Increased burdens for residential developers

The Building Safety Act 2022 (BSA), which received Royal Assent on 28 April this year, introduced measures that place additional burdens on residential developers. The Act aims not to make life more difficult for developers, but to make dwellings safer, provide more redress for defective properties and raise funds for remedial work. Changes will be made over the next couple of years, with the first implemented on 28 June 2022; some apply only to ‘higher-risk buildings’ while others apply to all dwellings.

In this article, I will take a brief look at eight of the changes.

The golden thread of information

This aims to ensure that sufficient and accurate information is kept about how a building was constructed, including risk assessments, safety arrangements and how the property should be, and is, maintained from a safety point of view. The information will start to be gathered before the planning process stage and will continue to include details on how a property is maintained once occupied. At present, this is intended to apply only to higher-risk buildings. It has been suggested that building information modelling will assist in producing the ‘golden thread of information’ but this is unlikely to be sufficient and what is required will be considerably more detailed than the operation and maintenance manuals currently used. Developers would be wise to collate such information already, even though the relevant regulations have not yet been passed.

New-build home warranties

You may be surprised to hear that these are not already a legal requirement, as almost all new-build properties do, in fact, have them. The most familiar is the NHBC Warranty. The changes mean that such warranties will now be statutory and all new-build residential properties will be required to have one. Warranties will need to last for 15 years rather than the current norm of ten, which means that developers will need to factor in the cost of the additional warranty period. Penalties can be imposed for developers who do not comply.

New homes ombudsman

The BSA will lead to the creation of a new homes ombudsman. This will provide a forum for purchasers of new homes where they can seek redress from developers and builders if properties are defective, although it is likely to take 12-18 months before the scheme is in place and, as yet, it is not clear which classes of developers will be obliged to join it. The scheme is also likely to set up a code of conduct and minimum standards of construction. Developers will need to have set procedures to deal with complaints that are made to the ombudsman and this too is likely to be an additional cost for the developer. 

Building Liability Orders

Many developers try to protect their business by using special purpose vehicles (SPVs) – i.e. companies or limited liability partnerships that have no assets apart from the specific development. What happens is that once the development is complete the ‘special purpose’ company returns any profit to the parent company and then is wound up. The SPV is left with no assets and therefore cannot pay any future liabilities. Building Liability Orders will allow the liabilities (the SPV) to be passed to its associates – in legal terminology this is known as making the associates ‘jointly and severally liable’. This would include parent companies and group companies where both are controlled by a third party. Dissolving the original SPV will not prevent such orders being made and associated companies could be forced to pay for the cost of any remedial work for that specific development.

Remediation Contribution Orders

These are similar to Building Liability Orders. They apply to associated entities of a landlord and will oblige them to make a contribution to the cost of rectifying defects that cause a building safety risk, i.e. the spread of fire or collapse of a building. These orders will prevent a developer from being able to avoid liability simply by using an SPV as a landlord for a building.

Building safety levy

This levy will be applied to development of certain high-risk buildings and will be applied when construction works commence. If the developer does not pay the levy, the gateway two application will not be approved and construction cannot start. The levy, when introduced, could be extended to any residential or mixed-use buildings. Developers will have to take into account this additional cost when calculating the feasibility of their project. It is intended that funds from the levy be used to pay for remediation of ‘orphan’ buildings – in other words, buildings where there is no longer a developer available to take responsibility for repairs.

Residential property developer tax

This newly introduced tax became payable from 1 April 2022 on profits exceeding £25 million. It will, therefore, only affect large development companies. The tax is charged at 4% and only applies to profits arising from residential property development. 

Blocking developers from the housing market

The government wanted a fund to be set up that would cover the costs for remedial works to buildings between 11 and 18 metres in height. After negotiations with various developers, a large number signed the Building Safety Pledge, committing them to repairing buildings that they had developed or refurbished over the last 30 years. However, not all developers signed up. Under the BSA, those who refuse to sign up to this, or a similar scheme, can be denied planning consent or Building Regulation approval. Obviously, if a developer cannot obtain these fundamental permissions it will not be able to carry out development and will, in effect, be excluded from the housing market. Developers must therefore consider signing up to the Pledge and making provision for the cost of any remedial work that may be required.