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Basic Guide to Different Types of Liabilities and Claims Under the Building Safety Act 2022

Introduction

As a consequence of the Grenfell Tower disaster and the recommendations made in Dame Judith Hackitt’s report, the Building Safety Act 2022 (BSA) was passed on 28 April 2022, with a staggered roll out of its provisions thereafter. It has introduced a new regime with a particular emphasis on “higher-risk buildings”. We are still in the early stages of its roll out.

Dame Hackitt reported that the regulatory system covering high-rise and complex buildings was not fit for purpose, highlighting key issues underpinning the system failure:

  • Ignorance: regulations and guidance are not always read by those who need to, and when they do the guidance is misunderstood and misinterpreted.
  • Indifference: the primary motivation is to do things as quickly and cheaply as possible rather than to deliver quality homes which are safe for people to live in.
  • Lack of clarity on roles and responsibilities: there is ambiguity over where responsibility lies, exacerbated by the level of fragmentation within the industry, precluding robust ownership of accountability.
  • Inadequate regulatory oversight and enforcement tools: the size or complexity of a project does not seem to inform the way in which it is overseen by the regulator. Where enforcement is necessary, it is often not pursued. Where it is pursued, the penalties are so small as to be an ineffective deterrent.

In addition to the more rigorous regulatory regime being introduced for ‘higher risk buildings’i, the BSA also tackles the issue of lack of accountability, to bring about a change in the industry.  At the heart of this regime are ways to avoid innocent leaseholders from ultimately footing the bill for the industry’s failures, providing recourse against those involved in the construction of a defective building or, potentially, their ‘associates’, by way of Building Liability Orders, Remediation Orders and Remediation Contribution Orders, as well as liability for defective construction products.

The BSA is split into 6 parts, with 11 schedules, including:

  • the regulator and its functions (Part 2);
  • Building Act 1984 (Part 3): building control during the design and construction of a higher risk buildingii;
  • Higher Risk Buildingsiii (Part 4): the in-occupation regime; and
  • other provisions about safety, standards etc (Part 5).

In this guide we are looking at some of the liabilities and claims which can arise as a result of the BSA, predominantly coming out of Part 5 of the BSA.

Claims in relation to construction and cladding products

This part of the BSA, regulating construction and cladding products used in dwellings, came into force on 28 June 2022. Those persons found to be liable under either s.148 or s.149 of the BSA will be liable to pay damages for personal injury, damage to property and economic loss suffered by the person with a legal or equitable interest in the property as a result of the dwelling being unfit for habitation.

Claims in relation to Construction Products

S.148 of the BSA concerns liability relating to construction products. If at any time after this section came into force:

  • a person fails to comply with a construction product requirement in relation to a construction product,
  • a person who markets or supplies a construction product makes a misleading statement in relation to it, or
  • a person manufactures a construction product that is inherently defective,

and the construction product is “is installed in, or applied or attached to, a relevant building in the course of works carried out in the construction of, or otherwise in relation to, the buildingiv and as a result of the construction product either the dwelling, or a dwelling in a building with multiple dwellings is unfit for habitation, then that person will be liable to pay damages to a person with a legal or equitable interest in the building/dwelling.

Extending considerably beyond the 6 years’ period often applicable to statutory breaches, the liability period for actions relating to construction products under s.148 will be 15 years under new section 10B of the Limitation Act 1980, running from the date the right of action accrues. Under s.148 the right of action is considered as having accrued:

(a) in a case where the works referred to in subsection (3) are carried out in the construction of the relevant building, when the construction is completed, and

 (b) in any other case, when the works are completed.”

Claims in relation to Cladding Products

In addition to future liability for defective cladding products coming within the prospective provisions of s.148, s.149 creates retrospective liability for past defaults relating to cladding products. It provides that, if at any time before this section came into force:

  • a person failed to comply with a cladding product requirement in relation to a cladding product, or
  • a person who markets or supplies a cladding product made a misleading statement in relation to it, or
  • a person manufactured a cladding product that is inherently defective.

And the cladding product is “attached to, or included in, the external wall of a relevant building in the course of works carried out in the construction of, or otherwise in relation to, the building.”v And as a result of the cladding product either the dwelling, or a dwelling in a building with multiple dwellings is unfit for habitation, then that person will be liable to pay damages to a person with a legal or equitable interest in the building/dwelling.

The liability for claims in relation to cladding products runs from the accrual of the right of action which, under this section, is deemed as:

(a) in a case where the works referred to in subsection (3) are carried out in the construction of the relevant building, when the construction is completed, and

 (b) in any other case, when the works are completed.”

Under s.149, the liability period for past defaults (i.e. pre-28 June 2022) relating to cladding products is 30 years from the date when the right of action accrued. Where the right of action accrued on or after the BSA came into force (28 June 2022), the expiration of the liability period is 15 years.  For those past defaults where the 30-year time limit will run out before 28 June 2023, the 30 year time limit is extended to 28 June 2023.

Defective premises act 1972

S.1 of the Defective Premises Act 1972 (DPA) creates a duty to carry out works to new build dwellings in a workmanlike matter or professional manner and with proper materials so that the dwelling is fit for habitation.

Previously the limitation period for a claim under this section was 6 years however the BSA has substantially extended it to:

  • 30 years for retrospective claims; and
  • 15 years for prospective claims.

The BSA has also introduced a new s.2A under the DPAvi. This extends the duty in s.1 to all works (not just new dwellings) undertaken in the course of a business, so that it applies to works including refurbishments. S.2A does not apply retrospectively, however. As such only a claim which relates to works carried out after 28 June 2022 can be brought under this new section (including a claim relating to works which were commenced but not completed before 28 June 2022) and the limitation period for bringing such a claim is 15 years.

Building liability order

Lifting the corporate veil within groups of companies, the BSA enables the High Court to make a ‘building liability order’ (“BLO”)vii against associated entities, if it considers it “just and equitable to do so”.

There are no express limitations on the class of parties who may seek a BLO and those applying for BLOs may include:

  • parties with legal or equitable interests in a defective property, who have rights against the original body under the DPA;
  • parties that have suffered loss as a result of the original body’s breach of building regulations, and therefore have a right to sue the original body under s38 of the Building Act (not yet in force as at February 2023); and
  • parties with claims against the original body in respect of building safety risks.

In effect, the court may impose liability for defective building works on a company/companies associated with the company originally carrying out the works. The intention of the court’s power is to limit the scope for construction companies to avoid liability for defective work through group restructuring. For a court to make a BLO, however, there must be a liability under:

  • The DPA (so this could apply to the developer, a contractor and its subcontractors or designers); or
  • s.38 of the Building Act 1984viii (i.e. a breach of building regulations causing damage, including death or personal injury) s38 is not yet in force, as at February 2023); or
  • as a result of a building safety risk.

There are no express restrictions on the types of building or building works in respect of which BLOs can be sought. It remains to be seen how the courts will allow it to be used. It is important to note that BLOs can be made in respect of liabilities incurred by the original body corporate before or after the BSA came into force. However, neither s.38 of the Building Act, nor s.2A of the DPA, were in force prior to the BSA, and therefore the only relevant liabilities prior to 28 June 2022 in relation to which a BLO can be made are those under s.1 of the DPA or in relation to “building safety risks”.

A body corporate may be specified only if it is, or has been, at any time in the period prior to the BLO being ordered, associated with the original bodyix.

Whether or not a company is ‘associated’ depends on whether one of them controls the other or a third body corporate controls both of them. S.131 of the BSA sets out the criteria for determining whether a corporate body is an associate of the original body corporate under s.130. The list of ‘associates’ is very wide and includes group companies.

The intention of BLOs is to limit the scope for companies to avoid liability for defective work by carrying out projects via special purpose vehicles (SPVs) that may be dissolved after completion of the works. This is very much evident in the criteria of an associated company, against who a BLO can be made.

It should be noted that the BSA does not define the meaning of “liability incurred”. Whilst it would be likely to include liability decided by a court judgement, it is might not include liability under, for example, an adjudicator’s decision (as such decisions are not final) or, arguably, an extra judicial agreement for one party to carry out remediation works in the absence of an express admission of liability. These may be questions for the courts to consider in the future.

Remediation orders & remediation contribution orders

The BSA introduced Remediation Orders (s.123) and Remediation Contribution Orders (s.124). Both section 123 and 124 apply to a “relevant building”.

A “relevant building” is a self-contained building or part of a building which contains at least two dwellings and is at least 11 metres high or has at least five storeys (unless otherwise excluded by the BSA)x. There is no definition of “dwelling” within the BSA and as such whether or not a particular property constitutes a “dwelling” will need to be considered on a case-by-case basis.

Both Remediation Orders and Remediation Contribution Orders are at least partly retrospective in effect, applying to defects arising from works undertaken in the 30 years prior to 28 June 2022. There is a grace period to 28 June 2023 if limitation will run out for the relevant claim between 28 June 2022 and 28 June 2023, but this grace period is nearly at an end.

Remediation Orders (s123 of the BSA)

A “remediation order” is issued by the First-tier Tribunal (FTT) and orders the relevant landlord to remedy a defect in relevant works causing a building safety risk (being the risk to the safety of people in or about the building due to the spread of fire or the collapse of the building or a part of it). A “relevant landlord” is a landlord under a lease of the building or any part of it who is required, under the lease or by virtue of an enactment, to repair or maintain anything relating to the relevant defect. 

The Building Safety Regulator, the relevant local authority, the relevant fire and rescue authority, persons with a legal or equitable interest in the building or any part of it or any other person described by the regulations can apply for the FTT (as an “interested person”xi) to make such an order.

A “relevant landlord” is a landlord under a lease of the building who is required “under the lease, or by virtue of an enactment, to repair or maintain anything in relation to a relevant defectxii.

It is important therefore to check the terms of any existing lease to ascertain which party is responsible for repairing and/or maintaining the part of the property which relates to the “relevant defect”.

Remediation Contribution Orders (s 124 of the BSA)

A Remediation Contribution Order determines who is required to contribute to the cost of remedying a defect in relevant works which causes a building safety risk. The FTT may make the Remediation Contribution Order on the application of an interested person if it considers it just and equitable to do so. The BSA itself does not contain any guidance as to when it will be 'just and equitable' to make such an order.

Here, interested persons include all those who can apply for a Remediation Order and also a special measures manager (as defined in Schedule 7 to the BSA) where one has been appointed for a building above 18 metres in height.

Remediation Contribution Orders can be issued against a “specified body corporate or partnership”, which is limited to:

  • a landlord under the lease of a relevant building,
  • a person who was such landlord on 14 February 2022,
  • the developer of the building, or
  • a person ‘associated’ with any of the above.

‘Associated’ parties are those that meet the criteria set out in s.121 of the BSA and are broadly defined, referring to companies who have a common director, voting rights, nominees and trusts and corporate control.

This is potentially a lifeline for relevant landlords (as well as relevant leaseholders):

A relevant landlord who is the subject of a Remediation Order could therefore consider applying to the FTT for a Remediation Contribution Orders for a contribution towards the cost of remedying a relevant defect from the developer or a person ‘associated’ with the developer. 

Insolvency practitioners who are appointed to wind up an insolvent landlord may also apply to the court (with jurisdiction to wind up the insolvent landlord) for a contribution from such specified body corporate or partnership. 

How may this work in practice? By way of example, under s.124, a landlord that has funded the remediation of defects causing a building safety risk could seek a contribution from the original developer (or its associated companies). However, that developer could not then seek a contribution from the original contractor involved in the development under this route. The developer would then need to consider alternative routes to recover its losses from the other parties involved in the construction of the property (for example contractors and/or consultants).

As explained in the Government guidance published in July 2022, the expectation is that:

Remediation contribution orders can be used to:

  • require a developer or building owner for the building, or their associated companies, to make payments in connection with remedying relevant defects
  • allow recovery of costs from the building’s developer by applying to the Tribunal for an order against the developer
  • require that leaseholders are reimbursed for costs already paid out for remediation works

Remediation Contribution Orders in Action

On 9 October 2022, the Department for Levelling Up, Housing and Communities (DLUHC) issued a press release announcing that it had written to the freeholder of a tower block, identified over two years ago as having unsafe cladding, in the first step to taking legal action. The freeholder was given 21 days to commit to remediation of fire safety defects, otherwise DLUHC said that it would apply for a court order.

The Secretary of State also said that he would consider applying for a Remediation Contribution Order against other entities associated with the freeholder, requiring them to financially contribute to the remediation costs.

On 13 January 2023, the first application for a Remediation Contribution Order was granted by the FTT in favour of 18 leaseholders of properties within a high-rise self-contained block of flatsxiii. The application was made against the freeholder and developer of the building (and originally others), pursuing just over £192k. 

What is ahead?

Given the wide-ranging power of the court to extend the liability for building defects by virtue of the BSA, many landlords, developers and their associates could potentially be caught within the ambit of sections 123 and 124 of the BSA. However, given the recency of this legislation, there is very little by way of examples of building liability orders, remediation orders or remediation contribution orders being used to benchmark their future application at this stage.  Undoubtedly, that will change over the next year or so. 

 

 

i Note that Parts 3 and 4 of the BSA use different definitions of a “higher-risk building”.

ii S31 BSA, which inserts a new S120D into the Building Act 1984, defining a higher-risk building. 

iii S65 BSA defines a higher risk building for the purposes of Part 4 of the BSA. 

iv S148(3) BSA

v S149(3) BSA

vi S134 BSA

vii s. 130(1) BSA

viii Section 38 provides a statutory right to claim compensation for physical damage (e.g. injury or damage to property) from those responsible for the damage caused, where such damage is caused by a breach of the Building Regulations.

ix s.130(4) BSA

x Section 117 BSA

xi Section 123(5) BSA

xii Section 123(3) BSA

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