How We Live... Safely: Building Safety autumn update

Sue Ryan: Thank you for joining us for the second in our 'How We Live Safely' podcast series.

This podcast forms part of our 'How We Live Campaign' where we are delving into important topics which are affecting the living sectors. In 'How We Live Safely' we will be focusing on the implications of the Building Safety Act for those who are operating in that sector, although what we are discussing also has wider application than just the living sector.

I am Sue Ryan and I am a partner in the Construction team and head of Building Safety here at Gowling WLG. I am joined today by my colleagues Gemma and Sean who are part of the Building Safety team here.

So at the time of recording this podcast, today is 6 October 2022, we are now just over three months on from our first podcast where we talked about the Building Safety Act gaining Royal Assent and the first of the provisions from the Act coming into force. At that time we highlighted that there was still a significant amount of detail that remained to be finalised by way of secondary legislation coming over the next 12-18 months.

So my first question for you both is what has changed over the summer? Have any significant strides been made in terms of the full Building Safety Regime being brought into force?

Gemma Whittaker: So I think the simple answer to that Sue is that there have been some further developments in legislation over the summer but not a huge number.

So when we last spoke we were on the eve of the key date of 28 June, which automatically brought into force some new statutory causes of action and extended limitation periods relating to civil liability for defective work, as well as those key provisions preventing leaseholders from being charged for rectifying defects. So a couple of really significant parts of the Act there.

We had also just started to see secondary legislation being laid before Parliament. So the first set of commencement regulations which brought in a variety of provisions mainly including building liability orders. But we were waiting for further secondary legislation to bring into force and further detail a lot of the building safety regime. Since then we have seen four further statutory instruments brought forward which implement various aspects of the Act. So we have had a second set of commencement regulations,  the Construction Product (Amendment) Regulations, Approved Inspector Amendment Regulations and Leaseholder Protection Regulations. And while that might sound like a lot there does seem to be quite an incremental approach being taken so far with the bulk of that secondary legislation covering, what we would really think of as supplementary and consequential changes in the law, rather than the really significant changes that we are still awaiting.

That said there are a couple of very significant points coming out of the secondary legislation so far that it is well worth clients being aware of. So the first of these came out of the Commencement Regulations No. 1 which we did briefly mention on our first podcast. These came into force on 28 May and set a timetable for the bringing into force of certain parts of the Building Safety Act. As I mentioned, most of those were either supplementary or fairly minor amendments. But probably the most significant provision brought into force was the ability for the High Court to now make building liability orders from 28 June 2022.

Sue: Oh okay. So building liability orders are a new concept introduced by the Act. Sean do you want to give us a brief explanation about building liability orders please.

Sean Garbutt: Yes sure Sue. As Gemma said  the Commencement No. 1 Regulations brought in the ability of the High Court to bring in Building Liability Orders in which are an entirely new type of order that is only derived from the Building Safety Act. What a Building Liability Order does is to effectively make any liability that has arisen, either under the Defective Premises Act or under section 38 of the Building Act or otherwise there being a building safety risk, that that liability can be shared with one or more bodies corporate.

Now in assessing whether a building liability order is made the High Court will consider whether it is just  and equitable for such an order to be made. Obviously there have not been any of those orders made yet so it is a case of watch this space to see what that test actually looks like in practice. Even still there must also be an association between the original liability holder and the company that is the potential subject to the building liability order.

The test for association is fairly complex and set out in the Building Safety Act but in very high level terms it will effectively capture companies that are in the same corporate group or structure or have a commonality of directors between them.

Sue: Okay so that is quite a significant power and it will no doubt have quite an impact on the way in which developers operate. What issues does that give rise to and how will this give additional protection to tenants then?

Sean: So I mean, I suppose initially from a client's point of view or from a developer's point of view there is moving away from well-established principles of privity of contract and to a certain extent looks to be piercing the corporate veil. I suppose the key take away in that respect is it militates again special purpose vehicle companies being used to hold or store liabilities as those liabilities could ultimately be spread about amongst the corporate group. And particularly bearing in mind the extension of the limitation period retrospectively of 30 years under the Defective Premises Act we discussed on our first podcast. This could have quite a wide ranging effect as the order can be made with associated companies that have since been dissolved, which again opens up the net further in terms of association.

Sue: Well it will be interesting to see how that develops then. Gemma, you mentioned that there were other regulations that have come into force over the summer. Could you fill us in on those please?

Gemma: Yes, so aside from Commencement Regulations No. 1 there were also some substantive regulations introduced concerning Approved Inspectors and the Construction Product Regulations which were laid before Parliament at the end of June and came into force at the end of July. Although they provided really for some relatively minor changes to the existing Construction Products and Approved Inspector Regulations.

There were also the Leaseholder Protection Regulations that came in which supplemented the existing leaseholder protections and introduced a new concept of landlord's certificates which I think Sean you wanted to talk about.

Sean: Yes, thank you Gemma. So I think something that a lot of clients are going to need to be alive to is the regulations regarding the landlord's certificate. It will probably help if I explain what a landlord's certificate is. It is effectively a list of information that can be requested at any time by a tenant as to the corporate structure of the landlord or if the landlord is not the original developer, the corporate structure of the developer as well. Now that information has got to be given in pretty short order, i.e., four weeks from the date of request and it has got to be set out in a prescribed form which is annexed to the regulations.

Given the information required and the tight timeframes it would be sensible for landlords to now be reviewing their potential obligations to provide such certificates and to have that information pulled together and stored centrally so a response can be issued in good time. And I know from experience we have definitely had clients already contacting us in respect of this so it is going to be an obligation that is going to be reoccurring quite regularly I suspect.

Sue: Okay, thanks for that. And Gemma, I believe that there was one further statutory instrument that came into effect over the summer.

Gemma: Yes, the fifth statutory instrument that was made over the summer is I think particularly politically significant. This is the second set of commencement regulations which again brought into force a few different provisions of the Act. But the most significant of this was sections 126 to 129, which allowed the Secretary of State to establish what the Act calls a Building Industry Scheme, for various specified purposes but that includes securing the remediation of defects in buildings or a contribution towards the costs associated with such work.

The provisions allow then for eligible persons to become a member of that Scheme but they also go on to say that where a person is eligible to join such a Scheme but is not a member, the Secretary of State can actually prohibit that person from carrying out the development of land in England and can also prevent them from applying for or receiving building control approval.

So this came into force on 1 September and requires again further regulation to put into effect the detail of the Scheme, but the Government has indicated its intent to lay those further regulations as soon as practicable. And this all needs to be seen against the backdrop of the ongoing negotiations between the Government and industry over the 'Developer Pledge' whereby, I think at last count, 49 developers have committed to remediate what are called 'life critical fire safety works' in buildings over 11 metres that they have had a role in developing or refurbishing. And then the translation of that Pledge into a contractually binding self-remediation contract.

I think it is probably safe to say that the negotiations over those self-remediation contracts have been challenging over the summer and clearly the bringing into force of this part of the Act is intended by the Government as a signal of their intent to make good on their promise to bar access to the market to those industry players that it considers aren't acting responsibly. So I think that's a statutory instrument that's important to be aware of, particularly considering the background.

Sue: Yes I think time will tell how that's going to play out, particularly now that we have a new Secretary of State in charge of the Department of Levelling Up which is the third in three months. It sounds like despite some considerable political upheaval since we last spoke, some progress is being made even if it is very incremental. So what else do we now know about the secondary legislation that is still awaited and have there been any progress on the commencement date of section 38 of the Building Act?

Gemma: Yes in terms of the further secondary legislation that we're waiting for there have been three consultations published by the Government over the summer relating to the higher risk building regime and I think this is probably one of the more significant developments to have taken place over the summer. The higher risk building regime, as a reminder, is the new, more stringent regime relating to the design constriction and occupation of multi-occupied residential buildings that are at least 18 metres or seven storeys. The first consultation earlier in the summer was in relation to refining the definition of higher risk buildings and the second and third consultations were published together and these related to the design and construction and then, separately, the occupation phase of higher risk buildings.

Those consultations as you might expect were quite lengthy and detailed and we did publish some insights, which we will link to alongside this podcast, which set out some of the detail within those consultations. There are a few areas that I think it is worth us just mentioning here as they're areas that clients will need to start considering if they've got higher risk buildings planned for development or acquisition from 2023 onwards.

So the first of these is the implications of the gateway process and the approvals that will be required from the Building Safety Regulator in relation to gateways two and three and also to changes made in between those gateways. So we spoke in the first podcast about the introduction of the new building control regime, and in particular about the approvals that will be required from the Regulator at commencement and completion of the works, so gateways two and three. Our latest insight will go into this in a bit more detail. A point to note about that is that the consultations suggested there could be a maximum 12-week period for the Regulator to consider and approve applications at those stages. And if no approval is given at the end of the period and the applicant hasn't taken certain action by that point then it would be a deemed refusal. Now I know there is some concern in the industry about the length of that period, particularly on completion, and also around this principle of deemed refusal, so we will wait to see whether the consultation elicits any shift in position on those points.

The Hackitt Review was also clear in calling for a stronger change control process and the consultations set out the proposed requirements for implementing that also. So this includes the information that will need to be recorded in change control logs, as well as defining  two types of controlled changes that will require engagement with the Building Safety Regulator. So the consultation sets out a proposed list of what it's calling 'major changes', including things like changes to structural design, introduction of large panel systems, changes in fire strategy, evacuation routes or compartmentation. And these types of changes will require building control approval, which could take up to six weeks. And it is also proposed that there will be a list of 'notifiable changes', such as changes to the procedures for assessing competence, changes to the layout or dimensions of individual flats to the extent that that doesn't impact on the common parts or the substitution of products that were referred to in the original building control approval application with like-for-like products. And for 'notifiable changes' it's proposed that they will need to be notified to the Regulator and they can't be implemented for 10 working days and then only if there is no intervention in the meantime by the Regulator.

So it's clear that clients are going to need to consider how change is managed in a more formal way and also allow for any delays in the programme that may be caused by this process and also to consider who is going to bear the risk of that. And the second area on the consultation that I do want to mention here is the plans for a transition period with a new building control regime because that will be particularly of interest to anyone involved in higher risk buildings that might be scheduled to start over the next 12 to 18 months. So previously, it had been suggested that all higher risk buildings would be transferred to the new regime really whenever work on them had commenced, but the Government have now accepted theindustry concerns that this really was not going to be viable. They have said that they are concerned to make sure that developers aren't able, in their words, to 'game' the system but equally acknowledged the need for clarity and viability. So the plan is to have a transition regime in a similar way to that that you would expect for other building regulation changes. So there is a suggestion that there will be a six-month transition period and realistically we expect that to run between April and October 2023.

So if an initial notice or deposit of full plans has taken place by the date on which the new regulations come into force and work is then commenced within six months of the new regulations coming into force, then a higher risk building will stay within the existing regime. But if either of those criteria aren't met, then the building will be transferred to the new regime. And again a couple of points on this, the first being that there is intended to be a new tighter definition of commencement, which means that if work has commenced on one building in a multi-building development but not others, you could end up with some buildings being within the existing regime but others transferring to the new one. And the second point to note is that this transition arrangement would apply to design and construction only. Once the work is complete, if the building falls within the definition of a higher risk building for the occupation phase, and once the occupation provisions of the Act are in force, the building will fall within that regime and that includes requirements, such as a requirement for a gold thread of information. So I think regardless of the statutory requirements during the design and construction phase, it is still worth considering starting a golden thread of information during design and construction, so that it will then be available for the occupation phase.

The closing date for the latest consultation is 12 October and the Government has said that they are aiming to publish their response within 12 weeks of them closing. So I think we can expect to see a bit of a flurry of activity, probably early in the new year, with those regulations being brought into force we expect in April, and then a transitional period of running until October 2023.

You also mentioned Sue, section 38 of the Building Act and this relates to some of those new causes of action that we mentioned in our first podcast. So as of today's date (6 October 2022), this section of the Building Act is still not in force, although the changes that were made on 28 June did extend the limitation period for claims made under that section. So there seems to be a bit of confusion about how that situation has arisen, because the intention of the Government clearly was that section 38 would be brought into force on 28 June alongside those other provisions. So we have written to the Secretary of State for Levelling Up to find out what is happening to bring that section into effect, but as yet have not had a response on that.

Sue: Thanks for that Gemma. We will watch this space then with regard to section 38 as presently really that failure of that section to come into force really undermines other provisions and the driving force to the Act. And it sounds like although we don't know the final form of those new regulations, the consultations do give us some detailed information about what the Government is intending to include.

One final thing we have to mention if we are talking about updates relating to building safety from this summer, is the case of Martlet Homes Limited vs Mulalley & Co Limited, especially for those of us who deal with disputes. This is the first time the Court has considered substantively a post-Grenfell external wall defects claim. And I wonder Sean if you could give us some of the key pointers coming out of that judgment.

Sean: Yes Sue thank you. Yes, it is probably one of the more keenly anticipated judgments of recent times, particularly for those of us that, as Sue said, undertake dispute work. I suppose the real reason for that is until Martlet was handed down, there had not been any direct guidance by the Court on how external wall defect claims would be assessed, particularly given the complexities of such claims with the many and varied types of construction and the differing guidance associated with those types of construction. Perhaps conscious of the wider interest there would be in the judgment, the judge, His Honour Stephen Davies, provided a very full judgment which runs to over 600 paragraphs over 92 pages, so I will do my best to summarise that. But I suppose one of the key takeaways, and it was a warning given very early on in the judgment, was that the Martlet case itself turned very much on the specific contractual provisions and the specific fire safety standards applicable to those particular products, as well is the actual pleadings of the parties, how those pleas were argued and the evidence called. So to take from that, there is probably not any slam-dunk conclusions to be taken, although I suspect there is probably some points of general application which I will come on to.

In terms of background -very briefly - the claimant Martlet Homes was the owner of five concrete tower blocks in Gosport, Hampshire, and the previous owner of the towers had engaged a design and build contractor, Mulalley, the Defendant in this case, to complete a refurbishment work of the blocks, including the external wall insulation cladding to the buildings. As with most building owners following the Grenfell tragedy, Martlet undertook investigations into the adequacy of the external wall construction, which amongst other things included an expanded polystyrene or EPS cladding render system, which is a not a product of limited combustibility and can on occasion be quite combustible. So upon identifying this and also identifying various installation defects, Martlet put in place a waking watch and ultimately decided to replace the entire system at its own cost. It then turned to seek recovery of the cost of that remediation and other costs it had incurred, including the waking watch from Mulalley, and on the basis that Mulalley had either breached its design or its workmanship obligations under the regional contract.

Ultimately the Court found that Mulalley was responsible both for the workmanship defects, which were termed installation defects within the judgment, and design defects which were termed specification breaches within the judgment, and awarded to Martlet the entire costs of the remedial works and the costs of the waking watch. So as I said notwithstanding the early caveat or warning that this claim was very much decided on its own merit, that there probably are still three or four key points of general application that will provide welcome guidance to the industry and particularly those involved with bringing or defending these types of claims.

The first of those concerns; comments made in respect of the building regulations, Approved Document B, or ADB as many people know it, and the BRE135 report. In particular the judge addressed the versions of the Building Regulations ADB and BRE that were in force at the time of design and construction of these properties. The particular versions that came under inspection I suppose in this judgment were the Building Regulations as they were in 2002, ADB 2002, and then both the 1988 and the 2003 versions of BRE 135. I won't delve into too much detail because the judgments were careful consideration if you're considering any of those in particular documents, but just by way of example, the judge made a determination in respect of paragraph 13.7 of ADB, which was to the effect that, when read as a whole, a designer could not assume that that provision did not replace any restriction at all as to the use of combustible wall materials and instead that it would be necessary for that designer to refer to the guidance in BRE135. Then turning on to BRE135 the Judge did make a further comment that the 1988 version was not a master piece of clarity and the 2003 version could have been clearer. But yet again he did make many comments which will be particularly relevant to those considering those forms of the documents in the context of any claimer bringing or facing.

The second sort of point of general application, is what has been termed the 'lemming' defence as it were, and those who are used to negligence claims in particular would be familiar with the case of Bolam, which is often used as a defence to say that provided a reasonable body of experts would have taken the same approach, then the person undertaking the same approach would not be deemed negligent. Mulalley ran that defence to the effect of everybody else was using these materials and these constructions, so on the application of Bolam, that cannot be deemed negligent and the calling of breach of contract. The Judge rejected that approach and very much took the view that just because other parties were just as negligent that does not operate as a get out of jail free card for any Defendant designer, and I suppose that is quite a key decision which I suspect will be heavily referred to by claiming parties going forward, as it is a fairly common defence brought by those defending these sorts of claims. And I suppose the final real point of general application arising from Martlet considers the linked concepts of causation and remoteness of damage. Causation within any claim is that you need to link the damage for which you are claiming to the alleged breach of contract or the alleged negligent act and that is often known as the 'but-for' test, so 'but-for' one thing happening I would not have suffered this loss.

Now in this case, Mulalley took that approach by saying the real cause of the building being renovated or replaced, and the waking watch being put in place, was because of the Grenfell tragedy, and had that "but for" the Grenfell tragedy happening, Martlet would have not considered the external wall construction and certainly would not have put in a waking watch. The judge was not overly persuaded by that argument as regard to the 'but-for' test, the judge found that there was good cause for applying what is known as the "effective cause" test as opposed to the 'but-for' test and causation and the thinking behind that was that the installation breaches were the effective cause of the loss suffered which led to Martlet having to replace the cladding. I suppose it is probably quite interesting that the judge held that if Mulalley's only breaches has been the insulation breaches and then not the specification breaches i.e. the design breaches, then Martlet would only have been entitled to the cost of the repair and not entitled to the cost of the whole replacement scheme. As regards to the defence for the remoteness of damage, this focused on the waking watch costs incurred, and again the judge was satisfied that those losses were close enough in proximity and foreseeable, so as to be recoverable, not that they were too remote which was the position adopted by Mulalley.

The judge found that it was only the type or kind of loss and not the precise circumstances that needed to be foreseeable, and in this case, the need for temporary safety measures to mitigate a fire safety risk was sufficient to be foreseeable as opposed to saying that we would specifically need waking watch in place over these buildings for example. Moreover the judge also found that the costs of putting a waking watch in place were a reasonable step of mitigation on behalf of Martlet as the only other viable alternative would have been to evacuate and decamp the property and house the residents elsewhere, which I think all parties would have been agreed is somewhat more of an expensive endeavour than putting a waking watch in place.

So I suppose they are probably the three key takeaways from that and I am aware there was thought being given to raising or lodging an appeal to that but I think Sue you understand that that is not now the case, so I think that that is all I have got to say on Martlet.

Sue: OK. Thanks Sean. So it is an interesting and informative case and whilst there is always the underlying premise that each case has to be treated on its own facts. The cladding insulation material in question here, the EPS system that you referred to, is a proprietary system which was very commonly used. Certainly, we've come across it in a number of the cases that we are involved in haven't we? So it does provide very useful guidance. And also the points of principle coming out of the judgment specifically relating to the 'lemming' defence, causation and remoteness are also very instructive.

Well that seems like a good point to end on. Thank you both for joining me this afternoon to discuss the recent updates to the Building Safety Act on our 'How We Live… Safely' podcast series. Sign up to our mailing list to keep updated on the next episode in the series.