What are the main issues under BSA 2022 for Property and Property Disputes lawyers?
The BSA 2022 received Royal Assent on 28 April 2022, and its provisions are likely to come into force within the next 12 to 18 months. While much of the focus and comment has understandably been on the aspects of BSA 2022 which will apply during the construction of new buildings, BSA 2022 will have far-reaching implications for Property and Property Disputes lawyers in a variety of ways both once a relevant building has been built and in relation to existing occupied residential or mixed-use buildings.
Those advising in the landlord and tenant sphere will need to get up to speed with the new duties imposed on both landlords and tenants.
Landlords will have to appoint one or more ‘Accountable Persons’ for higher-risk buildings and they will have extensive duties. These duties include, but are not limited to:
- Applying for Building Assessment Certificates for registered buildings when requested to do so by the new Building Safety Regulator
- Assessing building safety risks relating to their building
- Taking all reasonable steps to prevent the occurrence of a major incident in the building
- Keeping a Safety Case Report showing the building is safe for occupation
- Dealing with complaints from residents, providing certain information to them and maintaining a Resident’s Engagement Strategy to promote the involvement of residents in maintaining the safety of the building
BSA 2022 has also amended the Regulatory Reform (Fire Safety) Order 2005 (the Order), SI 2005/1541, to increase the obligations on the Responsible Person(s) (as defined under the Order). The extra requirements include those relating to record-keeping, handovers, and keeping, and providing to, residents specified fire safety information.
Property lawyers involved in the purchase of mixed-use developments will need to ensure that the due diligence process covers compliance with these new regulations.
Property Disputes lawyers acting for tenants with concerns about the safety of their (higher risk) building will have more avenues to consider. For example, they may be able to complain to the new Building Safety Regulator or request certain information from the building’s Accountable Person. An interesting provision is the introduction by BSA 2022 of a ‘building liability order’. This provides that where shell companies or SPVs have been used to develop a building, the High Court can make any associated company (providing there is a sufficiently close relationship between the same) jointly and severally liable for sums owed by the developing company. This may open up the prospect of proceedings where previously they would not have been deemed commercially viable given the risk that an SPV or shell company would be unable to pay any sums awarded in respect of historic building safety issues.
Property Disputes lawyers acting for landlords, should also be aware that there are also new obligations on tenants set out in BSA 2022. These include:
- Not to act in a way which creates a significant risk of a building safety risk materialising
- Not to interfere with safety equipment
- To comply with the requests of the Accountable Person in relation to the duty to assess safety risks in the building, and
- To mitigate the risk of serious harm. The Accountable Person can apply for a court order against a resident in certain situations
How do the provisions in BSA 2022 providing protection to leaseholders from the cost of remediation (whether via the service charge or otherwise) differ from those in the Bill originally introduced to Parliament in July 2021?
A major change between BSA 2022 and the Bill as introduced to Parliament in July 2021 was the removal of the role of the Building Safety Manager. There were concerns that the requirement for such a role would increase costs which would highly likely be passed on to leaseholders. That said, it is still highly likely that professional consultants will be employed by most Accountable Persons in any event.
Increased protections for leaseholders in respect of certain costs have also been included as a result of amendments during the Bill’s passage. Notably, certain ‘excluded costs’ cannot be passed on through the service charge, including:
- Those incurred as a result of a penalty imposed by a regulator
- Legal costs in relation to certain proceedings
- Any costs incurred due to negligence, breach of contract or unlawful act by the relevant person, or
- Costs included in regulations made by the Secretary of State
The requirement for certain relevant costs to be put through a separate building safety charge has also been removed from BSA 2022. This will remove an additional layer of potential complexity.
A further change from the Bill as introduced in July 2021 is the introduction of a new Schedule dealing with remediation costs under qualifying leases. It provides that leaseholders in a relevant building are not liable through the service charge if a relevant landlord is responsible for measures relating to a qualifying defect or associated with the person responsible for the same. Broadly speaking, in order to be ‘responsible for the same’ the landlord must be the person who undertook or commissioned the construction or conversion of the building, with a view to granting leases, or was in a joint venture with the person who did so. If the defects are not initial defects then the landlord must have undertaken or commissioned works relating to the defect.
Even where a landlord is not responsible for a qualifying defect, if the landlord group has sufficient net worth at the relevant time, certain qualifying leaseholders will not be required to pay a service charge contribution for the same.
There are also exemptions for those with qualifying leases from paying for service charges in relation to measures relating to relevant defects if the value of the qualifying lease at the relevant time is below £325,000 in Greater London or £175,000 elsewhere.
Other lessees are only liable as long as the service charge does not exceed the permitted maximum. There are also annual limits of 1/10th of that permitted sum. The permitted maximum in Greater London is £15,000, and £10,000 elsewhere. If the value of the qualifying lease is between £1m and not over £2m then the permitted maximum is £50,000. If the value of the flat is over £2m the permitted maximum is £100,000.
Cladding remediation is also excluded where the tenant has a qualifying lease.
In addition, legal costs in relation to a liability incurred as a result of a relevant defect cannot be put through the service charge.
Landlords are also not allowed to recover any shortfall from other tenants who are not covered by the provisions of the Schedule. Certain tenants of relevant buildings are therefore likely to benefit from considerable protection in relation to service charges for relevant defects and landlords aware of defects requiring remediation may wish to start building up suitable reserve funds to deal with inevitable shortfalls.
There will be much to analyse and consider as the various provisions of BSA 2022 come into force over the coming months and years. More detail will be contained in (presumably forthcoming) secondary legislation.
This article was first published on Lexis Nexis PSL (News Analysis) on 9 May 2022.