Developers Need to Sign New Building Safety Contract, so What Are the Consequences?

Introduction

The UK government is clear, sign the contract developers, or else. But what are the impacts on housing developers? We have broken down the requirements into handy bite-size chunks reflecting the questions you may want to ask yourselves as residential developers.

What’s happened?

Following the royal assent and enforcement of the new Building Safety Act 2022 last year, 49 major residential property developers signed a ‘Developer Pledge’ with the Department for Levelling Up, Housing and Communities (DLUHC). This followed discussions between the developers and government about who would take responsibility for all necessary work to address life-critical fire-safety defects arising from the design and construction of buildings (11 metres or more in height) that they developed or refurbished over the last 30 years in England.

This pledge resulted in the creation of a 93-page ‘Self-Remediation contract‘ that makes those commitments legally binding; the ‘Self-Remediation Terms that are part of and deemed incorporated into Contracts entered into between a Participant Developer and the DLUHC’.

The new contract is designed to further commit developers to help protect leaseholders and residents.

When does it take effect?

Richard Goodman, Director General – Safer and Greener Buildings at NDLUHC sent a letter to developers on Monday, 30th January 2023, notifying that the Secretary of State for Levelling Up, Housing and Communities, Michael Gove, “expects developers to sign the contract as soon as possible”, with a final deadline of Monday 13th March 2023, just six weeks from the time of receipt.

How do we respond?

Developers were requested in the letter to “inform the department by Friday 10th February 2023 of your timeline for deciding whether to sign the contract and to whom our lawyers, Slaughter and May, should send execution copies”.

Mr Goodman confirms that his team is available to answer questions about the contract and assist you in meeting this date if required. The DLUHC team and Mr Goodman himself can be contacted as follows:

• http://www.gov.uk/dluhc
• Richard.goodman@levellingup.gov.uk

How do we know if we are excluded?

The Self-Remediation Contract does not extend to any building where between 14th June 2017 and the date of signing the contract if;

• The PD has “already settled an agreement or compromise with the Responsible Persons (the owner of a superior leasehold or a freehold interest in the relevant land and building(s) that is or includes the Building, including a management company of the Building or the person appointed to manage the Building for and on behalf of such owner) and can provide evidence of this to the DLUHC”.
• The Responsible Entity (not being a PD Group Company of the PD) “has failed to co-operate with the PD to obtain an ‘Up-to-Date’ Fire Safety Assessment (FSA) and/or Fire Risk Appraisal of External Walls (FRAEW)”.
• The PD “has obtained an up-to-date FSA and/or FRAEW that assesses the level of fire-safety risk to be tolerable”.

What happens if we do not comply?

The Secretary of State also announced on the same day that the ‘Responsible Actors Scheme (RAS) in England’ (relevant to Sections 126-129 of the Building Safety Act 2022) would bring into law. This gives the Secretary of State power to block developers who:

• Have not signed the contract, or have,
• Failed to comply with its contract terms.

This will prevent developers from operating as usual in the housing market for as long as they do not resolve the problems of the past, including;

• Refusal of planning permission for new projects.
• Refusal of building control approval for construction that is underway.

Mr Gove will also ban managing agents and freeholders from taking commissions when they take out building insurance. This is in response to a report from the Financial Conduct Authority which suggested that commissions make up almost a third of premiums.

What happens if we do comply?

As soon as they sign the contract, Participant Developers (PD) must (as reasonably practicable, meaning, in summary, that developers do not need to undertake a physical inspection of all buildings developed or refurbished by it or another ‘PD Group Company’);

• Identify all buildings requiring remediation works.
• Obtain a copy of an ‘Up-to-Date’ Fire Safety Assessment (FSA) for each Building (see here for HSE advice on fire safety guidance).
• Obtain a copy of an ‘Up-to-Date’ Fire Risk Appraisal of External Walls (FRAEW) for each building should it have been recommended by the FSA, or there is reason to suspect that a FRAEW is required, having regard to the guidance in PAS 9980 (see here for BSI guidance on PAS 9980).

Note also that the PD must, of course, ensure that FSA and/or FRAEW be carried out by a suitably experienced, qualified, independent and competent fire risk assessor (in the case of the FSA) or external wall assessor (in the case of the FRAEW).

Who carries out the remediation ‘Works’ and foots the cost?

The PD is expected to take into account all “reasonable interests and concerns of the leaseholders, residents, occupiers and other users of the Building Requiring Works” and:

• Undertake at its own costs;
• Procure at its own cost through a suitably experienced and qualified sub-consultant, sub-contractor or supplier or any other person (other than the Responsible Entity), or;
• Fund the costs of the Responsible Entity (via a funding agreement or otherwise) to undertake or procure,

All necessary work in relation to each Building Requiring Works to ensure that any and all Defects are remediated and/or fully mitigated as soon as reasonably practicable.

What will ‘Works’ and costs include?

Costs of the remediation ‘Works’ will include such costs and will include all reasonable and properly incurred costs directly arising from;

• Carrying out and completing the Works and subsequently remedying all snagging items and other defects arising from the Works, in respect of the remediation and/or mitigation of any Defects;
• Arranging access to the Building Requiring Works, including (where necessary) the grant of rights from the owners of neighbouring land or property, provided that nothing in these Self-Remediation Terms or the Contract will be taken to require the Participant Developer to pay unreasonable and unusual fees to any Third Party in order to gain access to the Building Requiring Works;
• Any cost overruns that relate to the carrying out and completion of the Works and which may arise over the course of the Works until practical completion of the Works (that are not due to the fault, negligence, act or omission of the Responsible Entity (where it is not a PD Group Company of the Participant Developer) or persons employed by it in relation to the Works);
• Moving residents out of the Building Requiring Works where reasonably considered necessary by the Participant Developer (after consulting with, and having regard to the views of, the Responsible Entity and/or any regulatory authority), including:
• to avoid an immediate or imminent threat to life or other personal injuries; and
• Where the Works create or are reasonably expected to create circumstances with which residents of the Building Requiring Works cannot reasonably be expected to live, including but not limited to situations where the Works create noise or other disturbances which would constitute a legally actionable nuisance and including any associated accommodation costs so the Works can be carried out;
• Costs of any professional advisers that may be appointed in relation to the Works by any Responsible Entity or by or on behalf of not less than 50% in the number of all of the leaseholders in the relevant Building;
• Costs of any professional advisers that the Responsible Entity may appoint in relation to the Works Contract and;
• Costs of obtaining any planning, building control or other statutory or regulatory permissions, consents and approvals required in respect of the Works, provided that:
• Any costs must be agreed in writing between the Responsible Entity and the Participant Developer prior to such costs being incurred in relation to the Works (such agreement not to be unreasonably withheld or delayed by the Participant Developer); and
• The obligations do not require the Participant Developer to reimburse any Responsible Entity or leaseholder for any adviser-related costs that have already been paid or incurred by the Responsible Entity at the date of the Contract.

What will ‘Works’ and costs exclude?

Costs of the remediation ‘Works’ will not include the following;

• The cost of interim safety measures (including waking watch costs and alarm upgrades);
• Increases in buildings insurance premiums;
• Any leaseholder compensation (although there are exceptions); and
• Other works (as defined and subject to various clauses) that the PD is responsible for, including, but not limited to;
• any works required solely as a result of any Alterations)
• Any works identified in any survey, assessment, inspection or investigation into the design and/or construction and/or maintenance of a Building, including in any FRAEW and/or Fire Safety Assessment, or otherwise as the Works progress, the undertaking of (and the costs associated with) such ‘other’ works are not within the scope of the PD’s liability.

How long does DLUHC have to audit our assessments?

Once in place and submitted to DLUHC, they hold the rights to audit the FSA and/or FRAEW for a period of 2-years from the date of receipt (providing 20-Business Days’ notice) to check, amongst other things:

• The FSA assessor and/or FRAEW assessor is suitably experienced, qualified, independent and competent.
• The criteria outlined in the definition of “Up-to-Date” have been satisfied.
• The conclusions of the Up-to-Date FSA and/or Up-to-Date FRAEW (as applicable) are justified, taking into account all relevant factors as set out in the Standard as applicable at the date of the relevant assessment.

How long does the contract last?

The Participant Developer (PD) will be deemed to be discharged in full and will be released from its obligations under the Self-Remediation Terms and the Contract once and only if:

• The 2-year period for DLUHC to complete the Fire Safety Assessment (FSA)/FRAEW Audit for the building has expired, or
• An FSA/FRAEW Audit has/have been conducted and has/have found that such assessment(s) is/are compliant with the Standard applicable as of the relevant assessment date.
• The PD has complied with and is satisfied with all relevant obligations under the Self-Remediation Terms.
• The relevant Up-to-Date FSA and/or Up-to-Date FRAEW indicates that the building does not require work.

In respect of that Building without any possibility of the obligations under these Self-Remediation Terms and the Contract repeating in future in respect of that Building, provided that this will be without prejudice to any rights, remedies, obligations or liabilities of DLUHC, the Participant Developer and/or any Third Party under any other agreement or at law which has arisen or may arise, and to any rights, remedies, obligations or liabilities of the Participant Developer and/or DLUHC in respect of these Self-Remediation Terms and/or the Contract that have accrued up to such date.

The PD must retain, for a minimum period of 2-years (or for the duration of a PD-DLUHC Dispute, whichever period is longer) after the date the FSA/FRAEW is provided, all documentation to enable DLUHC to carry out its own audit. Promptly following a written request, the PD will give DLUHC access to all documentation and will instruct the PD’s directors, officers and employees to promptly provide all information and explanations that DLUHC as DLUHC may request, in each case as is required to enable DLUHC to carry out the audit.

Is the Self-Remediation Contract final? Will it be updated?

DLUHC do state that they may (‘acting reasonably’) amend the ‘Self-Remediation Terms’ from time to time, on providing not less than 10 Business Days prior written notice to the Participant Developer and always provided that any such variation will only be effective if it:

• Is of an administrative, formal, minor or technical nature or which is made to correct a manifest error; or
• Does not materially prejudice the Participant Developer.

Given the number of amendments we are experiencing with recently released legislation, not least the Buuidling Safety Act 2022, one imagines that edits to the contract should be expected as it is reviewed by developers and their legal representations, either in the short or long term.

Summary

In what was an orchestrated ‘mic-drop moment’ for Michael Gove, designed to have an immediate impact on getting his message across, it probably had the desired effect. After all, developers have just 6-weeks to respond, leaving little time for a subtle message to get through to the masses.

To his credit, Gove’s message was abundantly clear in the Sunday Times interview: sign up to the terms to repair unsafe buildings, or you’ll effectively lose the ability to keep on building.

But perhaps as, if not more striking, was his admission that the UK government shares responsibility for Grenfell. This has been clear for quite some time, but this was probably the most public admission yet.

We understand the letter may not be sent to social landlords, even the original developers, but that the government will expect them to cover the cost of defects without passing the bill on to leaseholders.

Therefore, further clarity would be welcomed; we’ll release more guidance as it is made available.

More to follow…