Developers face footing the bill for building safety remedial works under government proposals

The Department for Levelling Up, Housing & Communities (the DLUHC) has now set out its plan to legally force residential property developers to contribute to cladding remediation costs and provide greater protection to leaseholders.

In the Housing Secretary’s letter of 10 January 2022, the government laid out its demands on the construction industry to fix the cladding crisis and to ‘front’ the £4bn remediation bill. The intended plan includes:  

• A new fund, in addition to the existing £5.1bn Building Safety Fund, for the remediation of cladding works on residential buildings between 11 and 18 metres, which developers will have to contribute to.
• A commitment by developers to provide comprehensive information on all buildings above 11 metres which they had a role in constructing, and which may have fire safety defects.
• An obligation on the construction industry to accept responsibility and reach a plan of action for self-funding. Earlier this month, the DLUHC confirmed that it intends for such discussions to produce legally binding “Developer Conditions”.

The government confirmed on 14 February 2022 that it will go further to protect leaseholders through a series of proposed legislative amendments to the Building Safety Bill (the Bill) including:

• For those who refuse to contribute to the costs of remediation, the proposed changes will provide the government with the power to block planning permission and to restrict building control sign-off for developments. This will impact developers by hampering their ability to build and sell new, or improve existing homes, thereby preventing access to housing markets.
• Granting new powers to the courts to restrict developers using shell companies, making it easier to understand who runs the business. The impact on developers will therefore mean greater accountability for any failures in cladding works, whilst also making it harder to limit shareholder liability.
• Perhaps the most far-reaching amendment will enable building owners to bring legal action against developers or manufacturers who have used defective products in cladding works. Developers now face the increased threat of legal claims, as the Bill will allow parties to sue for the costs of cladding defects, going back as far as 30 years. Cost contribution orders can then be placed on companies who have been successfully prosecuted under the new legislation, legally obliging them to contribute to remediation costs.
• Extending the building safety levy to include more developments, with the potential for higher rates and additional costs for those developers who fail to contribute to remediation works.

Legislative changes will also mean that building owners, or even developers, might have to ‘pick up the bill’ for non-cladding expenses, as further protection will be provided to leaseholders through limiting how much they have to pay for non-cladding costs. The Bill intends to introduce a cap on leaseholders’ contributions, which will also take into account their expenses over the last five years. This could therefore mean that others within the construction industry will be liable for additional costs associated with building safety requirements, such as waking watch schemes. 

The general reception has been that the Housing Secretary was reliant on the ‘goodwill’ of the industry to contribute to remediation works. However, the amendments to the Bill seem to suggest that developers will be forced to participate, or otherwise suffer the legal consequences. It remains to be seen how many of the government’s proposed measures will ultimately come into fruition.