Understanding the Implications. Briefing on the Building Safety Act 2022 for Apartment Leaseholders.
The building safety team at Inside the Box share some thoughts below in relation to the Building Safety Act 2022 and specifically the potential consequences for directors of landlord companies of not complying with the legislation.
The Building Safety Act (‘Act’) was introduced, following the Grenfell Tragedy; with the intention of reducing the potential for fire and structural failure in residential buildings and ensuring that if they do occur, occupiers will be safer.
Landlords (whether corporate entities, right to manage companies or others), are generally defined as the Principal Accountable Person (PAP) or the Accountable Person (AP), have significant and wide-ranging duties in relation to engaging with residents, investigating the building, running the building in accordance with the Act and establishing and keeping an administrative audit trail. There are costs for leaseholders in meeting the requirements of the Act, these primarily relate to undertaking improvement works (where deficiencies are identified), or in the case of all buildings in scope, additional service charge contributions incurred for complying with the legislation.
We are finding that in many cases, following intrusive fire-stopping, compartmentation or fire door surveys, works need to be undertaken.
Failure to comply can have serious consequences. A new Building Safety Regulator (BSR) has been established to enforce the legislation, as of 1st April 2024 they commenced calling in all High Rise Buildings (HRBs) in scope, it is the BSR’s intention to call-in every HRB within the next 5 years. The Act places the responsibility for compliance with the PAP or AP and in serious cases where there has been a failure to comply, the BSR can bring criminal prosecutions and levy fines against individual directors of the landlord or management company.
There are other related financial issues that are likely to arise as a result of not fully complying such as:
Impact on the Value of Apartments
Questions regarding building safety now form part of standard pre-contract enquiries, which vendors have to complete as part of the sales process. We are already seeing purchasers pull out of transactions where enquiries reveal shortcomings in the fire or structural safety of the building or where there is a failure to provide information, which in turn may indicate a failure to comply with the Act. It is likely that where this is the case, the value of apartments or the building as a whole will be negatively impacted.
Applying for a Mortgage
Generally, lenders are requiring enhanced due diligence in relation to the fire and structural safety of the buildings they are being asked to lend on. If there are issues with the building or limited information is forthcoming, anecdotally lenders are becoming significantly more cautions, resulting in restricted mortgage availability.
Building Insurance Renewal
As with lenders, insurers generally require landlords to provide additional information in relation to fire and structural safety and this can impact on building insurance premiums. In the case of buildings with combustible cladding, the pool of insurers willing to insure has reduced significantly. According to a survey of Managing Agents, their premiums have increased by around 300%.
We appreciate that this comes at a time of increasing financial pressure on many leaseholders and the requirements to contribute enhanced service charge contributions relating to building safety will be most unwelcome, however the Act is intended to help ensure that buildings and consequently occupiers are safer. It can be seen that failure to embrace the requirements of the Act are potentially far more wide-reaching and financially impactful than unpalatable expenditure on remediation or service charges.
What should landlords do?
Compile and scrutinise your existing safety evidence on your building, plug the evidence gaps as required.
Establish a resident engagement strategy and safety complaints process. See our related RES post here.
Establish and operate a mandatory occurrence reporting system.
Assemble a safety team of experts, to compile your safety case and report.
If you’d like more information, please contact the building safety team at Inside the Box Advisory.
