We last addressed the topic of legislative action in the wake of the combustible cladding scandal following the 2017 Grenfell Tower fire at the beginning of 2021. At that stage, the steps taken by the government to ameliorate the predicament of flat owners in affected blocks included the introduction of a £1bn Building Safety Fund to support remediation of certain types of unsafe cladding on residential buildings over 18m high.
In July 2020, the government published a draft Building Safety Bill, which provided for the implication into residential leases of covenants by the landlord to comply with building safety measures, the cost of compliance with which was intended to be met by the tenants. We commented then that it would be some time before any legislative solution arrived – even if it was one that was attractive to flat owners.
The Building Safety Act 2022
Things have moved on dramatically. The Building Safety Act 2022 received royal assent in April this year – but its provisions go some considerable distance beyond those measures envisaged last year. Other writers on this topic will have focused on different provisions (such as terms concerning building safety costs that are to be implied into leases, and new restrictions governing the recoverability of costs, among other new aspects of the service charge regime), but we would like to single out one startlingly original (and, some might say, draconian) device the legislators have used to induce developers to contribute to the pot.
As to the pot itself, section 124 of the Act entitles the First-tier Tribunal to make a “remediation contribution order” against a landlord or developer of a relevant building (a building containing at least two dwellings, at least 11m high, or with at least five storeys), or any “person associated with” the landlord or developer. By this means, the government hopes adequate funding will be released for the requisite remedial fire safety works.
But there is much more than this. In April this year, the secretary of state for the Department for Levelling Up, Housing and Communities wrote to members of the housebuilding industry “inviting” them to sign a pledge to remedy fire safety defects in all buildings over 11m high that they had played a role in developing in the past 30 years; to contribute substantially to the cost; and to agree with the principle that leaseholders should not have to pay for any costs associated with life-critical fire-safety remediation work arising from the design, construction or refurbishment of residential buildings of 11m and above.
More than 35 of the UK’s biggest homebuilders responded positively and promptly. For those that did not, the secretary of state warned, in a press release put out by his department, “those who continue to refuse will face consequences if they fail to do so”. The sting for those that do not co-operate lies in the scheme set out in sections 125 to 129 of the new Act. These provisions are likely, if the department enforces its invitation, to have a dramatic effect on residential developers of higher-rise premises.
The Building Industry Scheme
The scheme works in this way. First, section 126 of the Act gives the secretary of state the power to make regulations to establish a building industry scheme to secure the safety of people in relation to risks arising from buildings and to improve the standards of buildings. Second, the same regulations must prescribe those persons in the building industry who may be entitled to be members of the scheme. In effect, although this is not explicit, members of the scheme will comprise those developers who have signed up to the pledge, since their eligibility is to be assessed by reference to “their conduct in relation to remedying defects in buildings or contributing to costs associated with remedying defects in buildings”. And third (and here is the sting), section 128 empowers the secretary of state by regulation to prohibit those who are not members of the scheme from carrying out development of land in England, even if planning permission for such a development has already been granted – while section 129 has the same effect in relation to building control approval and the giving of a final certificate in relation to works carried out by the developer.
How will this play out?
None of these provisions are yet in force – but the fact they may be shortly will no doubt be a spur for most remaining developers who have not yet signed the pledge. To see how this might work in practice, let us suppose that a non-pledge developer has the benefit of a long-standing (and pre-Act) development agreement, under which it is entitled to exercise an option to acquire land for residential development and then develop and sell the plots, paying an overage element to the vendor. Once the Act is fully in force, and the necessary regulations have been made by the secretary of state, the developer will be quite unable to proceed (let alone secure the requisite finance) because of the risk of a prohibition being applied to it. This may well have considerable ramifications for its development obligations under the agreement, quite apart from the obvious impact on its business of not being able to progress its plans.
Further, it might well be that a restriction on the development of pre-acquired development sites, and a sterilisation of at least part of the business of a non-pledge developer, will excite the interest of public law. The intervention by the Act also seems, at least on its face, to involve consideration of the European Convention on Human Rights. This is not just in relation to the Act itself but also to any decisions made under it, which are doubtless decisions of a public authority. Convention complaints could be raised both as to the process adopted (such executive decisions would certainly involve some consideration of Article 6) and also questions of substance (eg Article 1 of the First Protocol, given that the exercise of powers under the Act will result in at least a “control of use” of the land acquired within the meaning of that provision, but also any interference with the developer’s business itself; that would require justification in each case).
There is much else besides, which will affect not merely developers, but also those managing residential property. The Act is long and complex, with provisions tied into amendments to the Building Act 1984 and the Landlord and Tenant Act 1985. The government’s aim, set out in the pledge letter, to ensure that all buildings over 11m will be “made safe from life-critical fire safety defects as quickly as reasonably possible”, and without cost to affected leaseholders, seems well on the way to being realised.
Guy Fetherstonhaugh KC, Oliver Radley-Gardner KC and Paul Letman are members of Falcon Chambers
