Understanding the Building Safety Act and service charges

Following the Grenfell Tower fire, the introduction of the Building Safety Act 2022 marked a key moment in ensuring the safety and wellbeing of residents in high rise buildings across the UK.  Many building owners and managing agents, are still trying to understand the complexities around the Act, and a key topic of interest is understanding what can and can’t be charged back under the service charge provisions.  

The objective of the service charge administration and building safety cost recovery is to be fair, reasonable and workable. It should enable the delivery of high-quality services by competent suppliers and meet the principles of fairness and reasonableness reflecting benefit, use of services and facilities.  

When setting up and administering the service charge regime, there are three key elements that should be considered: 

• Legislation (Legal requirements) 

• Leases (Contractual requirements) 

• Royal Institute of Chartered Surveyors (RICS) Codes (mandatory and best practice) 

 The Government and Building Safety Regulator (BSR) have already issued warnings against ‘unacceptably high’ charges and stressed that they ‘must be reasonable’. 

What can we class as reasonable? 

Building Safety Measures 

As stated in the Act, there are costs incurred by a Principal Accountable Person (PAP) or Accountable Person (AP) when assessing and taking reasonable steps to manage building safety risks. These include: 

• Preparing and revising safety case reports 

• Setting up and operating mandatory occurrence reporting systems  

• Keeping and circulating information and documents (Golden Thread)  

• Complying with duties under the residents’ engagement strategy  

• Setting up and operating a complaints system  

• Issuing contravention notices  

• Taking legal action  

• Regulator fees  

• Building safety management fees  

• Legal and professional fees  

Costs that are to be excluded from the service charge regime could include: 

• Regulator fines  

• Special Measures Order legal costs  

• Negligence costs  

• Remediation costs  

• Costs prescribed by regulations  

Recovering costs within the service charge  

There should be a clear distinction, as well as different cost codes for service charge recoverable safety costs and non-recoverable remediation costs. Dealing with any shortfall will then need to be explored further by the PAP.  

Where leases were granted after 14 February 2022, PAPs will need to keep a record of this. This should include confirmation of whether or not these leases were qualifying leases or not. You can find further guidance on this on the Government website.  

It’s important to note that the Building Safety Act 2022, exempts social housing tenants from contributing towards building safety costs, so this is not recoverable via their service charge.     

Next steps  

Managing a fair and reasonable service charge regime for the provision of building safety services and measures is important, as the legislation is new and complicated. There are a range of use types and tenures including residential (private and affordable), offices, retail, leisure and food & beverage, thus the impact on affordability needs to be considered. 

For more information and to get help navigating the Building Safety Act and service charges, please contact kemi@itboxadvisory.co.uk