Government has made it clear that it is lining up changes to the Defective Premises Act and Section 38 of the Building Act 1984 to ensure the construction sector is “held to account for building safety issues”. In a letter to FIS, the Department for Levelling Up, Housing and Communities have spelled out that Legislative changes are being designed to “extend legal rights to redress for shoddy workmanship” and facilitate “civil action to be brought regarding breaches of building regulations which have resulted in injury or damage to property”, holding “those responsible for defective construction work can be held to account for their failures.”
This clear warning was issued in a response to an FIS letter sent in early November to Secretary of State, Michael Gove suggesting a new approach to the Building Safety Fund is required. FIS has isolated issues with the Building Safety Fund since its inception and repeatedly spoken out on concerns related to the retrospective elements of changes to the Defective Premises Act. The Act is being extended to cover refurbishment works and to alter the limitation period under section 1 of the Defective Premises Act 1972 from six to fifteen years regardless of contracts and warranties – this change will be imposed retrospectively from the moment the Act is passed (expected to be in the Spring or Summer 2022).
In the letter to Mr Gove, FIS recommended drawing parallels with the Pension Protection Fund, an intervention designed to protect individuals in defined pension schemes from company insolvencies. FIS suggests that this approach could be replicated by raising a levy on costs like Insurance Premium Tax. and would help to prioritise building work over litigation. It could also facilitate a mechanism to extend the focus of the Fund beyond cladding, supporting a holistic acceleration in improvement in much needed building safety work. As with the Pension Protection Fund, a centrally co-ordinated approach could also provide an efficient mechanism to deal with isolating culpability retrospectively and in a more consistent and measured way. FIS expresses concern that the current policy direction is likely to see litigation put in front of action, companies wound up in administration and life critical interventions delayed and the question of who pays unresolved.
Reflecting on the Government response to the FIS letter CEO, Iain McIlwee stated: “I believe the direction of travel set down in this letter is a real concern to the construction sector and remain convinced that the answer to safer buildings is not the punitive, backward looking approach described.
The Defective Premises Act applied retrospectively in this way is more about winning the blame game than solving problems. To be clear no-one is advocating that leaseholders should be footing the bill or that, in clear cases of negligence or deliberate attempts to disguise information, companies and individuals should not be held to account.
But we can’t allow history to be re-written and a better Building Safety Fund would give the opportunity to draw a line under the past, whilst at the same time recognising that, from regulation, through guidance, enforcement, design, construction and the asset management and maintenance of buildings there has been a systemic failing in the process required to build and maintain safe buildings.
My concern is that, beyond the gaps and opaque advice around regulatory compliance, unhealthy procurement practices, value engineering and accelerated programmes, failings have been underpinned by inappropriate risk exchange in heavily amended standard and ultimately unfair contracts. Contracts have been written to drop a disproportionate amount of financial, time and quality risk into the smallest parts of the supply chain, those least able to resist and manage it. In the interventions described in this letter I don’t see a rapid and effective solution or those morally who should shouldering the blame being held to account. All I can see is a process that squeezes far more blame than is fair or proportionate onto small and medium sized contractors, manipulated by a failed process, never set up to succeed and now to take the fall.”
A fully copy of the letter follows:
Dear Mr McIlwee,
Thank you for your email dated 9 November to the Rt Hon Michael Gove MP regarding cladding remediation and leaseholder liability. I am responding as an official in the team responsible for building safety.
Thank you for your suggestions. The Government has been clear that building owners and industry should make buildings safe without passing on costs to leaseholders. Where they have not stepped up, the Government has intervened by providing grant funding for the removal of unsafe cladding on all buildings of 18 metres and above in height. The total amount of this grant funding scheme represents a globally unprecedented investment of over £5 billion in building safety which will protect hundreds of thousands of leaseholders from the cost of replacing unsafe cladding on their homes.
However, Government funding does not absolve building owners of their responsibility to ensure their buildings are safe, and they should consider all routes to meet costs, protecting leaseholders where they can – for example, through warranties and recovering costs from contractors for incorrect or poor work.
It is also fundamental that the industry that caused this legacy of unsafe buildings contributes to setting things right. At Autumn Budget 2021 the Government released details of the Residential Property Developer Tax, which will apply a new 4% tax to the largest residential property developers on the profits they make on UK residential property developments. Details of this can be found here
The Government is also introducing a levy on major developers which we expect to be introduced at the Gateway 2 stage of the new Building Safety Regime. On 21 July the Government launched a consultation seeking views on the design of the developer levy, including how it will be calculated. The decision on the levy calculation and rate will be informed by the evidence received from this consultation, and balancing revenue raised with potential impacts on housing supply. The consultation has now closed, and the Government is considering responses. The consultation can be accessed on gov.uk here.
The Government’s approach prioritises action on buildings 18 metres and above because the risk to multiple households is greater when fire spreads in buildings of this height. For buildings lower than 18 metres, advice from independent experts, published on 21 July on gov.uk, is clear that there is no evidence of systemic risk of fire in blocks of flats.
The principle that those responsible for creating building safety defects should pay to put them right has always been the Government’s position. That is why we are taking action through the Building Safety Bill to extend legal rights to redress for shoddy workmanship by retrospectively extending the limitation period under section 1 of the Defective Premises Act 1972 from six to fifteen years.
These changes will enhance the ability of building owners, homeowners and leaseholders to seek compensation from those responsible for defective work. Going forward, we are also expanding the Defective Premises Act to include refurbishment works, and we will be commencing section 38 of the Building Act 1984, allowing civil action to be brought regarding breaches of building regulations which have resulted in injury or damage to property. These measures will ensure that those responsible for defective construction work can be held to account for their failures.
We are also introducing the Residential Property Developers Tax and the Building Safety Levy to make sure that the industry which created these problems pays its share towards resolving them. In addition, we are actively encouraging developers to step up and make direct contributions towards historic defects in buildings for which they are responsible.
Thank you again for your correspondence and I hope that you find this response helpful.
Building Safety Programme
Department for Levelling Up, Housing and Communities