on The Building Safety Act, visit The Building Safety Act – GOV.UK (www.gov.uk).
