BUILDING SAFETY ACT 2022 - where do Leaseholders stand after this Act

Outline:

The protections to Leaseholders given by the Act (“the Leaseholder Protections”) came into force on the 28 June 2022 and some the necessary secondary legislation came into force on the 21 July 2022

The Government have published an extensive array of Guidance Notes, which can be found online, and you are recommended to read them to obtain full details (see the links at the end of this Note)

What I have tried to do here is to draw together what I perceive to be the most relevant information contained in those Guidance Notes and put relatively brief details into one note, to start Leaseholders on their way, but I accept no liability for any errors or omissions – Leaseholders must rely upon what is contained in the full guidance notes and obtain suitable professional advice, as appropriate to their individual circumstances

This note applies to Leaseholders in England only

Buildings below 11 metres in height

No protection is given to Leaseholders by the Act unless the building has five or more storeys and contains at least two dwellings, and the Leaseholder falls under the definition of a Qualifying Leaseholder

The Government have taken the view that more proportionate remedies may be more appropriate to these buildings, such as sprinkler systems or alarms

Buildings over 11 metres in height, or having at least 5 storeys

The Leaseholder Protections apply to a ‘relevant building’, which is defined as:-

being of the above height
it contains at least two dwellings (so a mixed-use building would fall within this definition as long as there are at least two dwellings)
it is not a leaseholder-owned building (these are not included as there is no separate building owner to whom costs can be passed onto)

A relevant building can be either self-contained or a self-contained part of a building

It should be noted that the building height is measured from ground level to the floor of the top story (and floors below ground level are to be excluded for the purpose of measurement)

Equally, only storeys from ground level up are to be taken into account, with the ground floor being counted as the first storey – so any storeys below ground level (such as a basement) are not to be included

Mezzanine floors will only count as being a story if their floor area is at least half of the floor area of the largest storey within the building

The Leaseholder Protections apply (and the Leaseholder will be a Qualifying Leaseholder) if all of the following conditions are met:

where the Lease held by the Leaseholder is a long Lease (more than 21 years in length) and is of a single dwelling within a building of above 11 metres in height or at least 5 storeys
the Leaseholder is responsible for paying a service charge
the Lease was granted before 14 February 2022
on the 14 February 2022:- (1) the dwelling was the Leaseholder’s only or main home, or (2) the Leaseholder did not own more than 3 dwellings in the UK in total (N.B. dwellings outside of England are not covered by or count towards the Leaseholder Protections)

It should be noted that if the relevant Flat or Apartment qualified for the Leaseholder Protections on 14 February 2022, then a subsequent buyer of that Flat or Apartment will benefit from those protections also

The Leaseholder Protections can be divided into two parts:-

(1) Cladding Remediation

This is defined as the removal of or replacement of any part of a cladding system that meets both of the following conditions:-

it forms the outer wall of an external wall system
it is unsafe

The Act protects Qualifying Leaseholders from all costs in relation to Cladding Remediation

If the Landlord of the Leaseholder is, or is associated with, the developer associated with the defect, it is illegal for them to pass on the cost of historical building safety remediation in a relevant building (this includes the removal of cladding, whether the Leaseholder qualifies for the Leaseholder Protections or not)

Also, if the current building owner is a new building owner with no links to the developer, but the building owner on 14 February 2022 was linked to the developer, the new building owner will take on all of the liabilities of the previous Landlord – that will mean that they will be responsible for remediating the defect and they cannot pass on any costs to the Leaseholders via the service charge

In addition, if the building owner intends to pursue legal action to recover any remediation costs from third parties, Leaseholders who have a qualifying Lease and live in a relevant building with an unsafe cladding system, cannot be charged for any legal or professional services undertaken by the building owner – that includes legal costs related to settling disputes related to remediation

The Government have said that if a Leaseholder (whether they have the benefit of the Leaseholder protections or not) received a bill or a demand for payment towards the remediation of unsafe cladding systems before 28 June 2022 and which they have not already paid, then they do not have to pay it

If the Leaseholder has, since 28 June 2017, already paid towards the remediation costs for a cladding system, then they will not receive their money back, but such payment will count towards the cap on costs they can be requested to pay in relation to the remediation of non-cladding defects

The Government has obtained pledges (which they are in the process of turning into legally binding contracts) from 48 residential property developers to the effect that they will fix all life-critical fire safety defects (including cladding) in all buildings above 11 metres that they or their subsidiaries had a role in developing or refurbishing in the past 30 years, where such defects arose from the design, construction or refurbishment

These pledges will benefit both Qualifying Leaseholders and also those who do not have the benefit of the Leaseholder Protections

Finally, residential Leaseholders may also be able to benefit from:-

grant funding for the removal of unsafe cladding systems in buildings above 18 metres
where the original developer or the building owner (or both) are not funding the work the £5.1 billion of public funding made available for dealing with life safety fire risks associated with cladding systems on high rise residential buildings which are over 18 metres in height. This includes the £4.5 billion Building Safety Fund, which re-opened on the 28 July, and is now geared to proportionate risk

All new applications to the Building Safety Fund in respect of eligible buildings with cladding will need to be supported by a Fire Risk Appraisal of External Works (FRAEW), which is undertaken by a competent professional and is an assessment of the risks posed by fire spread over external walls to identify and recommend what (if any) work is needed

The Building Safety Fund will now cover works directly related to the recommendations of the FRAEW - those works could be the removal and replacement of the cladding (in whole or part) or works to mitigate the risk, such as the installation of a sprinkler system

Those who applied to the original Building Safety Fund when it opened in 2020 are being given the option of:-

(1) continuing with that application and process, or

(2) progressing the remediation under the criteria which applies under the reopened Building Safety Fund, by obtaining a FRAEW in respect of the building the subject of their application, with the work to be carried out reflecting the recommendations contained in the FRAEW

a new Remediation Scheme for buildings between 11 to 18 metres, which the Government has announced it is proposing to introduce, and which will be funded by the Building Safety Levy

(2) Non-Cladding Remediation

This is defined as work undertaken to fix a relevant defect which is not an unsafe cladding system. Examples which have been given are:-

replacement of inappropriate fire doors
fixing missing compartmentation, which limits how easily fire can spread through a building
replacing combustible walkways or balconies
reinforcing low-strength concrete beams to improve structural integrity
fixing any other defect in scope of the relevant defect definition that is not a defect of the cladding system

In order for a defect to come within the definition of a ‘relevant defect’, it must meet the following criteria:-

(1) it puts people’s safety at risk from the spread of fire, or structural collapse

(2) it has arisen from work done to a building, including the use of inappropriate or defective products, during its construction, or any later works, such as refurbishment or remediation

(3) it has been created in the 30 years prior to the Leaseholder Protections coming into force (meaning the defect had to be created from 28 June 1992 to 27 June 2022) and

(4) it relates to at least one of the following types of works:

the initial construction of the building
the conversion of a non-residential building into a residential building, or
any other works undertaken or commissioned by or on behalf of the building owner or management company

Work done before or after 28 June 2022 to remediate a relevant defect which was itself created during one of the above pieces of work is also covered by the Leaseholder Protections

Defects that have arisen in relation to professional services are also covered by the definition of relevant defect. This would include, for example, if an architect or building designer specified the inappropriate use of flammable materials on a building and the contractor followed those designs

The point is, however, made that ‘relevant defect’ covers work needed to put right and ease historical building safety issues, but not, for example, wear and tear or routine maintenance

If the Landlord of the Leaseholder is, or is associated with, the developer associated with the defect, it is illegal for them to pass on the costs associated with historical non-cladding defects (including those incurred for interim measures, such as waking watch)

Where a Leaseholder is a Qualifying Leaseholder and their Landlord (or Landlord Group) has a net worth of more than £2 million per relevant building, then (subject to certain exceptions) their Landlord has an obligation to pay for all costs associated with the remediation of non-cladding relevant defects and associated interim measures

In addition, if the Leaseholder benefits from the Leaseholder Protections, their Landlord will not be able to pass on costs where they meet the contribution condition if the property is below a certain value

If the conditions are not met, then the costs for non-cladding defects and associated interim measures are to be shared between the Leaseholder and the Landlord. However, where the Leaseholder benefits from the Leaseholder Protections, those costs will be subject to specified caps and also spread over 10 years

The caps applicable are:-

Value of the Flat Cap applicable

or Apartment

Less than £175,000

In London £0

Elsewhere in England £0

£175,000 - £324,999

In London £0

Elsewhere in England

£10,000

£325,000 - £1 million

In London £15,000

Elsewhere in England

£10,000

More than £1 million

but less than £2 million

In London £50,000

Elsewhere in England

£50,000

More than £2 million

In London £100,000

Elsewhere in England

£100,000

The Government have provided an online tool to for Leaseholders (which will, in effect, provide a value for their Lease based upon a formula laid down by the Government, for the purposes of assessing the cap which will apply, but does not constitute a market valuation for the purposes of the sale of the property)

This tool will enable Leaseholders to establish which contribution cap applies to their property and it can be found via this link

In the case of shared ownership residential Leasehold properties, the cap will be reduced in accordance with the equity the Leaseholder holds in the property – for example, if the Leaseholder owns 50% then the amount of their cap will be 50% of the cap figure specified above

Where the remediation costs exceed the fixed caps, the building owners must pay the shortfall

If the Leaseholder has, since 28 June 2017, already paid towards the remediation costs in respect of building safety defects or interim measures such as waking watch, then those payments will count towards the cap on costs they can be requested to pay in relation to the remediation of non-cladding defects

Where the property was not the Leaseholder’s main home on 14 February 2022 (perhaps they had to move or sublet) the property will still benefit from the above protections in relation to non-cladding defects, provided that the Leaseholder did not own more than 3 dwellings in the UK in total (including the Leasehold property)

It should be noted that if the relevant Flat or Apartment qualified for these protections in respect of non-cladding defects on 14 February 2022, then a subsequent buyer of that Flat or Apartment will benefit from those protections also

Should a Leaseholder wish to calculate the value of their Lease themselves, and not use the online tool, and the Government have devised the following formulas for this purpose:-

1. Where the Leaseholder purchased their Lease on or before 31 December 2020, the formula is:-

Purchase Price x Multiplier = Lease value

Where:

Purchase Price - is the price paid at the point of sale of the Lease on the open market, to the nearest pound

Multiplier – is the multiplier for the year in which the sale took place as set out in the following table:

Multiplier for the Year

Year Multiplier Year Multiplier

1970 72.14 1996 5.11

1971 64.15 1997 4.63

1972 47.16 1998 4.17

1973 34.53 1999 3.72

1974 32.22 2000 3.10

1975 30.58 2001 2.72

1976 28.29 2002 2.25

1977 26.38 2003 1.92

1978 22.65 2004 1.69

1979 17.45 2005 1.61

1980 14.39 2006 1.51

1981 13.61 2007 1.37

1982 13.34 2008 1.43

1983 11.95 2009 1.59

1984 10.86 2010 1.51

1985 9.97 2011 1.52

1986 8.70 2012 1.49

1987 7.38 2013 1.43

1988 5.71 2014 1.28

1989 4.80 2015 1.19

1990 4.89 2016 1.10

1991 5.00 2017 1.04

1992 5.25 2018 1.04

1993 5.36 2019 1.05

1994 5.22 2020 1.04

1995 5.21

2. Where the Leaseholder purchased their Lease after 31 December 2020 and before 14 February 2022

The value of the Lease is the price paid at the point of sale on the open market (to the nearest pound)

3. Where the Leaseholder purchased their Lease on the open market before 1970 the formula is:

Purchase Price x Multiplier = Lease value

Where:

Purchase Price - is the price paid at the point of sale of the Lease on the open market, to the nearest pound

Multiplier – is 72.14

4. Where the Leaseholder purchased the Lease after 14 February 2022

The cap calculation needs to be done according to the Lease that was in place at the start of 14 February 2022 – if the Leaseholder did not purchase the property on the open market or the value is unknown then the building owner will be able to calculate its nominal value based upon a substitute Lease of a similar size in the building

Leaseholder Deed of Certificate

Under the provisions of The Building Safety (Leaseholder Protections) (Information etc.) (England) Regulations 2022, where a Leaseholder has the benefit of the Leaseholder Protections, and works are required to their building to remediate a relevant defect, they will need to complete and submit a Leaseholder Deed of Certificate to their building owner, who will confirm what, if any, contribution they will have to pay

The purpose of the Leaseholder’s Deed of Certificate is to provide the building owner with the information it needs in order to apply the Leaseholder Protections and help them to:-

determine the Leaseholder’s qualifying status
calculate the remediation cap which will apply to the Leaseholder

This Deed of Certificate must meet the following conditions:-

be executed by the person who is the Leaseholder under the Lease
be in the form of the Leaseholder Deed of Certificate template
be executed as a Deed (i.e. a legal document signed by the Leaseholder and signed and witnessed by someone who is not a family member)

The Leaseholder Deed of Certificate and a guide on the information needed and how to complete it can be found via this link:

The Leaseholder can produce a Leaseholder’s Deed of Certificate at any time, to show their entitlement to the Leaseholder Protections. However, they must provide one to their building owner when notified by the building owner to do so (the Leaseholder will have a minimum of 8 weeks from the date of the building owner’s notice to respond, and the building owner cannot make a charge for sending such notice)

If a Leaseholder fails to respond to such a notice then:

their Lease will be treated as though it is not a qualifying Lease (so the Leaseholder will not benefit from the Leaseholder Protections)
the building owner can assume that the Leaseholder owns a 100% share in their property (even if, in fact, they hold only a part share under a shared ownership Lease)
the qualifying Lease may be deemed to have a higher value

Landlord’s Certificate

Under the provisions of The Building Safety (Leaseholder Protections) (England) Regulations 2022, if a building owner wants to recover some of the cost of remediating a relevant defect from a Leaseholder through the service charge, they must provide the Leaseholder who has the benefit of the Leaseholder Protections with a Landlord’s Certificate demonstrating that they are not, or are not associated with, the developer of the building and do not meet the contribution condition

This Deed of Certificate must meet the following conditions:-

it must be signed by the person who is the current Landlord on the date the Certificate is signed
must be based upon the circumstances of whoever was the relevant Landlord on 14 February 2022
be in the form of the Landlord’s Certificate template
contain the relevant information and be accompanied by the specified evidence

If the building owner does not provide a valid Landlord’s Certificate which complies with the requirements outlined above, they will be unable to pass on any costs for remediation onto the Leaseholder

In addition, they must also provide a Leaseholder with a Landlord’s Certificate demonstrating their – and the Leaseholder’s liability for historical safety defects in any of the following instances:

within 4 weeks of receiving a notification from the Leaseholder that their Leasehold interest is to be sold

within 4 weeks of them becoming aware of a relevant defect which was not covered by a previous Landlord’s certificate
within 4 weeks of the Leaseholder requesting a Landlord’s Certificate

The Landlord’s Certificate and a guide on the information and evidence required and how to complete it can be found via this link:

LINKS TO THE GOVERNMENT GUIDANCE NOTES

Leaseholder Protections:

Cladding Remediation:

Non-Cladding Remediation:

Relevant Building:

Relevant Defect:

How do changes affect my Lease:

How to Lease:

How will cladding costs be paid for:

Leaseholder contribution caps:

Leaseholder Protections