Following our insight on the recent Government update setting out the key features of the Responsible Actors Scheme (the Scheme), the Government has now published the draft regulations which will implement the first phase of the Scheme.
The Building Safety (Responsible Actors Scheme and Prohibitions) Regulations 2023 (the RAS Regulations) were laid before Parliament in draft form on 25 April 2023. We consider below what these confirm about the operation of the Scheme, which eligible developers must join if they wish to continue building "major developments" in England.
The Building Safety (Responsible Actors Scheme and Prohibitions) Regulations 2023
The RAS Regulations are made under sections 126-129 of the Building Safety Act 2022 (the "BSA"). They establish the Responsible Actors Scheme for the purpose of securing "the safety of people in or about buildings in relation to risks arising from buildings" or to improve "the standards of buildings".
Those who join the Scheme must sign the developer remediation contract with the Department for Levelling Up, Housing and Communities (DLUHC). This requires developers to remediate unsafe residential buildings 11 metres and above in England ("relevant buildings") which were developed or refurbished during the period from 5 April 1992 and ending on 4 April 2022 (the "relevant period").
A "residential building" for these purposes refers to a self-contained building or part thereof which contains at least one dwelling held under a long lease of over 21 years, or is owned by a registered provider of social housing. It can therefore include mixed use buildings as well as purely residential buildings (indeed, the RAS Regulations expressly state that a building does not cease to be a residential building purely because it also contains premises which are not dwellings).
The Explanatory Memorandum accompanying the RAS Regulations describes the developer remediation contract as being "at the heart of" the Scheme. The obligations imposed under the developer remediation contract are described in detail in our previous insight. 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 significant prohibitions that the Scheme will impose.
If approved in their current form, the RAS Regulations confirm many of the details of the Scheme which were already set out in the recent Government update, as described in our previous insight. This includes eligibility, the extent of the prohibitions that will apply to those who are eligible but opt not to join the Scheme, as well as the potential exceptions..
Who will be eligible to join the Scheme?
As foreshadowed in the recent Government update, the provisions governing eligibility for the Scheme capture developers:
- whose principal business is residential property development (broadly, 50% or more of total adjusted operating profits for the specified period were derived from the development of residential property in the UK) and who have been responsible for the development or refurbishment of one or more relevant buildings in the relevant period; or
- who have been responsible for the development or refurbishment of two or more buildings that have been assessed as eligible for a relevant government cladding remediation scheme, and
in either case provided they also meet the average annual operating profit threshold of £10 million or higher in the three years from 2017 to 2019.
However, registered providers of social housing, as well as their wholly-owned subsidiaries, are excluded from the definition of eligibility for membership of the scheme.
There is also a route for other developers who have been responsible for the development or refurbishment of at least one relevant building that qualifies for remediation under the terms set out in the developer remediation contract to volunteer to join the Scheme.
A developer will be treated as having been "responsible for the development or refurbishment" of a relevant building if another entity in the same group was responsible for developing or refurbishing it in the relevant period. This will apply irrespective of whether or not the building was developed or refurbished before the two entities were in the same group, and so to ascertain the buildings over which they may have obligations, developers will need to examine the development history of all the entities within their group.
The RAS Regulations set out details as to the calculation of the profit conditions, including required adjustments to the operating profit figures in accounts. They also confirm that if a developer satisfies the profit conditions in the financial years from 2017-2019, they will not cease to be eligible simply because their adjusted operating profits fall below £10 million in any financial year thereafter.
The Explanatory Memorandum further notes that the Scheme is intended, over time, to be expanded to cover other developers who have developed or refurbished defective residential buildings of over 11 metres (this may, for example, include those whose profits fall below the current threshold).
What are the consequences for eligible developers who do not become members of the Scheme?
The RAS Regulations establish the "prohibitions" that will apply to:
- developers who are eligible for the Scheme but opt not to join;
- developers who join but subsequently fail to comply with the Scheme's conditions, and whose membership is revoked (noting that there will be a 28-day notice period during which a member may make representations against the proposed revocation of membership (note that this includes developers who voluntarily join the Scheme, as opposed to being required to do so, but whose membership is later revoked)); and
- "persons controlled by" developers falling into categories (a) and (b) above, e.g. JVs.
Such developers will be included on a "prohibitions list" to be published by the Government, alongside a list of entities who are members of the Scheme. However, there is an exception for those falling into category (c) above, i.e. entitles who are "controlled by" eligible developers, to apply to the Secretary of State requesting that the prohibitions not be applied to them on the grounds that they are "not a person in the building industry".
The rationale for extending the prohibitions to persons under the control of the prohibited developer is to prevent prohibited developers from continuing their development business through other entities which they control.
Developers on the prohibitions list 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"). If a development under a planning permission is carried out in breach of the planning prohibition, this will constitute a breach of planning control. (Building control approvals granted before a developer went on the prohibitions list will remain valid.)
The RAS Regulations confirm that "major development" will include:
- schemes providing 10 or more residential units;
- (where it is not known if it will provide 10 units or more) residential schemes on a site at least 0.5 hectares in size;
- commercial developments creating at least 1000 square metres of floor space;
- development on sites over one hectare in size; and
- schemes for the winning and working of minerals, or for waste development.
Prohibited persons will be required to notify the relevant local authority of their prohibited status:
- when applying for planning or making a subsequent application for, or relating to, major development; and
- if they acquire or transfer an interest in land which has the benefit of planning permission for major development.
Are there any exceptions?
Yes – there are a number of exceptions from the prohibitions allowing for:
- projects which are necessary for critical infrastructure – in such cases both the planning prohibition and the building control prohibition may be disapplied;
- building control sign-off for residential buildings where people have exchanged contracts on their new home before the prohibition on their developer came into effect;
- purchasers and owners to obtain a regularisation certificate for unauthorised building work under the Building Regulations 2010; and
- emergency repair works; and permitting building works in occupied buildings to ensure resident safety.
It still remains to be seen how these exceptions will operate in practice. It may become clearer during the passage through Parliament what purpose these exceptions fulfil and clarifications made in order to avoid potential unintended consequences.
When will the Scheme come into effect?
The Government update in March indicated that it intends to implement the Scheme "by early summer" 2023. The Regulations provide no further insight as to when the Scheme will be brought into effect, stating that "guidance" on the operation of the scheme will be "made publicly available by summer 2023". It is widely expected that the draft RAS Regulations will be implemented before the summer recess which begins on 20 July 2023.
If you have any questions about this article, please get in touch with Sue Ryan, Gemma Whittaker, Sean Garbutt or Megan D'Souza-Mathew.