Building Safety Act 2022 – new protections for leaseholders

As a wide-ranging piece of legislation that will revolutionise the regulation and construction of residential buildings in the UK, the Building Safety Act 2022 has already generated significant press coverage. One much anticipated aspect of the Act that is now in force is the protective measures for leaseholders affected by the cladding and fire safety crisis in high-rise buildings.

What does the Act say?

In brief, the Act severely limits the circumstances in which qualifying leaseholders can be asked to pay for remedial fire safety works to high-rise buildings (above 11m or 5 storeys).

The protective measures apply to works required to fix a fire safety issue caused by a defect during the construction or redevelopment of the building in the past 30 years.

Where this is the case:

• Leaseholders can no longer be charged under any circumstances where the defect is to do with the building’s external cladding.

• Leaseholders can only be charged for works to address non-cladding defects in circumstances where:

• The building owner was not involved in the construction of the building and therefore did not contribute to the historical fire safety defects; and

• The building owner does not exceed the ‘wealth threshold’ set by the government – to be clarified in further legislation to be passed shortly.

• If either of the above applies, the building owner will be liable to pay the remedial costs.

• Even where neither of the above applies, the Act introduces a cap on leaseholders’ contributions to the cost of relevant works. In most cases this will be £10,000 (or £15,000 in Greater London), but it will depend on the value of the property.

These protections apply retrospectively, which means that any service charge demands for relevant works will need to be cancelled, and any payments made by leaseholders will need to be refunded. It has been made a criminal offence for building owners and – significantly – their agents, to continue to pursue relevant costs in breach of the Act.

What does this mean for building owners?

These measures potentially mean that building owners now face a significant liability in having to fund remedial works themselves, and refund any leaseholders who have already contributed to the costs.

It remains the case that many building owners will already have limited their liability by obtaining government funding to assist with the cost of necessary works, rather than having to charge leaseholders in the first place. Where this is the case, building owners will only be liable for any shortfall, or the cost of works not covered by the relevant fund. The Building Safety Fund is due to reopen shortly, which means that building owners will have a further opportunity to apply if they have not done so already.

Where building owners consider they are still entitled to recover costs from leaseholders, the onus is on the building owner to prove that to be the case. Further legislation or guidance is set to be introduced on how building owners can do this, but it will reportedly involve obtaining a formal certificate that they meet the financial threshold referred to above and/or that the Act does not apply to the works in question. Where building owners have a legitimate claim to recover costs from leaseholders, this is likely to cause delay in carrying out works and being able to collect funds.

What does this mean for leaseholders?

By contrast, the protections introduced by the Act will no doubt come as a significant relief for many leaseholders, with the government legislating in support of their previous statements that leaseholders should not have to bear the cost of remedial fire safety works.

However, there is still scope for dispute over whether a particular defect requiring remedial work was caused by a defect in the construction or redevelopment of the building. Where leaseholders have already contributed towards the cost of remedial works, building owners may be reluctant to issue a refund and willing to test the resolve of leaseholders to pursue the matter via the First-Tier Tribunal.  

It is also the case that whilst potentially removing the financial burden from leaseholders, many leaseholders over the past five years have found themselves ‘trapped’ in an unsellable flat until remedial works have been completed. Whilst the Act does also introduce measures to address building owner delays in commencing works, the protections highlighted in this article do not present any immediate resolution to those who simply want to sell their flat and move on.

Summary

The leaseholder protections introduced by the Building Safety Act 2022 mark a significant intervention by the government in placing the onus firmly on building owners to pay for remedial cladding and fire safety works. However, the retrospective effect of these protections, the financial implications, and the details yet to be clarified by further legislation, mean there is significant scope for further dispute.

Birketts’ Property Litigation team has extensive experience of advising building owners and leaseholders on service charge matters, and is well placed to advise on how each will be affected by the introduction of the Building Safety Act 2022. For more information, please contact James Humphreys or another member of the Property Litigation team.