Building Safety Act 2022

Building Safety Act 2022

The Building Safety Act 2022 introduced a number of new measures in relation to building safety, affecting buildings of 11m (or 5 storeys) and more – now known as “relevant buildings”. The UK Finance Mortgage Lenders Handbook part 1, as well as a number of individual lenders’ part 2s have been updated as a result and conveyancers need to make sure the are familiar with the new rules.

What is a “relevant building”?

S117 of the Act defines a relevant building, i.e. one to which the act relates, as any self contained building containing at lease two dwellings which is either 11m or 5 storeys high (or higher). This however excludes tenant owned buildings including where the tenants have exercised the right to collective enfranchisement or else have acquired the freehold in exercise of powers contained in parts 1 or 3 of the Landlord and Tenant Act 1987.

Removal of Cladding

Any combustible cladding on relevant buildings will ned to be removed. The Government has created a Building Safety Fund which will pay for the removal of combustible cladding on buildings which are 7 or more storeys (or 18 or more metres) in height. For 5 and 6 storey buildings, the original developer is obliged to bear the cost and if the developer is no longer in existence then another Government fund is available. If the building less than 5 storeys high cladding removal is not compulsory. Where there is cladding which needs to be removed a conveyancer acting for a purchaser (and/or a lender) should ask for evidence that a remediation plan is in existence together with written evidence from either the Government or the developer that they will be bearing the cost. In no circumstances should it fall upon the leaseholders to pay. 

Non-Cladding Related Fire Safety Works

As well as cladding removal, other remedial works may be required which are related to fire safety. Such works will not be Government funded. The starting point is that the developer should be responsible for the cost. Where the developer cannot be found it will fall on the landlord but only if it has a net worth of £2,000,000 or more multiplied by the number affected buildings it owns. This will be confirmed by the "landlord certificate" that the landlord must produce according to the Building Safety Act 2022. If the landlord's net worth is below £2,000,000 per affected building, it will fall on the leaseholders to bear the cost, subject to certain caps. The conveyancer will need to ascertain whether any remediation works are pending, who will be paying for them and whether a cap applies. 

Leaseholder Deed of Certificate

A "Leaseholder Deed of Certificate" contains prescribed information which is necessary to establish whether the lease is a qualifying lease and if so, at what level the leaseholder's liability to contribute to works to remedy safety defects is capped. The relevant leaseholder is the leaseholder as at 14th February 2022 (and the lease must already be in existence on that date).  

It must be completed and signed by whomever was the lessee on 14^th February 2022, and passed on to subsequent owners.

The prescribed form of Leaseholder Deed of Certificate can be downloaded from gov.uk.

Protection for Qualifying Leaseholders

In order for a lease to be a qualifying lease it must comply with s119 of the Building Safety Act 2022 which is to say that:

• it is a long lease of a single dwelling;
• the tenant is liable under the lease to pay service charge;
• the lease was granted before 14th February 2022; 
• the dwelling was (as at 14th February 2022) the tenant's only or principal home, or else the tenant (again, as at 14th February 2022) owned no more than 2 other dwellings in the United Kingdom

For the purpose of this legislation (in contrast for example to SDLT legislation) a person owns a dwelling if he/she owns the freehold or long leasehold legal estates, regardless of beneficial ownership. Remember, it is the tenant as at 14th February 2022 that counts, which might not be the current seller (and the status of the buyer is irrelevant). Where a lease is a qualifying lease, the liability of the tenant (including any future tenant) for the cost of complying with a remediation order is capped as follows: 

… and is payable over a minimum period of 10 years, at no more than 10% per year. The relevant value is the value as at 14th February 2022 and is determined as follows: 

• where the property has been transferred for full market value between 1st January 2021 and 14th February 2022 that is the relevant value; or
• if the last disposal was before 1st January 2021 the price paid multiplied by the multiplier for the year of the sale as set out in Schedule 2 of The Building Safety (Leaseholder Protections) (England) Regulations 2022

A conveyancer for a purchaser or lender should verify, as far as possible, the information contained in the leaseholder deed of certificate including the value, the identity of the relevant leaseholder and according to some lenders, the number of properties that the leaseholder claims to have owned at the time. This presents some practical difficulties: 

• the way to establish what properties a person owns is to carry out a search of the index of proprietors names at Land Registry, for which the signed authority of the individual or entity may be required. This is ok if the relevant leaseholder is the current proprietor but problematic otherwise;
• the search would only reveal properties in England and Wales, not Scotland and Norther Ireland (but Scottish and Northern Irish properties count toward the quota);
• there is no way to differentiate between different proprietors who share a name - so a search against a common name will reveal a great number of entries with no way of knowing which belong to the relevant leaseholder and which do not;
• it will not reveal unregistered properties

The conveyancer should report to both the lender and buyer clients in respect of the following: 

• Whether a remediation order has been made;
• Whether a remediation contribution order has been made and if so, who is obliged to contribute and the amount they must contribute;
• Whether the landlord is responsible, according to the landlord certificate, for a relevant defect (see below) and if so, the details;
• Whether the lease is a qualifying lease and if so, the applicable contribution cap
• Where you are unable to independently verify any information in the landlord certificate or leaseholder deed of certificate, what you are unable to verify and why 

Landlord Certificate

The purpose of the Landlord Certificate is for the landlord to provide information and documentary evidence as to its net worth (including the net worth of any group company) and whether it is responsible for any "relevant defect" that has been identified, for example because it was the original developer or because it commissioned work that led to the creation of a defect. It should also detail any works carried out in respect of relevant defects. The relevant landlord is the landlord as at 14th February 2022. If the landlord has since changed then the current landlord must provide the certificate but the information as to net worth and responsibility for defects should relate to the landlord as at 14th February 2022. The landlord's net worth is calculated by looking at the last audited accounts prepared prior to 14 February 2022 and deducting total liabilities and total intangible assets from total assets. This is then divided by the number of affected buildings the landlord owns. If the result is £2,000,000 or more, the landlord is solely responsible for the cost of complying with a remediation order (less any costs that the developer has been ordered to pay). Otherwise the liability may fall on the leaseholders (subject to the caps applicable to qualifying leaseholders). The landlord has 4 weeks to produce the certificate from it being requested by a leaseholder or from it being notified that the flat is to be sold. Conveyancers should bear this in mind when raising enquiries and should verify, as far as you are able, that the information provided in the landlord certificate (but not the information as to net worth or works carried out) is accurate. 

Download a landlord certificate here.

Fire Safety Risk Assessments

The Fire Safety Act 2021 (paragraph 1) confirmed that the Regulatory Reform (Fire Safety) Order 2005 includes in its scope any building containing two or more residential dwellings, and that any fire safety risk assessment must consider:

• the structure, external walls and common parts;
• all doors between the domestic premises and common parts;
• windows and external doors; and
• anything attached to the exterior (including balconies)

This is important, because whether or not the building has shared stairways, hallways etc it still has walls, windows and doors - so an assessment is still required as long as those parts are not demised under a lease. If the building is 5 storeys or more in height there must be quarterly checks on the fire doors and annual checks on the flat entrance doors. The assessment must be carried out by a "competent person". There is no specific qualification that person must have but they must have "sufficient training and experience or knowledge and other qualities", so that in most cases the landlord will not be competent and will need to employ a contractor. Failure to carry out an assessment is an offence and the responsible person (usually the landlord) risks prosecution if it isn't done. It should be borne in mind that when a buyer takes a share of the freehold, whether by way of shares in a management company or directly, and a necessary assessment has not been carried out, he automatically becomes criminally liable.  It is likely that where a suitable assessment has not been carried out, or any recommendations have not been complied with and there is a fire, the buildings insurer will cite that as justification for refusing to pay a claim. There is no "expiry date" on an assessment as such and instead a risk based approach is required. A new assessment may be needed if there is a change in circumstances, such as a significant increase in occupancy, a fire, building works or perhaps a change in regulations. A risk assessment will still be required in respect of newbuild properties which were signed off for building regulations by an approved inspector (such as NHBC).  When dealing with any flat where any part of the building is not demised to a particular flat a conveyancer should:

• request a copy of the fire safety risk assessment;
• check that the person or company that carried it out is, as far as you can see, "competent";
• check if any essential/urgent remediation works are required;
• check if the essential/urgent works have been done and if not, when then they will be done and the anticipated cost to the leaseholder;
• ask whether a re-assessment is planned and if so when and what is the anticipated cost;
• where applicable ask for evidence of thr quarterly fire door checks and annual entrance door checks

.... and report the responses to the borrower and lender clients.

High Risk Residential Buildings 

A "higher risk residential building" is defined in s65 Building Safety Act 2022 as a building in England that is at least 18 metres (or 7 storeys) high and contains at least 2 dwellings. Such a building must have an accountable person, who owns or is responsible under the terms of the lease for the common parts, so it will usually be the landlord or management company. The accountable person must keep records and produce reports, including reports of any fire safety and structural problems, to the newly created Building Safety Regulator. A residents panel must be created and the accountable person must listen to (and presumably act upon) health and safety complaints. Under the Fire Safety (England) Regulations 2022 (which came into effect on 23rd January 2023) the accountable person must: 

• Share electronically with the fire and rescue services details of external wall systems, floor plan and building plan;
• Keep hard copies of the floor plan and details of the responsible person in a secure information box;
• Have low visibility wayfinding signage;
• Inform the fire and rescue service if any fire fighting equipment is out of action for at least 24 hours

The accountable person will be entitled to access individual flats on giving 48 hours' notice in order to comply with its obligations and this should be reported to the buyer client and should the fact that it will be an offence to remove or disturb any fire safety item.  Higher risk residential dwellings must be registered with the Building Safety Regulator. There will of course be an additional cost associated with compliance with the new rules.  When acting on a higher risk residential dwelling a conveyancer should: 

• ascertain who the accountable person is, whether a residents panel has been created and how a resident can apply to join the panel;
• Check whether the obligations under the Fire Safety (England) Regulations 2022 have been complied with;
• If they have, check whether the cost of the same has already been billed to the service charge account and if not, when will it be billed and how much will it be
• If they have not, check when they will be complied with and what the anticipated cost is;
• ask for details of any health and safety concerns raised by the residents panel;
• ask for details of any fire safety or structural concerns identified by the accountable person;
• ask for evidence of the registration of the building with the Building Safety Regulator (if applicable)

... and report to your buyer and lender client accordingly.

 Lender Handbook Requirements

Section 5.14.17 of the UK Finance Mortgage Lender’s Handbook deals with the requirements under the Building Safety Act. As a minimum the lender’s conveyancer must:

• Obtain confirmation as to whether the building has been, or will be, remediated under the Building Safety Act;
• Obtain a copy of the Landlord’s Certificate;
• Obtain a copy of the Leaseholder Deed of Certificate; and
• Check that the Leaseholder deed of certificate has been provided to the landlord.

In addition many lenders have specific requirements, which are contained in points 5.14.17 a, b and c of the lender’s part 2 instructions and cover such things as advising the lender where the leaseholder is not a qualifying leaseholder and of any remediation costs that are payable or are anticipated.

Commentary

From a leaseholder’s point of view, the provisions that take away responsibility for cladding remediation will be a welcome relief. As for non-cladding works, a well managed building should not see any major increase in service charge costs as these works should already be carried out routinely, though again the caps will help some tenants.

There appear to be some issues though:

• What doesn’t seem to be addressed in the Act, and what is likely to case problems for landlords and tenants alike, is what happens where there is a shortfall between what a landlord (one that is not high net worth) can recover from the tenants, where some leases in the block and qualifying leases, and the actual cost of the work. If a remediation order is served it must be complied with, but neither the landlord not the tenants are liable to cover the full cost. Who will pay? And what are the consequences if no one pays, so that the work is not carried out?
• Tenant owned blocks are exempt, so cannot be subject to a remediation order. Surely the obvious answer is for developers to set up tenant owned management companies and transfer the freehold once the block is completed. Are the tenants thus doomed to live in dangerous properties?
• In practice, lack of leaseholder deeds of certificate (which if not obtained from the first seller after 14/2/2022 or not retained will be difficult or impossible to replace) is likely to cause issues with mortgagees, who demand that they are produced. The act contains no provisions for missing certificates.