It's full speed ahead on the Government's ambitious plan to reform English and Welsh property law. Following the abolition of ground rents for certain qualifying residential leaseholds through the Leasehold Reform (Ground Rent) Act 2022, the Leasehold and Freehold Reform Bill ("the Bill") will continue the wide-reaching changes to the residential leasehold sector.
We have already set out the key points in the Bill. Here, we consider clauses in the Bill that would have the effect of amending the Building Safety Act 2022 ("the BSA"). In short, these amendments would ensure that the BSA operates as intended to protect leaseholders.
Why is this important?
The BSA contain numerous financial protections for leaseholders in buildings of at least 11 metres or five storeys in height, particularly where work is needed to address safety defects. These protections have come into force since June 2022.
It's fair to say there has been criticism as to the workings of the BSA – whether because the drafting can be hard to follow at points, or the legislation leaves gaps in practice that leave leaseholders vulnerable. Parliament has taken note, and the BSA has already been amended. Now, further amendments to the BSA have been proposed, and these amendments have been included in the Leasehold and Freehold Reform Bill. The express purpose of these amendments is to ensure that the leaseholder protections set out in the BSA are properly in place. Importantly, some of the amendments will have an effect on legal proceedings already underway when the amendments come into force.
Part 5 of the Building Safety Act
The amendments in the Bill are focused on Part 5 of the BSA – where there are obligations on relevant landlords to maintain the safety of "relevant buildings" (which are at least 11m high or have at least five storeys). The point is to ensure that leaseholders continue to be protected from dangerous buildings within the scope of the BSA (and the cost of fixing such buildings).
Key points
1. The relevant landlord is responsible for taking "relevant steps"
Under s.120 BSA, a "relevant defect" in a building arises as a result of anything done (or not done), or anything used (or not used), in connection with relevant works, and causes a building safety risk. Relevant landlords must take relevant steps to remedy the relevant defect. So, this amendment introduces a definition of "relevant steps" as the new s.120(4), meaning steps which have as their purpose—
(a) preventing or reducing the likelihood of a fire or collapse of the building (or any part of it) occurring as a result of the relevant defect,
(b) reducing the severity of any such incident, or
(c) preventing or reducing harm to people in or about the building that could result from such an incident.
In practice, relevant steps can include waking watches, and/or sprinkler systems.
2. Service charges can be payable for legal costs relating to liability for relevant defects
Currently, Sch.8, para 8 of the BSA states that no service charge is payable under a qualifying lease in respect of legal or other professional services relating to the liability (or potential liability) of any person incurred as a result of a relevant defect.
Now, an amendment to this section will mean that management companies can recover legal and professional costs incurred in the application of a remediation contribution order, where the lease permits this. Therefore, this is not a new right – the service charge provisions lease must allow for recovery. Also note that this change will not be retrospective, so will not apply to professional fees incurred before the amendment comes into force.
3. Making remediation orders and remediation contribution orders clearer
Currently, the First-Tier Tribunal can make remediation orders/ remediation contribution orders against parties to ensure fire safety issues are addressed (see our recent high-profile RCO case).A remediation order requires a relevant landlord to remedy specified relevant defects in a specified relevant building by a specified time (s.123, BSA). A remediation contribution order requires a body corporate/partnership to make payments for the purpose of meeting costs incurred or to be incurred in remedying relevant defects (or specified relevant defects) relating to a relevant building.
There are now a series of amendments which clarify the scope of these orders, in the hope it will then be easier for a tribunal to make them (and so ensure leaseholders are protected).For example:
- S.123 of the BSA will be amended so that a landlord can be ordered to take relevant steps rather than just remedying a relevant defect. This means the tribunal can order particular actions that must be taken.
- S.124 of the BSA is amended to give the courts and Secretary of State greater power to specify which costs fall within a remediation contribution order.
4. No longer meeting remediation costs of insolvent landlords
Currently, where a landlord is required to remedy relevant defects and that landlord is insolvent, then a court can require an associated body corporate or partnership to make payments towards the insolvent landlord's assets or make payments towards remedying the relevant defects (s.125, BSA). The amendment in the Bill will repeal this clause.
5. Greater awareness of insolvent landlords
A number of further amendments will give third parties a greater awareness where a person with repairing obligations relating to a relevant or higher risk building is insolvent. There will be duties on insolvency practitioners to update the Regulator and local fire and rescue service, and local authorities.
What's next?
The Bill is continuing its passage through Parliament (currently awaiting its second reading in the House of Lords), and so there is some time before the Bill, and the amendments above, become law. If and when they do, as noted, some will bite retrospectively.
If you'd like to discuss the options in this article in further detail, please contact Sue Ryan, Senay Nihat, or Sean Garbutt.