Labour legal advice finds the Building Safety Bill makes situation worse for leaseholders facing ruinous fire safety bills

As the Building Safety Bill has its Second Reading in the Commons today (Wednesday), official legal advice commissioned by the Labour Party finds that the Building Safety Bill would worsen rather than improve the situations for leaseholders, making it “more certain” that they will bear the cost of the building safety crisis.

In a “betrayal” of leaseholders, legal advice commissioned by the Labour Party today confirms that repeated promises from the Government to protect leaseholders from remediation costs have been broken. The advice sets out that:

• Leaseholders will be worse off, as it is “more certain that [remediation] costs will fall under service charges” and passed on to leaseholders.
• Despite some leaseholders already going bankrupt from sky-rocketing bills for insurance, management fees and waking watch, the Bill heaps even more charges on them, as “those in 18m plus (or ‘higher risk’) buildings are even being hit with a new Building Safety Charge.”
• Promises to give “residents more power to hold builders and developers to account” are largely hollow, as the new litigation or negotiation are “uncertain, expensive and risky".

Described as the “the biggest housing crisis in a generation”, thousands of buildings are unsafe because of dangerous cladding and other deadly materials. On top of this, up to a million people are caught up in the wider building safety crisis, as confidence in the industry has been destroyed and mortgage lenders, insurers, risk assessors and others are refusing to sign almost any tall building off as safe.

Government ministers have promised repeatedly to protect leaseholders, but the two major pieces of legislation since the Grenfell tragedy have done the opposite.

The Fire Safety Bill faced a rebellion of Tory 33 MPs to protect leaseholders from the costs of historic remediation. The rebellion was only stemmed by promises that the issue would be addressed in the Building Safety Bill.

Labour has pledged to work cross-party to amend the Bill, to enshrine legal protections for leaseholders in law, and warned of a “battle royale” if the Government continues to abandon innocent homeowners.

Labour says the Government’s approach is ineffective, blighted by inertia and beset by increasing costs. It has called on the Government to establish a Building Works Agency – a crack team of engineers and experts to go block by block, assessing fire risk, commissioning and funding remediation works, signing buildings off as safe and sellable, and then going after those who caused the problem in the first place for costs.

Lucy Powell MP, Labour’s Shadow Housing Secretary, said:

“Leaseholders have been betrayed by this Government.

“Hundreds of thousands of lives are on hold. People are unable to have children, to retire, to get a full night’s sleep. They were promised time and again that the Building Safety Bill would be their way out, but this the Government has made their situation worse not better.

“Labour’s priority is getting homeowners out of this fix, and we will work with any MP who wants to do this.

“The Government should consider themselves on notice. If they continue to abandon innocent homeowners, they will face a battle royale to give leaseholders the cast-iron legal protections that have been promised.”

Ends

Notes to Editors

Thirty two Conservative MPs rebelled against the Government in the Fire Safety Bill and supported amendments that no leaseholder should pay for building remediation works. Others abstained or voted with the Government after they were told that Ministers would use the Building Safety Bill to protect leaseholders.

A larger rebellion was only avoided because Ministers promised the issue would be dealt with in the Building Safety Bill, for example:

Lord Greenhalgh, 27 April: “I place on record again that the Government are committed to protecting leaseholders and tenants from the cost of remediation. Under the plans announced by the Housing Secretary in February this year, hundreds of thousands of leaseholders will be protected from the cost of replacing unsafe cladding on their homes. The £5.1 billion in grant funding made available to leaseholders is unprecedented, but I agree that leaseholders need stronger avenues for redress. The building safety Bill will bring forward measures to do this.”

https://hansard.parliament.uk/lords/2021-04-27/debates/A4AE4086-90C6-4D18-8F8D-050D5506D70A/FireSafetyBill

Legal advice from the Society of Labour Lawyers in full - the Society of Labour Lawyers is a think tank and affiliated socialist society which provides legal and policy advice to the Labour Party:

Impact of the Building Safety Bill on leaseholders: an overview

• Remediation costs (all buildings, existing and new)

The BSB is silent on remediation costs and recovery of these from leaseholders under service charges, with one exception (see below). This means that the position is effectively unchanged for existing buildings and will be for future buildings as well. If anything, it is made more certain that such costs will fall under service charges, as a direction by the Regulator would certainly amount to a direction by a competent authority – paying the costs of the freeholder/managing agents/head lessor of complying with the direction of a competent authority is a very common lease clause.

The one change of any significance is at clause 124(4), adding a new section 20D to the Landlord and Tenant Act 1985. This obliges the landlord to take ‘reasonable steps’ to ascertain if any other funding is available for remediation works. To:

(a) take reasonable steps to ascertain whether any grant is payable in respect of the remediation works and, if so, to obtain the grant;

(b) take reasonable steps to ascertain whether monies may be obtained from a third party in connection with the undertaking
of the remediation works and, if so, to obtain monies from the
third party; 15 and

(c) take prescribed steps relating to any other prescribed kind of funding.

This includes:

(a) under a policy of insurance;

(b) under a guarantee or indemnity;

(c) pursuant to a claim made against a developer, a designer or contractor.

But this seems to add little to an existing obligation not to charge leaseholders where third party funding is reasonably available, and it certainly does not extend to being an obligation for the landlord to enter into litigation against a developer, builder or person involved in carrying out works (even if there is a reasonable case under the Defective Premises Act 1972 or in contract or tort).

If the landlord has not complied with this obligation to take reasonable steps, the leaseholders can take a challenge to the service charges to the First Tier Tribunal. In practice, establishing that the landlord failed to take reasonable steps and that funding from a third party was in fact reasonably available will not be an option for most leaseholders. A landlord will generally have complied if an insurance claim has been refused and/or likewise a warranty claim (if within the warranty period).

In practice, then, this clause will provide very little additional protection from remediation costs for leaseholders.

• Additional costs (Higher Risk Buildings – currently 18m plus)

Leaseholders will also be hit with a new Building Safety Charge (BSC). The additional costs of the Accountable Person and the Building Safety Manager can be levied on leaseholders from the entry into force of the BSB regime for Higher Risk Buildings. Paying the BSC is an implied obligation in every lease [clause 120 and new section 30D of the Landlord and Tenant Act 1985], payable on 28 days' notice. The relevant charges are set out in a new Schedule 2 [under Schedule 7 in the Bill]:

(a) legal fees (to the extent not otherwise recoverable);

(b) other professional fees;

(c) fees payable to the regulator; and

(d) management costs.

They include costs of any measures ‘required or permitted’ to be taken under Part 4 (but not works under section 84(2) - works to the part of the building for which the Accountable Person is responsible – so not remedial works). Emergency measures may be part of the BSC, but not remedial works.

(It is worth noting that the Government are spinning this as the costs of remedial works for existing defects not being recoverable under the BSC. This is accurate, but misleading. No remedial works costs – past or new – are recoverable under the BSC, but will be recoverable under service charges in the vast majority of cases.)

Although the new regime introduces positive reforms requiring an Accountable Person, Building Safety Manager, new duties, etc. these will only apply to “Higher Risk buildings” as defined in clause 62 of the Bill to cover only buildings of either 7 storeys or 18m high with at least two residential units. Care homes and hospitals are excluded. The government estimates only 12,000 residential buildings come within scope (see its Impact Assessment factsheet). We know that thousands of leaseholders and care home residents are caught in thousands of unsafe blocks below this height.

• Leaseholders’ causes of action and limitation

The BSB does three things in this regard:

1. It appears that regulations will be made to bring section 38 of the Building Act 1984 into force. This provides for civil liability for breach of a duty imposed by building regulations, so far as it causes damage. The scope of this liability has yet to be explored, but it is likely that in as much as it requires damage to have been caused by breach of building regulations, it will not extend to recovering costs of remediation (as being in effect a negligence claim and the ‘pure economic loss’ of remediation costs is not recoverable in negligence claims). However, limitation on this new cause of action will be 15 years, applied retrospectively from when the relevant section of the BSB comes into force.

1. Limitation claims under section 1 of the Defective Premises Act 1972 will be extended to 15 years with retrospective effect. Currently limitation is 6 years from ‘completion of the dwelling’, so this change would potentially bring a number of buildings back within the limitation period so that a claim can be brought. A claim could potentially be made against a developer, builder or the person/entity for whom the building was constructed where there was a failure to use a reasonable standard of materials, workmanship or professional standards, ‘such that the dwelling is not fit for habitation’. Such claims can encompass the costs of remedying the defects. Ideally, the Limitation Act 1980 would be amended to broaden the scope of the extension of the limitation period further. Many leaseholders hoped for a greater extension.

However, there are some significant caveats to the utility of such claims for leaseholders, even setting aside the potential expense and risks of pursuing litigation.

1. There has to be someone worth suing. The reality is that many developments are undertaken by special purpose vehicle companies that are liquidated once all the profits from sales have been extracted. Even if they still exist, they have no assets.
2. Such a claim would be highly unlikely to encompass remedial works where ‘the rules have changed’ since construction – for example, combustible material on balconies, only effectively ‘banned’ by the government's consolidated Advice Note in January 2020. There may be similar issues with some cladding and insulation materials that complied with Building Regulations at the time of construction, or at least arguably did.
3. The BSB proposes a defence to a claim under the retrospective limitation period at clause 126(5) if it gives rise to a breach of the defendant’s human rights under the European Convention/Human Rights Act. Whether there is such a breach simply in the retrospective extension of a limitation period which would otherwise have expired years ago will inevitably be a question taken through the courts to the highest level, and pose a very significant costs risk to any leaseholders bringing such a claim.
4. There is a new section 2A to the Defective Premises Act 1972 proposed at clause 125. This imposes a similar duty to section 1 DPA, but in respect of all work to a building (including refurbishment), not just its initial construction. This will be helpful to leaseholders who could previously only take action against a freeholder for defective repairs or maintenance, but can now take action against the contractors. However, it is not retrospectiveand will only take effect once the BSB is in force.

• Access (Higher Risk Buildings – Currently 18m plus)

The Accountable person will have the right to request access to any demised property (flats) on 48 hours' written notice for assessment of safety risk or determining whether the resident/owner has contravened their duties). This can be enforced by application to the County Court (in effect for an injunction). Landlords are likely to seek to use this provision to gain access for other purposes.

• Conclusion

For the very large majority of leaseholders facing current fire safety defect issues and consequential costs (waking watch, increased insurance premium, costs of remediation and correcting defective installations), whether in 18m plus or shorter buildings, the BSB offers nothing to alleviate or improve their position. Those in 18m plus (or ‘higher risk’) buildings are even being hit with a new Building Safety Charge on top.