The Building Safety Act 2022 has generated much speculation on its breadth of application and legal effect.
The professed intention of the Act was to introduce radical reforms aimed at giving residents and homeowners more rights, powers and protections on fundamental safety matters affecting their buildings.
This includes protecting qualifying leaseholders from the costs associated with remediating historical building safety defects while providing a mechanism for those responsible for such defects to be held to account. However, as the real estate sector seeks to get to grips with the new legislation, there is a widespread uncertainty as to what steps need to be taken by landlords and tenants alike, particularly when determining how and when a landlord may recover the costs from leaseholders as part of their service charge, or whether they must simply foot this bill.
Leaseholder protections that landlords must consider
If remediation work is required to rectify a “relevant defect”, a landlord must be aware of the leaseholder protections included in Part 5 and Schedule 8 of the Act. These protections apply where a “relevant building”, as defined in section 117 of the Act, is found to have “relevant defects”. Such relevant defects are defined in section 120 as being a defect relating to building safety, which arose as a result of work relating to the construction or conversion of the building, or work that was commissioned by or on behalf of the landlord.
Where it has been identified that these defects are present and the landlord might otherwise have sought to pass the costs of remediation onto the leaseholders through the service charge, the protective measures in the Act apply. These either shelter the leaseholder from having to contribute anything to the remediation works or cap their contribution to a maximum of £10,000 (£15,000 in Greater London). It is crucial to note that any works in relation to rectifying any defect to the cladding of the building is not recoverable, regardless of whether or not the lease and leaseholder are qualifying.
If a flat owner holds a qualifying lease in a relevant building, they are able to serve a deed of certificate on their landlord, which confirms the lease is protected. To be deemed qualifying, the lease must have been granted before 14 February 2022, be a long lease (over 21 years) and a service charge must be payable. To be a “relevant tenant”, under section 119 of the Act, the leaseholder must have owned the property prior to 14 February 2022, it must be their only or principal home and they cannot own more than two other dwellings in the United Kingdom.
A landlord must serve a landlord certificate within four weeks of being made aware of a sale of the property. A tenant may serve a deed of certificate at any time to confirm their status as a qualifying leaseholder and often this will correspond with their intention to sell, however this is not always the case.
What is a landlord certificate?
A landlord certificate is a document which confirms whether the relevant landlord (the landlord on 14 February 2022):
- Has a total net worth of over £2m times the number of relevant buildings (the “net worth test”); and
- Was (or an associated company was) responsible for relevant defects (the “developer test”).
These points are critical because landlords of “qualifying leases” cannot claim back through the service charge those costs incurred to rectify relevant defects where they have met the net worth test. Landlords also cannot recover those costs through service charges from leaseholders (whether they are qualifying or not) where the relevant landlord (or an associated company) has met the developer test.
If a landlord fails to provide any response to a deed of certificate, per paragraph 6(7) of The Building Safety (Leaseholder Protections) (England) Regulations 2022, they are deemed to have met the developer test and will never be able to recover any rectification costs.
Is a previously qualifying lease still qualifying if it is extended?
What it is not clear is what happens if an otherwise qualifying lease is extended under the Leasehold Reform, Housing and Urban Development Act 1993. Is a previously qualifying lease, which meets all of the above criteria, still qualifying if the lease extension completes after 14 February 2022?
In short – no. The 1993 Act works by issuing a new lease in substitution for the existing lease, thereby replacing the latter altogether.
As the new lease will not have been granted before 14 February 2022, the statutory leaseholder protections in the 2022 Act will not apply; often despite the fact that some leaseholders may have owned the lease since it was granted.
Pressure is being applied to the government to legislate for this apparent defect. Popular opinion is that this cannot be an intended consequence of the 2022 Act which, as a whole, leans towards protecting the interests of leaseholders.
The government has acknowledged a simple amendment to the legislation is required to make it clear that statutory and other renewals of leases will not lose qualifying leaseholder protection.
New draft regulations have recently been published which provide more clarity on the application of the 2022 Act. These are not yet in force and do not appear to deal with the issue surrounding lease extensions. As and when these come into effect, we will provide a more in-depth review of their application.
Government guidance
While rectification of this clearly defective drafting is awaited, it is the current guidance that a provision acknowledging that the new lease is an extension of the existing lease, which is qualifying for the purposes of sections 117-125 and Schedule 8 of the 2022 Act, should be included in all section 42 claims.
Landlords are being encouraged to accept the inclusion of this clause and, where it is refused, leaseholders are advised to report their landlord to the Department for Levelling Up, Housing and Communities. The enforceability of these kinds of clauses is yet to be tested, but until the requisite amendments are enacted, we will need to leave this in the hands of the tribunals.
Erin Stephenson is an associate at Cripps
