UK Building Safety Act 2022: What's in store for real estate?

The Act introduces a more stringent regulatory framework for the design and construction of certain high-rise residential buildings, care homes and hospitals.  For building owners and occupiers of certain new and existing high-rise residential buildings it also establishes new legal duties to keep those buildings safe during occupation.

For owners and occupiers of these high-rise buildings, there are some key points to be aware of.  

The “accountable person”

“Higher-risk buildings”, which are residential buildings over 18 metres, or more than 7 storeys, must have an “accountable person” who is the duty holder with overall responsibility for building safety.  

The accountable person’s responsibilities include: compliance with reporting requirements; carrying out assessments of fire and structural safety risks; preparing and keeping under review a “Residents’ Engagement Strategy”; providing residents with relevant safety information about the building; keeping and updating prescribed information about the building; and taking all reasonable steps to prevent a major incident occurring due to a building safety risk.

The accountable person should be the person who owns or is responsible for the repair of the common parts of the building (including the structure and the exterior). Generally, we expect this to be the freeholder or long leaseholder of the building as a whole.

Service charge

The Act allows landlords of higher-risk buildings to charge the cost of relevant “building safety measures” to leaseholders with leases longer than 7 years.  The building safety measures which can be charged back include: registering higher-risk buildings with the regulator; assessing building safety risks and taking reasonable steps to manage those risks; keeping and circulating documents relating to compliance with the Act; and serving contravention notices on residents.  If works are needed to meet safety requirements, the cost can be passed on to leaseholders, if their lease permits it.

There are a number of “excluded costs” defined by the Act, which the landlord cannot pass on to leaseholders.  Importantly, these include penalties imposed by the regulator and costs incurred through negligence, breach of contract or an unlawful act by the landlord.

There has been much debate about whether it is fair to pass on building safety costs to leaseholders, and the government has tried to reach a balance.  In reality, many building owners will already be carrying out risk assessments and management, and engaging with residents. The government is of the view that some of the costs that will now be charged under the Act are already being incurred and charged.

Cost of remedying historic defects 

In February this year the Housing Secretary, Michael Gove, made it clear that he expects those responsible for the construction of defective buildings to bear the associated remediation costs.  The Act gives the courts the power to issue a remediation order, requiring a landlord to remedy relevant defects within a prescribed period.  Concern was expressed both inside and outside of Parliament as to the extent to which the cost of this remediation will be passed down to leaseholders.  The final wording of the Act includes protections for leaseholders in buildings over 11 metres or 5 storeys, and which contain at least two dwellings:

a.    if the building owner is (or is linked to) the developer of the relevant building, or the landlord group's net worth is at least £2 million per affected building that they own, there will be no ability to pass on the cost of remediation to leaseholders; 

b.    the maximum service charge contribution of a leaseholder for a remediation cost will be £10,000 (and £15,000 in Greater London); and

c.    leaseholders of lower value flats will not be required to contribute.

That means that leaseholders of buildings less than 11 metres may still be called upon to pay remediation costs, a point that was strongly contested by the House of Lords.  The government considers it less likely that extensive remediation works will be required for these buildings.

The protections do not apply to leaseholders who have exercised statutory rights of first refusal or collective enfranchisement, nor do they apply to commonhold land.  The government has said that a consultation will be set up to review this position, to see whether protections can be given to leaseholders in these scenarios.

What next?

Parts of the Act are expected to come into force immediately, others within two months of the date of Royal Assent, but the majority of provisions are likely to come into force at a later date.  We await the publication of secondary legislation and further timelines but building owners should use this time to prepare for the changes that are about to come into force.

Authored by Stella Bliss.