The Building Safety Act was introduced to Parliament with the intention of, amongst other things, placing additional (and ongoing) responsibilities for buildings on the original stakeholders in the development. This includes the original developer, main contractor and other associated parties. As is now well chronicled, the Building Safety Act received Royal Assent on 28 April 2022 and key aspects of the legislation came into force on 28 June 2022 (two months following its enactment).
Following the implementation of the Government's swathe of amendments in February 2022, the Act will now inevitably have considerable consequences on developers (even after disposal of the property) and current owners.
Amongst the key reforms in this regard is the introduction of Building Liability Orders and Information Orders under sections 130-132 of the Act.
Building Liability Orders: What are they and how do they work?
Developers commonly carry out projects via subsidiary companies, often incorporated for the sole purpose of the particular project. Historically, these companies are dissolved once the project is complete, or the assets of the company are transferred to other parts of the developer's business. Whilst these transfers are entirely appropriate from an operational perspective, the company under which the works were undertaken will often be left without assets of value, or dissolved. This can impede a claimant's recovery and the enforcement of any decision following a successful claim.
In the Government's explanation for introduction of Building Liability Orders to the Building Safety Bill in February 2022, the Government revealed its intention to grant powers to the High Court (which in this context will likely apply to the specialist Technology and Construction Court) to pierce the corporate veil and extend liabilities for construction projects owned by a subsidiary to companies associated with the subsidiary. The purpose is to ensure that claimants are able to bring claims, and enforce decisions, against parties with sufficient assets to meet such claims.
The Act now gives the High Court the power to extend specific liabilities of one body corporate to any of its "associates" on a joint and several basis. This includes body corporates that are insolvent or have been dissolved.
The relevant liabilities to which these provisions pertain are as follows:
- Claims under the Defective Premises Act 1972 (which have been broadened under the Building Safety Act);
- Claims under Section 38 of the Building Act 1984 (which we have previously considered here);
- Any claims resulting from a "building safety risk" – defined as a "risk to the safety of people in or about the building arising from the spread of fire or structural failure".
Information Orders: What are they and how do they work?
Corporate structures can often be opaque, involving numerous corporate entities and spanning multiple jurisdictions. Frequently, the ultimate beneficial owner of developments can be difficult to ascertain.
The Act now provides certain parties with the ability to obtain an information order compelling a specified body corporate or its "associates" to provide information or documentation which a claimant may require to consider whether to apply for a building liability order. The Courts will likely determine the breadth and scope of the information to be disclosed.
The parties who may apply for such an order are not listed in the Act and will be determined by way of secondary legislation. However, it is reasonable to assume that such parties will include those bringing a claim for a relevant liability under the Defective Premises Act, the Building Act and in respect of claims arising from a building safety risk.
Who may be subject to Building Liability Orders and Information Orders
Amongst other parties, a building liability order or information order may be made against the developer or their "associates". In this context, "associates" is defined as follows:
- A body corporate that controls, or is controlled by, the body corporate that undertook the works. For example, a parent company, holding company, or subsidiary company;
- Two companies controlled by the same company. For example, sister companies;
- These provisions also apply to LLPs (limited liability partnerships).
Importantly, an associate can be subject to an Order even if the original body corporate has been dissolved. Therefore, liabilities will not be extinguished following a restructuring.
Before making an Order, the Court will need to be satisfied that it is "just and equitable" to do so. The Act does not provide a definition for this test and the extent of the Court's discretion will likely be developed through case law and applied on a case-by-case basis.
This view is reinforced by the Court's approach to the statutory "just and equitable" test in the context of Section 122(1)(g) of the Insolvency Act 1986 and the Court's discretion as to whether to grant a winding up petition. In that context, based on the development of the case law over many years, the Court's view is that regard should be had to the specific factual matrix on a case-by-case basis rather than providing a prescriptive test. The Courts have adopted a similar approach in relation to Section 28(3) of the Financial Services and Markets Act 2000 (FSMA) in the context of agreements made in the course of carrying out regulated activities by unauthorised persons contrary to the general prohibition in FSMA.
However, the purpose of these new provisions is to provide additional protections and avenues to compensation for claimants and we can expect the Courts to apply a wide discretion.
When do Sections 130-132 come into force
These sections came into force on 28 June 2022, two months after the Building Safety Act received Royal Assent. This coincided with the introduction of Section 38 of the Building Act (which we have previously considered here).
Whilst these previsions are now in force, the impact on developers will likely not be understood for some time. It remains to be seen how the Courts will interpret the provisions including, in particular, the "just and equitable" test.