Real Estate Visions 2022: Building Safety Bill: high stakes for ‘high-rise’ developers

When the Building Safety Bill (the Bill) becomes law, it will transform the way in which high-rise buildings are designed, built, altered and maintained. It will also open new avenues for building defect claims. High-rise developers would be wise to start preparing for the changes now (the Bill is expected to receive Royal Assent in 2022). We highlight below some of the practical steps that developers should take before construction starts; during construction and on completion.

Before construction starts

Establish which regime applies

Ascertain whether the building in question is a ‘higher risk’ building within the scope of the new building safety regime established by the Bill. A higher risk building is currently defined as one that is at least eighteen metres in height or at least seven storeys and which contains not less than two residential units. Where a development consists of several buildings of different heights, one project may be the subject of two different regulatory systems.

Get the right team in place, early on

Assess the competence of those taking on regulatory roles, known as ‘dutyholders’. During design and construction, this concept of a dutyholder captures the developer or building owner, the principal designer, the designer, the principal contractor and the contractor. All those involved must be ‘competent’, i.e. have the necessary skills, knowledge and experience for their role.

Comply with Gateways 1 and 2

• Gateway 1 (Planning): this Gateway (which is already in force and does not form part of the Bill) requires planning applications to include a ‘fire statement’ demonstrating fire safety requirements have been incorporated into the construction proposals.

• Gateway 2 (Building Control): currently developers can start building work when they have deposited plans and given notice to the local planning authority of commencement or submitted a building notice. This is being replaced with Gateway 2, which will require building control approval to be obtained before starting building work. Gateway 2 applications need to demonstrate that the proposals comply with building regulations, as well as provide information on how other Bill requirements will be met. The building control function will no longer rest with local authorities but will instead be managed by the new Building Safety Regulator (the Regulator), which will sit within the HSE.

Update construction contracts

• The Bill will make changes to the Defective Premises Act 1972 to extend statutory rights for homeowners to bring a claim for safety defects against developers. The Bill seeks to extend the limitation period for claims to thirty years. Development agreements and construction contracts need to provide for a similarly extended liability period (rather than the customary six years (for simple contracts) or twelve years (for deeds)). Any obligations on the professional team to maintain professional indemnity insurance should reflect this.

• Consider who takes the risk for delays where construction is stopped by or referred to the Regulator as it has the power to halt construction at any of the Gateways unless building regulation compliance is demonstrated. Changes to works which deviate from the building control approval will need either further approval (if ‘major’) or to be notified to the Regulator before they can be carried out.

Update property agreements and related documents

• Consider what to offer by way of warranties and contractual defects liability periods to ensure that there is sufficient protection for both developer and end user should a defect be revealed after the developer has sold or transferred its interest.
• When structuring the development, decide early on whether to have a leaseholder management company to take on the ownership, management and maintenance of the building or estate – this provides the leaseholders with visibility on the maintenance process.
• In leases, provide for recovery of the new Building Safety Charge (the Charge) to be introduced by the Bill and any additional costs as a result of other measures introduced by the Bill which may not fall within the Charge (such as costs of enforcing warranties and bringing claims for defects). The Charge is intended to cover building safety costs (not including the cost of remedial works) which will apply to leases of seven years or more where the leaseholder pays a variable service charge. While the right to recover the Charge from leaseholders is implied by the Bill, residential purchasers in particular will appreciate transparency.
• Instruct managing agents to prepare an accurate draft service charge budget and keep this up to date as construction progresses so that end buyers are aware of the costs they will need to cover.
• Prepare a comprehensive note setting out how the developer is complying with the Bill, possibly including details of the professional team. With leaseholder management companies being more likely to take on ownership of buildings after ground rents are prohibited, and the consequent reduction in ‘professional freeholders’, buyers will expect to be informed and guided from the outset on matters which previously they may have left to the landlord.

Keep good records

Good record keeping is key. The Bill requires that a ‘golden thread’ of information is maintained at all times (to show that the building is compliant with applicable building regulations during its construction and to be used to identify, understand, manage and mitigate ongoing building safety risks throughout its life cycle).

The golden thread is created before building work starts and captures everything from planning through the Gateways to registration, and the ongoing management of building safety risk once occupied. Developers must consider how best to ensure the required data is captured securely, accurately and regularly and is easily accessible from concept design stage through to occupation.

Prepare for compliance costs

Compliance with the Bill’s requirements will inevitably drive up build costs (for example, more stringent statutory obligations means higher insurance premiums). Ongoing management costs post-completion are likely to rise too, to cover the cost of the infrastructure and management of the golden thread, reporting obligations and building safety assessments. Developers need to factor additional compliance costs in when carrying out appraisals and considering funding options.

In addition, developers will be subject to new levies, such as the Building Safety Levy - for more analysis on this, see our previous Insight on the Proposed Building Safety Levy.

Be prepared for delays

The Bill envisages that the new Regulator will be closely involved with most, if not all, of the new requirements. In particular, the Regulator will manage the building control function of higher risk buildings. This will place a huge administrative burden on the Regulator and it will need time to adequately resource it. Developers should review their build programmes to account for the Gateways and potential delays at the Regulator.

During construction

Meet ongoing ‘construction’ obligations

Provided a competent professional team is appointed and appropriate procedures are in place, many of the ongoing ‘construction’ obligations ought to be manageable on a day-to-day basis by the project team. These include:

• Ensuring all technical documents (eg plans, drawings and specifications) are available via the golden thread and that any changes to those documents are uploaded, along with the as-built information once available;
• Complying with the Mandatory Occurrence Reporting, which requires dutyholders to report fire and structural safety occurrences or ‘near misses’ to the Regulator. During design and construction this falls to the Principal Designer and Principal Contractor.

However, developers will need to be able to demonstrate that they are in touch regularly with the project team and point to the processes in place to ensure compliance, where necessary.

On Completion

Comply with Gateway 3 (Completion and Occupation)

With completion of the works comes Gateway 3, another point at which the Regulator can halt progress if requirements have not been met. An application must be submitted to demonstrate how the Building Regulations have been complied with, which includes as-built information. This is where the golden thread comes into its own as it should contain the information required to show what has been built and form the basis of the ongoing maintenance and safety management strategy for the building.

Register the building

Once the Gateway 3 application has been approved, the building must be registered on a publicly available national register. This must be done before the building can be occupied. It is not clear how the registration process will work in practice to avoid completed buildings sitting empty for prolonged periods of time. We do not know yet whether developers will be able to inform the Regulator of the anticipated completion date in advance.

Keep on keeping records

Completed records of project documents should be kept for at least the length of the extended defects liability period (i.e. possibly for up to thirty years).

Join the New Homes Ombudsman Scheme

Developers must join the New Homes Ombudsman Scheme, pursuant to which homeowners will be able to make a complaint about the conduct or quality of a developer’s work within two years of the first acquisition of the home. Developers should consider how this interacts with new home warranties – who will be required to rectify defects during those two years when both the developer and warranty provider appear to be on risk?

Key takeaways

Overall, it is clear that the new requirements under the Bill, whilst undoubtedly improving safety at the point of construction and during the lifetime of the building, will increase the burden on developers of high-rise buildings. Early planning and excellent organisation is key to ensure developments are not delayed and responsibilities are discharged.