The Building Safety Bill – new provisions introduced by the House of Lords

• United Kingdom

• Construction and engineering - Articles
• ESG
• Litigation and dispute management

11-03-2022

New revision of the Building Safety Bill

A new revision of the Building Safety Bill was published on 2 March 2022.  It reflects changes made by the House of Lords during the Bill’s progress through parliament before it becomes law. The new revision introduces a rectification regime, prohibitions on developers, and building liability orders.

New rectification regime

The latest amendments provide for a new rectification regime. This means a property tribunal can issue a remediation order, requiring defects relating to building safety to be remedied within a defined timeframe. If the defects are not so remedied, tenants can withhold payment of some or all of their service charge, up to a permitted maximum figure. 

The tribunal can also issue remediation contribution orders, which will require a ‘specified body corporate’ to contribute to the cost of remedying the defects.   If that right of action is against a company that is currently being wound up, the court can order an ‘associated body corporate’ to pay its contribution to the rectification costs.

The regime applies to buildings that are at least 11 metres in height or have at least 5 storeys and have at least two dwellings. 

For these defects, a 30-year retrospective limitation period will apply, starting from when this provision of the Bill comes into force. 

Remediation orders

This brand new regime, with widespread implications, has been introduced late in the parliamentary process. As such, much of the practical detail on how these remediation orders and remediation contribution orders will work has been reserved for supplemental regulations. 

The Bill does provide that:

• a specified body corporate (for the purposes of the remediation contribution order) will be any company that is specified in the tribunal’s order; and
• an associated body corporate (with regards to contributing to the obligations of a company being wound up) will be any body corporate which has the same director any time within the past 5 years; or which is controlled by another, or where a third party controls them both. 

The definition of control varies according to the nature of the body corporate.  For companies, control means that one company possesses at least half the issued share capital, half the voting rights, or half of the distributable income or assets of the other.  For LLPs, control means a party that holds half the voting rights of the other or has the right to appoint or remove a majority of members.  Generally, control is also defined in the Bill as “any power exercised in accordance with a party’s wishes to directly or indirectly secure the affairs of another.”

Our commentary on the rectification regime

These rights are different to the ones already proposed by the Bill and created by amending the Defective Premises Act 1972 (DPA):

• Whereas the DPA would permit claims for consequential loss, a remediation order would be limited to the direct cost of the rectification works. 
• The burden of proof required for making a remediation order by the tribunal is lower than that required in court for making a claim under the DPA; this would make this remediation order option less expensive and more accessible for tenants. 
• The remediation order creates an obligation on the landlord to correct the works, whereas the DPA also offers a right of recovery against a contractor and/or designer.
• Whereas the DPA applies to all dwellings, remediation orders are limited to dwellings of a certain height.

One of the most important elements is the tribunal’s power to order the rectification works to be completed within a certain timeframe.  It is clear that the primary aim is to make mid-rise and higher-rise residential blocks safe as quickly as possible. Subject to the as-yet-unpublished regulations, we assume that the ability of the tribunal to make an order will be fast-tracked, allowing decisions to take practical effect urgently and resolve the existing significant issues faced by residents.

The ability of the tribunal and the courts to seek contributions from other companies is a major development in the law.  This overturns the existing premise that the liability of a company is limited and that there is a corporate veil that keeps the interests of a shareholder discrete from the liabilities of a company (except in very limited circumstances).  This revision may be in response to housebuilders who argued that they were being unfairly penalised in being asked to contribute to a £4bn fund for remediation works, whereas foreign or shell companies were able to avoid making contributions.  Shell companies (those with no fixed assets) have traditionally been regarded as a legitimate way to ringfence liability for new or speculative. This new ability to “pierce the corporate veil” is surprising and an indicator of the exceptional circumstances of the cladding crisis.

New prohibitions on developers

The latest version of the Bill provides that new prohibitions can be imposed on certain prescribed persons when carrying out development works on land in England and applying for building control. 

These prohibitions will be imposed to secure the safety of people in or about buildings in relation to risks arising from buildings, or to improve the standard of buildings. 

There is no detail on how these prohibitions will operate, nor detail on who will be classed as a “prescribed person”.  This information will be provided in separate regulations.

Our commentary on the new prohibitions on developers

Whilst it remains unclear how these prohibitions will work in practice, these provisions were driven by the Government’s threat to force housebuilders to contribute to its £4bn fund for the remediation of residential buildings between 11 to 18 metres (see our previous update).  There have been challenges to the legal enforceability of that fund from leading housebuilders, who have claimed that contributions cannot be voluntary if failure results in legal sanctions. 

The sanctions proposed by the Bill are so extreme that they could potentially prevent developers from being able to build and sell new homes, so putting housebuilders out of business.  The Bill’s current vagueness on this matter is deliberate, enabling the government to keep its options open and use these provisions only if required.  Alternatively, if they are imposed on housebuilders/developers that have committed serious breaches of building regulations in the past, these prohibitions could offer a sensible way to regulate the industry and ensure building safety.

New building liability orders

The Bill allows the high court to make a building liability order effectively assigning liability from one body corporate to a different “specified body corporate”. The liability order applies where that liability arises from the Defective Premises Act 1972, s.38 Building Act 1984, or as a result of a building safety risk (see our previous update).

A specified body corporate is any such entity referred to in the order. 

This provision is another means by which the corporate veil can be pierced, giving the court freedom to enforce liabilities against any corporate entity where it is fair and appropriate.  This may include associated companies, as defined by the Bill. 

Our commentary on the new building liability orders

The aim of this provision is to ensure developers within a larger corporate group cannot avoid their obligations by setting up corporate structures specifically to ringfence their liability for building safety claims.  Whilst these group structures have legitimate purposes, the severity of building safety liability calls for a limited exception to well-established corporate law. 

It remains unclear how the court will exercise its freedom and determine which other corporate bodies will be held liable for the actions of another in their group structure.

Driven by extraordinary times

It is very unusual for such significant reforms to be introduced to a parliamentary bill, at such a late stage.  These changes reveal the extraordinary nature of the problems affecting residents of higher rise and mid-rise buildings, as well as the difficulties in finding companies willing to pay to make their homes safe.  Parliament appears to think the end justifies the means.

These provisions are unprecedented, and it remains to be seen how they will work in practice.  Much of the detail will depend on supplemental regulations giving parliament more time to debate the issues before implementation. 

However this continued lack of certainty continues to plague the industry, as insurers and developers struggle to respond to financial demands, especially as their expected liability for those projects has become drastically broadened by the new provisions in the Bill and beyond.