The Building Safety Act 2022 received Royal Assent on 28 April 2022 (“Act”). The government has described the reforms introduced by the Act as “the biggest changes to building safety regulation in a generation”. For once the hype is justified.
The Building Safety Act 2022 received Royal Assent on 28 April 2022 (“Act”). The government has described the reforms introduced by the Act as “the biggest changes to building safety regulation in a generation”. For once the hype is justified. This is the biggest change to the way that the construction industry operates, and indeed for anyone involved in planning and property management or ownership, since the introduction of the CDM Regulations in 1994.
Whilst the changes introduced by the Act are wide ranging, this article focuses on ‘building liability orders’, which are part of the measures designed to prevent the avoidance by contractors and developers of liability for building failures. In part, this has been considered necessary because it has become common practice in the construction industry for works to be carried out through a joint venture (“JV”) or special purpose vehicle (“SPV”), since following completion of the works, the JV or SPV can be wound up with little prospect of any legacy liabilities being attributed to group entities. Building liability orders are designed to change this.
A building liability order is an order of the High Court that will enable the “relevant liability” of a body corporate (referred to as the “original” body corporate) to be attributed to “associated” body corporates. This will be regardless of whether the original body corporate is active, dissolved or insolvent. In this context:
In relation to the second point, the phrase “just and equitable” has been considered by the court in the context of section 122(1)(g) of the Insolvency Act 1986, which provides the court with the discretion to order that a company enter winding up. In that context, the courts have determined it is wrong to create categories or headings under which cases must be brought if the clause is to apply, and that instead the court should have regard to the full factual matrix of each case.
It remains to be seen if the courts will apply the same approach in relation to building liability orders. Our initial view is that the courts will avoid prescribed defined circumstances in which it will be determined “just and equitable” to make a building liability order and will leave the issue to be determined on a case-by-case basis.
The uncertainty as to how building liability orders will work in practice means it is difficult at this stage to advise how the risks associated with such orders can be mitigated.
It is clear that the Act enables building liability orders to impose liability on bodies corporate only, and not individuals. It follows that to avoid the risk of liabilities being imposed intra-group, one option may be to use SPVs which are owned personally by individual shareholders outside the group structure. Whilst this may mitigate the risk presented by building liability orders, there will be commercial implications for:
Before contractors rush to carry out group restructuring, the potential benefits of doing so should be reviewed by reference to:
Given building liability orders come into effect as law from 28 June 2022, contractors and developers operating within group structures need to start to consider the implications of and risks presented by introduction of building liability orders before it is too late.
This article was originally published here for Construction News in June 2022.
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The new set of Legal 500 directory rankings have been published and we are proud to once again be recognised as one of the country’s leading firms advising the Education sector.
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The focus on the Levelling Up agenda and the availability of grant funding, means there are numerous important regeneration schemes actively being pursued across the country. With ever-escalating project and building costs, in many cases, applications that were made for grant funding were based on costs contingencies that have already been exceeded.
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The Building Safety Act 2022 received Royal Assent on 28 April 2022 (“Act”). The government has described the reforms introduced by the Act as “the biggest changes to building safety regulation in a generation”. For once the hype is justified.
The Federation of Small Businesses (FSB) has released a report setting out the impact of new and changing regulations arising from the pandemic on small businesses across the UK.
