Legal Q&A: Building safety
Martyn Stevenson, Associate, CMS Cameron McKenna Nabarro Olswang
THE construction sector has seen significant changes in the area of building safety over 2021 but it seems 2022 could be an even more important and significant year as the industry looks to carry on the developments made over the past year. We’ve highlighted some of the key areas to look out for and we consider what we can expect over the next 12 months.
Remediation of ‘unsafe cladding’
Initially, when the government announced its plan to tackle unsafe cladding issues with its £5.1bn Building Safety Fund, only buildings over 18m in height, clad with aluminium composite material (ACM) were to be covered. On 10 January 2022 a new UK government policy was announced seeking to increase the scope of buildings where remedial works will be funded. In an open letter from the Secretary of State for Housing and Communities to the industry, Michael Gove stated “no leaseholder living in a building above 11m will ever face the costs for fixing dangerous cladding.”
The letter set out some key requirements property developers will be expected to undertake, namely:
- Agree to make financial contributions (currently estimated at £4bn) this year and in subsequent years to a dedicated fund to cover the full outstanding costs to remediate unsafe cladding.
- Fund and carry out the necessary remediation works on buildings they themselves have played a role in developing.
- Provide comprehensive information on all buildings over 11m which have historic fire-safety defects for which they played a part in constructing in the last 30 years.
The letter expects a public commitment to this framework by early March. Those unwilling to commit to its terms are warned that they could face restricted access to government funding and procurement opportunities in future and possible legislative sanctions. There appears to be universal agreement that these issues need to be remediated and that the individual property owners shouldn’t be the ones to foot the bill. However, with other pressures on the construction industry such as material shortages and inflation, many are questioning whether developers should shoulder the burden alone or whether other stakeholders such as manufacturers should also be caught.
The letter proposes roundtable discussions with 20 of the largest housebuilders and development trade bodies followed by ongoing negotiations with all those in scope. This will hopefully provide some clarity on the details of the plans and how the impacted firms will respond to the issues.
New tax/levy
As part of the Building Safety Bill, a new Building Safety Levy is being proposed. This is to be paid by developers of certain high-rise buildings at the Gateway Two-stage (where regulatory permission is sought to construct the building). A consultation on this levy ran from July to October 2021, seeking industry input on the design and structure of the levy, timings for implementing it, and any potential impacts on the supply of housing which may result from it. An update on the outcome of this is expected in 2022.
Between April and July 2021, the government ran a consultation on a new Residential Property Developer Tax on residential property developer’s profits above £25m per annum. The purpose of this tax is to raise £2bn over 10 years towards remediating unsafe cladding in residential buildings over 18m.
Draft legislation was published for industry comment between September and October of last year and the chancellor has confirmed that developers with profits over £25m will face an additional 4% tax from 1 April 2022.
Building Safety Bill – amendments and next steps
In addition to new policy announcement the government has indicated it would bring forward the amendment to the Building Safety Bill to retrospectively extend the limitation period for building safety defects to 30 years.
The McPartland Amendments were also revived and expanded at this stage. Points of note include proposals to extend the limitation period under the Defective Premises Act (DPA) and for breach of the Building Regulations to 25 years (retrospectively for the DPA and prospectively for both), to expressly extend a new cause of action for breach of the Building Regulations to ‘economic loss’ and a proposal to remove the bar to recovery of pure economic loss in tortious claims concerning the construction of any residential dwelling.
The bill is currently at the committee stage in the House of Lords and is expected to achieve royal assent in 2022, with the changes to the limitation periods under the DPA and Building Act expected to follow shortly.
Summary
Much like 2021, the progression of the Building Safety Bill is likely to be at the forefront of most in the industry’s minds. As the bill progresses the industry will need to respond not only by making the cultural shift required to adhere to the necessary operational changes but also ensuring budgets and pricing reflect increased costs. No easy task given the other pressures the industry is facing. In many ways, this is just the beginning.
Martyn Stevenson, Associate,
CMS Cameron McKenna Nabarro Olswang