The Government has issued an update on the key features of the Responsible Actors Scheme (the Scheme) for residential developers in England, which it intends to implement "by early Summer" 2023.
The announcement follows the passing of the deadline for residential developers who meet the criteria to sign the developer remediation contract with the Department for Levelling Up, Housing and Communities (DLUHC), which requires developers to remediate unsafe buildings (residential and mixed-use) that are 11 metres and above, developed or refurbished in the 30 years prior to 5th April 2022.
Developers who meet the criteria but have not signed the developer remediation contract will not be eligible to join the Scheme. The consequences of this are onerous and include a prohibition on carrying out "major development" in England.
We consider in more detail below what is now known about the Scheme, based on the recent Government announcement. We also briefly consider the position in Wales and the Welsh Government's recent announcements in respect of its Developers' Pact and new Welsh Building Safety Developer Loan Scheme.
What is the Responsible Actors Scheme?
Sections 126-129 of the Building Safety Act 2022 (the "BSA") grant the Secretary of State the power to establish a scheme to secure "the safety of people in or about buildings in relation to risks arising from buildings" or to improve "the standards of buildings".
Members of the Scheme will be required (in accordance with the terms of the developer remediation contract) to:
- identify residential buildings 11 metres and above that they have developed or refurbished over the past 30 years, and any of those buildings known to have "life-critical fire safety defects";
- remediate and/or mitigate, or pay for the remediation/mitigation of, "life-critical fire safety defects" in those buildings; and
- reimburse government schemes for taxpayer-funded work to remediate and/or mitigate defects in those buildings.
The details of the Scheme are to be set out in secondary legislation, and this announcement gives further information about what those regulations are expected to say.
Eligible developers who have thus far chosen not to sign up to the developer remediation contract will either now need to do so (which will then entitle them to join the Scheme), or face the prohibitions that the Scheme will impose (described further below).
The announcement also notes the possible expansion of the Scheme in the future, with additional membership conditions potentially being imposed through further regulations including the application of a "fit and proper person test" to directors and senior managers of members of the Scheme.
What are "life-critical fire safety defects"?
"Life-critical fire safety defects" are defined in Annex 1 to the developer remediation contract, and include defects affecting external walls or cladding and internal parts such as compartmentation and fire stopping, whether arising from design, construction or refurbishment of the building or any part of it.
Defects arising solely as a result of goods, materials and or products being at the end of their life cycle are excluded. Any fire-safety risk determined to be intolerable by a Fire Safety Assessment or fire risk appraisal of external walls carried out in accordance with the Fire Safety Order and PAS 9980, will be deemed to be a life-critical safety risk.
Who is eligible?
The announcement states that the Scheme is initially focused at major housebuilders and other large developers who have developed or refurbished multiple residential buildings known to have "life-critical fire safety defects", as a result of having been assessed as eligible for a relevant government cladding remediation scheme. At this time the Scheme does not cover manufacturers or suppliers of construction products - liability relating to construction products and cladding products is dealt with elsewhere in the BSA.
Developers with an average annual operating profit in the three years from 2017 to 2019 of £10 million or higher will be eligible for the Scheme, if they meet one or more of the following criteria:
- their principal business is residential property development and they have developed or refurbished residential buildings 11 metres and above in England in the last 30 years (other than solely as a contractor);
- they have developed or refurbished (other than solely as a contractor) multiple buildings that have been assessed as eligible for a relevant government cladding remediation scheme; and/or
- they have developed or refurbished (other than solely as a contractor) at least one residential building 11 metres and above that qualifies for remediation under the terms set out in the developer remediation contract; and they volunteer to sign the contract and join the scheme.
Details as to the profit conditions, including required adjustments to the operating profit figures in accounts, will be set out in the regulations.
Where a developer appears eligible for the Scheme, the Secretary of State will invite them to join. Developers who have not been invited by the Secretary of State to join the Scheme will be able to seek a direction as to whether they are eligible.
The update also indicates that the regulations will make provision for company groups, e.g. by allowing the Secretary of State to nominate one entity to join the Scheme on behalf of others in the group. This follows the approach taken to the developer remediation contract, where one entity (the 'TopCo' of the group) has been required by the Government to enter into the contract on behalf of the group.
Further, it is understood that the Scheme will initially focus on major housebuilders, and other large developers who have developed or refurbished multiple residential buildings that are known to have life-critical fire safety defects by virtue of having been assessed as eligible for a relevant government cladding remediation scheme.
However, it is intended that the Scheme will over time be expanded to cover other developers who have developed or refurbished defective residential buildings of over 11 metres.
What are the consequences for developers who do not become members of the Scheme?
Developers who are eligible to be members of the Scheme, but do not become members, will be known as "prohibited persons". In addition to publishing a list of entities who are members of the Scheme, the Government will also publish a list of prohibited persons.
Prohibited persons will be prohibited from carrying out major development in England (the "planning prohibition") and from gaining building control approval, where such approval is required (the "building control prohibition").It is expected that major development will include schemes:
- providing 10 or more residential units;
- residential schemes on a site at least 0.5 hectares in size where it is not known if it will provide 10 units or more;
- commercial development creating at least 1,000 square metres of floor space; or
- development on a site over one hectare in size.
Prohibited persons will be required to notify the relevant local authority:
- of their prohibited status when applying for planning or when making reserved matters applications and prior approval applications; and
- if they acquire or transfer an interest in land which has the benefit of planning permission for major development.
Rather than an application for planning permission by a prohibited person being refused at the outset, if a development under a planning permission is carried out by a prohibited person, in breach of the planning prohibition, this will constitute a breach of planning control. Existing enforcement powers and offences (as modified by the regulations) will be used to enforce the prohibition.
By contrast, the building control prohibition is expected to prevent prohibited persons from gaining building control approval to start work, including through initial notices, as well as completion or final certificates for completed work.
When will the Scheme come into effect?
The regulations which will bring the Scheme into effect have not yet been published, although the Government has indicated that it intends to bring the Scheme into effect before summer recess in July 2023. If approved by Parliament, this will have significant financial consequences for affected / eligible developers and may impact their ability to fulfil contractual obligations, including Agreements for Lease. Subject to the provisions of the contract, the inability to obtain building control approval may give the parties to a contract the right to suspend works or to issue a notice of termination.
What is the position in Wales?
The Welsh Government is seeking a similar commitment from developers, and recently announced that several developers have either signed, or committed to sign, its Developers' Pact. Signatories to the pact will be eligible to access the Welsh Building Safety Developer Loan Scheme, which will provide interest-free loans over a period of up to five years to assist developers with remediation works to address fire safety issues in buildings of 11 metres or more in Wales. The Welsh Government has also committed to step in and carry out remediation work in an initial cohort of 28 so-called 'orphan buildings' where the original developer is unknown or has ceased trading.
If you have any questions about this article, please get in touch with Sue Ryan, Gemma Whittaker, Sean Garbutt or Megan D'Souza-Mathew.