Industry to pay for remediation works on residential buildings in England

Out-Law News | 15 Feb 2022 | 6:20 pm | 3 min. read

The government intends to introduce tougher powers that will allow it to ensure that the cost of works to remove unsafe cladding from medium and high-rise buildings in England will be borne by developers, building owners and the manufacturers of construction products, it has announced.

A package of amendments to the Building Safety Bill have been introduced to protect leaseholders from the costs of remediating historic fire and structural safety issues within buildings.

The government has announced provisions requiring developers that still own a building with two or more residential units over 11 metres in height that they built or refurbished to cover the cost of a wide range of historic building and fire safety issues and not just cladding. Landlords linked to the original developer would be caught by the same provisions.

Where the building is no longer linked to the original developer, the new owner or landlord will be expected to meet the cost of remediating cladding.  Courts will also be given new powers to allow claims against “associated persons” of the developer, such as group companies which share directors or are controlled by the same parent company.

For any other non-cladding issues identified, a cost cap will be introduced to protect leaseholders, similar to the cap that applies to the cost of some types of repair to social housing. The government will consult further on how this cap will operate, but is minded to set it at similar levels: £10,000 for homes outside London and £15,000 for homes within London. Any costs already paid out by leaseholders over the past five years will count towards the cap.

Building safety expert Katherine Metcalfe of Pinsent Masons said that the proposal, if implemented, would have “profound financial consequences” for the residential property market.

“The government’s judgment is that owners and landlords should bear the financial burden of remediating buildings and pursuing contributions from others,” she said. “The amendments will also give the secretary of state very wide powers to limit access to planning and building control for developers who do not sign up to the government’s proposed industry scheme to contribute to the cost of remediating buildings.”

Harris Natalie

Natalie Harris

Partner

The new proposals make it more important than ever that those involved in the development and ownership of in scope buildings take steps to understand their potential liability under and plan for the new regime

The new amendments also seek to implement the proposals set out in the secretary of state’s letter to developers last month which outlined a building industry scheme requiring contributions towards the cost of remediation. He is in now in similar discussion with construction product managers.

The new amendments to the Bill would give legal force to such schemes by allowing the secretary of state to introduce regulations which would effectively block access to the market for organisations which refuse to participate in building industry schemes. This will be achieved by making it impossible for that organisation to obtain or use planning permissions for future developments, or to obtain or use building control approvals.

These measures build on the announcement made last month of the extension of limitation period for claims against contractors and building owners to 30 years in some cases. The latest amendments take a similar approach to new rights of action against manufacturers who used defective products on a home that was later found unfit for habitation, even where costs have already been paid out. In addition, courts will be able to issue cost contribution orders against manufacturers who have been successfully prosecuted under the Construction Products Regulations, requiring them to contribute towards the cost of remediation.

Property law expert Natalie Harris of Pinsent Masons said: “The new proposals make it more important than ever that those involved in the development and ownership of in scope buildings take steps to understand their potential liability under and plan for the new regime. Failure to do so could ultimately prevent businesses from accessing government services which are essential to their operations”.

Sitting alongside these new measures is the building safety levy which could initially be imposed on higher risk buildings, over 18 metres in height, at the ‘gateway two’, pre-construction phase, of the new regulatory regime to be introduced under that legislation. Failure to pay this levy would allow the government to block planning permission and building control sign-off for the relevant development.

The new amendments also contain powers allowing the government to extend this levy to other residential or mixed-use buildings that do not meet the higher risk height threshold. As drafted, this could include hotels, hospitals and residential buildings over 11 metres, or five storeys, in height. The government would also be able to impose higher rates on developers who do not participate in the industry schemes currently under development by the government’s Department for Levelling Up, Housing and Communities (DLUHC).

DLUHC said that it “remains in ongoing discussions with industry leaders” about the best way of ensuring the cost of remediating historical unsafe cladding will not be passed on to leaseholders, and that progress is being made. The levy, which it said could raise at least £2 billion for such work over a 10-year period, would protect leaseholders if an industry solution cannot be reached, it said.

The amendments will be debated during the next stage of the Building Safety Bill’s passage through parliament, which begins in the House of Lords next week. They must be agreed by both the House of Commons and the House of Lords before they can be incorporated into the Bill.