Building Safety Act 2022: implications for leaseholders and the cost of making buildings safe

The Building Safety Act 2022 (“BSA”) has had a particular impact for landlords and tenants in relation to who will be responsible for funding the required remediation projects for existing fire safety defects and also in relation to how building safety will be managed going forward and how the costs of that will be recovered. For a broader overview of the BSA, please see our earlier Law-Now here.

Funding remediation projects for existing defects

The provisions relating to the remediation of existing fire safety defects came into force on 28 June 2022 and relate to all buildings that are at least 11 metres or 5 storeys tall. Landlords are absolutely prohibited from seeking to recover the costs of cladding remediation as a service charge and there will now only be very limited circumstances in which landlords can seek to recover the costs of remediating non-cladding related fire safety defects from leaseholders. Even in circumstances where landlords can seek to recover the costs, they will be capped.

In each case, building owners will need to take steps to deal with unsafe cladding as soon as possible and, in relation to other fire safety defects, will need to carefully consider what the defect is, how it has arisen and whether it causes a building safety risk i.e. ‘a risk to the safety of people in or about the building arising from (a) the spread of fire, or (b) the collapse of the building or any part of it’.

Leaseholder protections: letter to building owners - GOV.UK (www.gov.uk), Michael Gove’s most recent letter to freeholders, building landlords and managing agents (issued on 27 June 2022) made it clear that building owners must take responsibility for remediating unsafe buildings and that any parties who continue to seek to recover costs from leaseholders in relation to historic defects, will be committing a criminal offence.

The letter also confirmed that the Building Safety Fund will shortly be re-opening for applications. Therefore, building owners/landlords who have not yet applied for funding should be ready to do so as soon as that happens. Landlords will be expected to take reasonable steps to obtain funding and ascertain whether any third parties (e.g. developers, manufacturers, contractors) can be pursued for the defects (or risk tenants going to the Tribunal to seek an order that any remediation costs incurred are not service charge recoverable).

Government has also published the following guidance on the protections for leaseholders as a result of the BSA: Leaseholder protections on building safety costs in England: frequently asked questions - GOV.UK (www.gov.uk). The draft ‘Building Safety (Leaseholder Protections) (Information etc.) (England) Regulations 2022’ are also currently working their way through Parliament.

Management of building safety in higher-risk buildings

Whilst the initial focus of the BSA in a property context is the remediation of historic defects, the BSA also contains a variety of provisions (mostly amending existing legislation) which will have an impact on landlords and tenants and the recovery of the costs of managing building safety going forward. These provisions (currently) relate to higher-risk buildings only i.e. those buildings in England that are at least 18 metres or 7 storeys high and contain at least 2 residential units* and it is anticipated they will come into force in 12-18 months’ time.

*Government recently launched a consultation on the definition of higher-risk buildings, which will be completed by the proposed secondary legislation ‘Higher Risk Buildings (Descriptions and Supplementary Provisions) Regulations’. The consultation closes on 21 July 2022.

Accountable person

The BSA introduces the concept of an ‘accountable person’ in relation to higher-risk buildings. The accountable person will usually be the person who holds the legal estate in possession in any part of the common parts unless another party is responsible for the repair of those parts (who will then be the accountable person). The common parts include the structure and exterior of the building and any part of the building provided for the use, benefit and enjoyment of the residents of more than one residential unit. Therefore, it is likely that in many leasehold structures, there will be more than one accountable person (for example, where responsibility for the structure/exterior remains with the freeholder and a long lease of the residential parts, including areas used in common, is let to a management company).

The accountable person has a number of duties and obligations under the BSA. However, of particular interest in a leasehold context are the duties relating to the assessment and management of building safety risks which are contained in the BSA. A “building safety risk” in relation to a higher-risk building means a ‘risk to the safety of people in or about a building arising from any of the following occurring as regards the building (a) the spread of fire (b) structural failure or (c) any other prescribed matters’. Our Health & Safety team will shortly be publishing a LawNow which provides further detail on these duties.

In addition, in order to facilitate the performance of the accountable person’s duties and/or determine whether a resident has breached their obligations, the accountable person may make a written request for access to any premises controlled by a residential occupier/owner (e.g. an individual flat) at a reasonable time on at least 48 hours’ prior notice. The notice must set out the purpose for which it is made and why it is necessary to enter the premises in question for that purpose.

Implied terms on building safety

All leases which consist of or include a dwelling in a higher-risk building will also include the following implied terms:

• For landlords, where they are the accountable person, to comply with their building safety duties and, where someone else is the accountable person, to cooperate with them in relation to compliance with their building safety duties. The ‘building safety duties’ are the duties of the accountable person pursuant to the BSA.
• For tenants, covenants requiring them to (i) allow the landlord or other accountable person (or person authorised on their behalf) to enter the premises to inspect or carry out works in connection with compliance with their building safety duties; and (ii) comply with their obligations under the BSA.

Service charges for building safety

The first draft of the BSA proposed that a separate building safety charge would be payable in addition to the conventional service charge. However, this did not make the final version. Instead, the BSA states that leases of premises in a higher risk building (of 7 years or more under which the tenant is liable to pay a service charge) will have effect ‘as if the matters for which the service charge is payable under the lease included the taking of building safety measures by or on behalf of a relevant person (insofar as this would not otherwise be the case’.

The ‘building safety measures’ include (amongst others) assessing building safety risks in accordance with the accountable person’ duties under the BSA, taking reasonable steps to manage building safety risks (other than steps involving the carrying out of works) and making a request to enter premises. For these purposes, legal and other professional fees, fees payable to the regulator and management costs incurred in connection with the relevant measure, will be regarded as incurred in taking that measure. This is an area where we can see that disputes may well arise, for example due to the potentially wide interpretation that may be given to ‘management costs. However, landlords and tenants will not be permitted to contract out or limit these obligations and any agreement that seeks to do so will be void.

In the same way that certain prescribed information must already be included on residential service charge demands, or the sums will not be due until that information is given, any written demand given to a tenant of a higher-risk building will also be required to contain ‘relevant building safety information’ and will not be considered due from the tenant until that information is given. It would therefore be sensible for landlords to start turning their attention to producing this and updating their demands now so that once this section comes into force, their demands are fully compliant.

For more information, further assistance and/or specific advice, please contact one of our key contacts listed in this publication.