Building Safety Act – one year on

As we approach a year since the key provisions relating to existing buildings under the Building Safety Act 2022 came into force, we look back at some of the main issues arising from the Government’s flagship legislation to improve building safety, and what we can expect in the coming year.

A certificate minefield

An important part of the Act is the introduction of ‘certificates’, which should be provided either by leaseholders to establish their qualifying status for the protections under the Act or by landlords to establish that they meet the criteria which would allow them to charge remediation costs to leaseholders notwithstanding those protections. As a result, provision of these certificates has become crucial to the conveyancing of flats within the scope of the Act to enable buyers to understand their position.

Unfortunately, whilst the certificates sound simple enough in theory and serve a valuable purpose, they have caused significant issues in practice, particularly for landlords.

A key reason for this is that once requested a landlord has four weeks to provide a landlord’s certificate. The certificate can require a wide range of information and documents from third parties. In particular, landlord companies must provide accounts not just for themselves, but for all companies within their group, along with a statement from their accountant. The position is even more complicated when the landlord requires information from a predecessor or a superior (head) landlord. Those third parties are obliged to assist, but are given three weeks to do so, giving the landlord only a week’s leeway to make the request for information and then consider the response.

The effect of these onerous requirements is exacerbated by the consequences of missing the deadline or providing an inadequate certificate. In this scenario, landlords are deemed responsible for any relevant defect as defined by the Act and will not be able to recover any relevant costs from leaseholders. This is a high price to pay when it is easy to foresee a scenario where the landlord can’t respond for reasons outside of their control.

A date to remember

One year on and lawyers are still getting to grips with the array of defined terms contained within the Act, which determine whether a particular building, lease and – crucially – ‘defect’ falls within the scope of the Act.

Arguably, the most significant definition is the easiest to understand, with the ‘qualifying time’ defined as 14 February 2022. This is the date on which the circumstances that determine whether a lease is a ‘qualifying lease’ will be assessed.

Crucially, however, qualifying status is fixed at this date, which means that if the leaseholder on 14 February 2022 did not qualify for the protections under the Act, then neither will any future owner of the flat – irrespective of whether they would have qualified in their own right. Where this is the case, the marketability of the property could be affected as the buyer would in principle be liable for the cost of any remedial works required. Even where the leaseholder did qualify on 14 February 2022, the buyer is almost entirely reliant on the accuracy of the leaseholder certificate provided. In the event of any future dispute over qualifying status, the buyer could be left facing significant remedial costs or a costly dispute against their predecessor.  

A lease extension loophole

Close review of the various defined terms has also highlighted a ‘loophole’ in how a qualifying lease is defined, with serious practical implications for those looking to exercise the right to extend their lease under the Leasehold Reform Housing and Urban Development Act 1993.

The fixed nature of the ‘qualifying time’ is again relevant as the lease must have existed on or before 14 February 2022 in order to be a qualifying lease and gain protection from the Act. When a lease is extended, however, the unavoidable legal effect is that it is ‘surrendered’ (i.e. terminated), with a new, extended lease put in its place as at the date of completion. This creates a situation where although the original lease might have qualified under the Act, the extended lease will not, simply by virtue of when it was granted.

The Government have now acknowledged the loophole and intends to amend the legislation in due course. In the meantime, however, this creates a dilemma for those considering whether to extend their lease or those already in this process. There is no guarantee that the amended legislation will close the loophole retrospectively. Whilst it is theoretically possible to reflect the same protections by express wording in the new lease, this relies on a benevolent landlord and is not guaranteed to override an Act of Parliament. Until the loophole is closed, leaseholders are left with the unenviable decision of whether to proceed without the protection of the Act or wait an unknown length of time and risk their ever-diminishing lease term resulting in an increased premium when they do come to extend.

What next?

We will inevitably see further secondary legislation to guide how the Act should operate in practice and, hopefully, address some or all of the issues highlighted above. A draft bill that aims to clarify how landlord’s certificates should be prepared in certain circumstance is currently in circulation.  The Government has expressly stated that it intends to close the ‘lease extension loophole’ – albeit there is no indication of when this might happen.

Beyond legislative changes, it will be interesting to see how the landscape changes as we exit the current phase of landlords and leaseholders simply seeking to understand the Act and establish their qualifying status. It seems likely that the focus will then shift to actually carrying out any remedial works which need to be undertaken, and who will ultimately foot the bill, which could easily lead to dispute.

• Landlords who are deemed responsible for remedial works under the Act may be reluctant to see them through, in which case we may see leaseholders utilise the ‘remediation orders’ introduced by the Act as a means of enforcing their landlord to take action.

• In such circumstances, landlords may look to apply for a ‘remediation contribution order’ where they can deflect liability to pay for remedial works onto a third party (e.g. a superior landlord or the original developer, where this is not the landlord itself).  

• Where landlords are entitled under the Act to recover costs from leaseholders, there may still be scope for leaseholders to challenge their obligation to pay under the service charge provisions of their lease.

What is clear is that one year on, the complexity of the Act and its wide-ranging impact (some of which was evidently unintended) has caused significant issues for landlords and leaseholders and will continue to do so. The conveyancing market is likely to bear the brunt of this uncertainty, with some firms no longer prepared to act on leasehold transactions where the Act applies.

Birketts continues to act on leasehold transactions and has advised building owners and leaseholders on the implementation, interpretation and disputes arising from the Building Safety Act 2022. For any advice on the matters raised in this article or advice on the Building Safety Act 2022 as it applies to landlords and leaseholders of existing buildings, please contact James Humphreys in the Property Litigation Team in the first instance.