Operators in the built environment (and particularly those involved in building or managing tall buildings) are facing strong headwinds.
Costs are increasing, labour is decreasing, a new regulator is imposing demands at “gateway” stages from planning through to occupation; large developers are required to pay a residential property developer tax to help reimburse the government’s expenditure on building safety, and, very soon, those constructing residential buildings will also pay a levy on that development (subject to certain exemptions applying). Furthermore, The Building Safety Act 2022 (“BSA”) expands liability for defects under The Building Act 1984 (“BA”) and The Defective Premises Act 1972 (“DPA”), and prevents “associates” from divesting that liability through corporate structures.
Those who did not sign a Deed of Bilateral Contract “the Remediation Contract” with the government by 13 March 2023 are told they will be excluded from the market altogether.
The Responsible Actor Scheme appears (from recent publications) likely to expand to others in the market very soon.
Can they do that?
In short, yes, the government granted itself powers under Sections 126 – 129 of the BSA to establish a scheme – the Responsible Actor’s Scheme – to secure life safety / improve standards. Membership of the scheme will be dependent on promising to remediate certain buildings via the Remediation Contract. The Secretary of State will, by regulations to be published in or around April 2023, “prohibit a person of a prescribed description from carrying out development of land in England”. Those of a “prescribed description” will be those not signing the Remediation Contract. The prohibition will take effect “despite planning permission (or any prescribed description of planning permission) having been granted” and will stop further applications being granted. Where spades are in the ground construction can effectively be stopped via a refusal to give building control sign off.
In reality most of the 49 developers who have signed the government’s pledge, and who will be required to enter into the Remediation Contract, are either already remediating relevant buildings or will do so in short order. However, the terms of the Remediation Contract are onerous and there is a very tight timetable to agree terms. Further it is not clear whether the Responsible Actor’s Scheme will extend beyond the current 49 developers. It is perfectly possible that developments going through planning or nearing completion will be affected in the short to medium term, whilst issues connected to the Remediation Contract are resolved. That may put developers at risk of breaching the terms of other agreements (such as Contracts for Sale) – and where liability will fall for those breaches will be determined case by case.
What has to be fixed?
There will, inevitably, be a debate about the line between liabilities under the Remediation Contract – life critical fire safety defects – and liability elsewhere. It is not clear, for example, whether a life critical fire safety defect is the same or different to:-
- a “building safety risk” as defined by Section 62 of the BSA;
- the criminal and civil liability under the BA for failing to build in accordance with The Building Regulations; and
- the liability under the DPA, where you must establish that a defect renders a dwelling unfit for habitation.
All of these statutory duties will themselves be different to contractual liability. If the developer has contracted with the government to remediate life critical fire safety defects must it also remediate and pay for things that are not in accordance with the contract and / or consequential losses associated with contractual breach, even though this may be excluded from the Remediation Contract? The position is unclear.
The uncertainty is further exacerbated because the claims made pursuant to new liabilities in the BSA (Remediation Orders, Remediation Contribution Orders, Building Liability Orders etc.) may be run in parallel to the Remediation Contract. This may give rise to different authorities reaching different decisions about the same or similar buildings.
What about government responsibility?
Michael Gove MP has now admitted that the system of regulation was faulty and ambiguous.
The government would no doubt say that it has appropriately compensated those who have suffered as a result of that faulty and ambiguous system by way of the various building safety funds; however, the Remediation Contract requires participating developers to use reasonable endeavours to identify, remediate and / or pay back the cost of remediating any “Building Requiring Works”, holding the government harmless. Many of the same developers will also pay back via specific residential development taxations / levies. How much will be left on the government balance sheet is therefore unclear.
Is this likely to open up a legal challenge on the basis that it is not fair, just and reasonable for developer to bear so much of the cost?
It is unlikely that anyone can challenge the burden on industry on the basis that the above is “unfair” – although the Government is considering the cumulative impact on developers of these various levies, including other development levies such as the Community Infrastructure Levy.
Given the funds of government are drawn from general taxation and it may well be “fair” that taxpayers do not bear the cost of defects, regardless of any government default.
Further, it may also be legally difficult to challenge the government’s approach. The obvious way to challenge is via judicial review. The fundamental purpose of judicial review is to determine whether public authorities are acting in accordance with the laws made by parliament; however, Parliament approved the BSA and arguably the government is operating within the BSA’s scope.