Kizzy Augustin, Partner, Mishcon de Reya
Welcome to our Property Litigation Watch podcast. This is the second in a two part series looking at cladding and building safety. My name is Kizzy Augustin and I am a Partner in Mishcon de Reya’s Litigation Department, specialising in Health and Safety prosecutions. I’m here with Alex Barker, a Managing Associate in our Construction Litigation Group. In our first podcast we covered the historical context leading up to the introduction of the Building Safety Act 2022 and its main aims. In this follow-up podcast, we are looking at the cladding crisis and new claims created by the Building Safety Act. Alex, do you want to start by taking us through the issue of who bears the cost for remedial works, which has been a bit of a political hot potato?
Alex Barker, Managing Associate, Mishcon de Reya
Yeah, absolutely, I mean cladding, for anyone who’s involved in this sector, they know that it remains a huge problem and it’s going to be something that is dealt with incrementally and it’s sort of filtering through, certainly from a claims perspective, which is what I deal with, these things obviously take a great deal of time to sort of run through the system and get resolved and the act kind of has a stab, I suppose, in a number of different ways at easing that process or making it more accessible for people who have been wronged, to try and seek redress. We spoke earlier, briefly, about the cladding crisis and this whole question of who bears the costs of remedial works where there is defective cladding or other types of fire safety defects. Previously, we had this unsatisfactory system that was essentially born out of the leasehold system of property ownership that we have in this country where leaseholders have been faced with these enormous bills. And the Government really struggled with what to do about this so, in the whole sort of run up to Royal Assent in April, there was increasing sort of franticness and desperation in terms of the dialogue between Government and house builders about trying to get them to acknowledge their responsibilities and to contribute to whatever financial funds and make certain pledges as to the, what they would do to sort out historic problems. And really, the Government was trying to carry out a bit of a balancing act, so it was on the one hand it was saying, certainly to the media, they were concerned with these sorts of hard cases of leaseholders receiving massive bills, were saying, you know, we’ve got to talk tough to the developers and house builders, we’ve got to say to them, look these are your developments, you are responsible for what’s eventuated on them and, you know, you’ve got to come up with a solution to rectify them and bear those costs, otherwise we as Central Government will impose a solution upon you. And that rhetoric kind of went on for a number of months and slowly, a lot of the housebuilders did fall in line and you know they agreed they would carry out historic remediation, they would contribute a certain amount to a future fund and we have this sort of patchwork of agreements that took place in the run up to Royal Assent. The general shape of what we now have under the Act, in very brief terms, is as follows. So, firstly, under the Act, there is a blanket provision that no leaseholder of a property in a building that’s greater than 11 metres tall will pay anything to fix defective cladding. So, that’s a, that sounds very appealing and, you know, it is positive. It is qualified, however, so obviously it only applies to buildings that are greater than 11 metres. There are a number of buildings that aren’t and yet are still dangerous and it only applies to defective cladding and as most people know, there are a number of other ways in which buildings can be unsafe, from a fire safety point of view so, you know fire stopping, cavity barriers, whatever it might be, have nothing to do with cladding necessarily, and yet can be just as dangerous, from a fire safety point of view. So, in the parliamentary process, I know in the run up to Royal Assent, there was a lot of lobbying, a lot of attempts to amend this particular provision so that it was wider and unfortunately, the Government or fortunately, depending on your perspective, the Government considered that this was an appropriate sort of stopping point, to have that blanket provision. So, so that’s there as a blanket provision. Outside of that, the idea is that there will essentially be what’s been described as a waterfall of liability, so a waterfall system where those at the top of the waterfall are asked to contribute first, if they can’t meet the liability, it goes down to the next level and so on and so forth and the waterfall, as far as I am aware, is essentially as follows. So, first in line is developers or cladding manufacturers and as I said, a number of them have already entered into deals or made pledges to remediate their own wrongs, if you like. If they can’t solve the issue or fund the remedial works, we go down to the next level, which is building owners, i.e. freeholders. Now, many people will say, well that will tend to be just a, more just than putting the burden on the shoulders of the leaseholders, although obviously in a number of cases freeholders are not necessarily the most solvent entities, depending on what we’re talking about and so this is subject to a means test and if there is genuine hardship and inability to pay, we go down to the next level, which is the final resort, which is back with the leaseholders. Now, a number of people will say well, you know, that’s just where we were before and it’s just as unjust. What the Act does to try and alleviate that situation is, it actually institutes a number of caps on liability so, when we get to the leaseholder stage, there is a per leaseholder cap beyond which any remedial bill cannot rise and those caps are sort of tailored so, they are higher if the property is within the London area and they are higher if the property is worth in excess of a certain amount, so the idea being those leaseholders of more expensive properties are more likely to be able to shoulder a higher burden of costs than those who own lower value properties. So, some thought has been given to try and address this question of fairness but I think it’s fair to say there’s an awful lot of uncertainty about this mechanism and how it will actually work in practice and the provisions in this part of the Act that we have seen are pretty complex, not withstanding the point that you mentioned earlier, Kizzy, about secondary legislation and the fact that we’ll have to sort of wait and see about how this is all done in practice. So, a lot of question marks about that particular part.
The Act also creates a number of new weapons, if you like to try and assist those who may have suffered loss as a result of purchasing or living in defective premises. So, the idea here is that if the other provisions don’t help you out and you are still in a difficult situation, the Act gives you a sort of an arsenal of new claims that you may be able to advance to make good your loss. So, firstly, there are changes to the limitation laws and for those who aren’t aware, limitation laws in brief terms, are basically the laws that set out the amount of time that you have to bring a claim and obviously, in this situation, we are often talking about historic wrongs, things that were built a long time ago and so you can quite easily fall foul of those limitation laws that are currently in place. What the Act does, it extends the time period for making a claim, in particular circumstances, specifically in the context of the Defective Premises Act 1972 so, obviously that’s a piece of legislation that’s been around for many years, it creates a duty on anyone taking on work for the provision of a dwelling, so that’s a very broad turn of phrase, anyone taking on work that could be contractors, developers, designers, structural engineers, it catches a whole range of people and it only relates to, or certainly only used to relate to, the provision of a dwelling, i.e. the initial build of that residential dwelling and the duty on all of those people is to ensure that the property is fit for habitation and previously, claims under this law could only be brought within six years from completion of the dwelling, so you’ve got a relatively narrow window there and it only related to the original construction of the property, as I said. The Building Safety Act makes the following changes to the Defective Premises Act so, firstly, it brings in any work on the dwelling, so not just the original construction. We’re now talking about repair work, subsequent renovations, maintenance type work, so anything that follows, not just the original construction. Secondly, it extends the period within which a claim can be made so the period is extended to fifteen years from completion for claims that accruing after the Act took effect as law and for those claims that had already accrued when the Act to effect as law, there’s a thirty year period. So, this is hugely significant, I mean, Kizzy and I, and other lawyers acting in this area will be familiar with the usual, the norm of limitation periods, which is almost always related to either six years or perhaps twelve years. Talking about fifteen years, thirty years, these are massive periods of time and rarely is the law changed retrospectively in this manner. It’s extremely unusual in jurisdiction and it potentially means that a whole new wave of claims are going to become viable but were previously timed out for many, many years so it’s unlocking the potential for people to look back a long way and dig up claims that were thought to be long dead and also is a much more generous period going forward for those new claims that are arising.
The Act also intrudes the following in terms of different weapons in the arsenal, if I can put it that way. So there’s the ability to make claims against product manufacturers and we mentioned earlier that there is going to be a creation of a new regulator for product safety. In addition, the Act provides that any supplier or manufacturer of a construction product that’s defective or marketed in a, in a misleading way, which is what we saw for example in Grenfell, will be liable to pay damages to anyone who has a relevant interest in the affected building. Now, again, this is hugely significant because in the past certainly, anyone who has studied law and the law of tort, will be aware that it’s extremely difficult to establish any kind of duty or relationship between somebody who lives in a dangerous building and the manufacturer of for example the insulation product that has made that building dangerous, there’s not a contract between those two people and very often, the law will say there is no duty between those two people and so previously, there will be no ability to make a claim. The Building Safety Act changes that and introduces the possibility of a claim. The limitation period for these claims runs for fifteen years from when the Act came into force and in terms of cladding products, it also extends back again thirty years. So, potentially very significant there. Secondly, there is the concept of Building Liability Orders, BLOs, the act allows the High Court to make a Building Liability Order if it is just unequitable to do so and this essentially is the power to make one company’s liability extend to its associated companies. So in other words, where a developer has used an SPV company to carry out a development, and many listeners will be aware that that’s extremely common in the industry, and that SPV has perhaps since become insolvent, therefore it no longer exists or doesn’t have any assets to meet a claim, it may still be possible for a claimant to bring a successful claim against that SPV’s parent company or an associated company within its group if the various definitions within the acts of associated are met. So again, that’s very significant and really goes against the whole idea of limited companies, the whole idea of the corporate veil which cannot be pierced and certainly the law of England and Wales is extremely reluctant to let the corporate veil be pierced and this appears to be a very rare exception to that, that will perhaps enable certain claimants to make claims in difficult situations where the most obvious party has gone insolvent. The hook for these claims is going to be Section 38 of the Building Act 1984, which is, has been on the statute books obviously for almost forty years but it’s only now been brought into force and it essentially creates a course of action whereby homeowners can claim if they have suffered damage as a result of a building that’s not compliant with building regulations.
Now, thirdly and finally, before I hand back to Kizzy, there’s going to be an extension of new homes warranties. So, many listeners will be familiar with this, they’ve been a part of the industry for a while. Essentially, where a newbuild house is purchased, they are very often purchased with the benefit of a warranty provided by an organisation such as the NHBC or premier guarantee and they’re effectively insurance policies for the benefit of the homeowner and they allow claims for certain defects in the house to be made within a ten year period of completion. Now under the Act, if that ten year period is going to be extended to fifteen years, so developers will be forced, they will be obliged to provide warranties with their new homes that last fifteen years, not ten years, and in the event of noncompliance, there will be penalties. So, you can see there a few examples of how the Act is aiming to make it a little bit more straightforward for homeowners to make recovery in certain situations.
Kizzy, I think you were going to talk a little bit about the differences between criminal and civil liability, which is obviously an area of expertise for you.
Kizzy Augustin, Partner, Mishcon de Reya
Yeah, I mean it’s just quite alarming listening to you, Alex, that not, you know, we’re talking about developers, contractors, consultants, manufacturers all potentially being included somehow in retrospective claims that can go back many, you know up to thirty years, so I think our clients and potential clients really should be worried about that part which is, you know, the civil side of responsibility or accountability. Can I just depress you even more because to talk about the criminal liability that’s associated with this, is difficult enough in itself but on top of the fact that you may have to pay out somewhat and, in some cases, huge amounts of money in respect of risk, criminal liability is what’s always worried me when it comes to building safety. We already have a number of prosecutions for fire safety, so that legislation is over-utilised by the fire authorities and it’s normally based on a failure to protect relevant persons from a risk of personal injury or death in the event of fire. You mentioned fire stopping, the, you know, those are the sorts of things that come up which create criminal liability for organisations, failure to fire stop, non-compartmentation, no active and passive fire safety measures, all of that already form prosecutions so they take companies and responsible persons, individuals, to court and if convicted, repercussions can be dire. This building safety regulator will now have powers of prosecution because failure to comply with all those duties that both Alex and I have spoken about under this new regime, will also result in a criminal offence being committed, with the potential for fines, huge fines, million pound fines in some cases, or terms of imprisonment for individuals. The regulator also will have powers to replace the accountable person, in cases of serious failures, by way of special measures, so they can remove the accountable person from that responsibility and impose and impart somebody of their own choosing, who they feel is competent. Let me just run through maybe some of the criminal implications that come out of non-compliance with this act. Non-compliance with the building regulations is currently dealt with by the Building Act, a bit like the ability to claim. Time limit for enforcement action currently is one to two years respectively so you’ve got one to two years if a case was going to be brought. This has now been extended to ten years in respect of those breaches, so it’s the breaches in respect of a local authority to prosecute where work is done in breach of the building regs with a maximum penalty of an unlimited fine and the other section is in respect of the local authority requiring building owners to correct work that doesn’t comply. So, as I say, currently prosecutions have to be brought within two years, one to two years, of non-compliant buildings it’s now extended to ten years. There is associated power to prosecute individual directors and officers, with all of us in the legal profession who deal with safety generally, are very familiar with the senior manager director offence, it’s this offence committed by the individual by way of their consent, connivance or attributable to their neglect, that individual as well as the corporate entity will be guilty of a safety offence and then subject to these horrible repercussions. The regulator has got new powers to issue compliance notices for remedial work by a certain date or stop notices, stop doing what work you are doing until those defects are remedied, again non-compliance with those notices is a criminal offence, carries a maximum sentence of two years imprisonment for individuals. The regulator has the power, as I said, to replace the accountable person if there are failures that endanger life safety but also in a new capacity, can hold building control bodies to account and will have the power to suspend or remove building inspectors from their register and prosecute them. So, all of that is brand new but carries criminal responsibility, not civil, it’s criminal. On top of all of that, you’ve got this new addition of mandatory occurrence reporting where the accountable person within a building has to establish a system of mandatory reporting of dangerous occurrences during the occupation of a building, now that could result in sort of the discovery of a structural safety issue or a fire safety related defect. So, you’ve now got to, as a owner-occupier or accountable person, pass on that information to the regulator, who could then prosecute you for it, so it’s just, it’s those sorts of things that really, they stick in my throat a little bit and I can completely understand the reason for them but this is the reason why duty holders on the whole have to be very aware of what can happen because a failure to do any of these things could result in imprisonment or a financial penalty for an individual within the organisation. You’ve also got implications for residents so, we talk about protection for leaseholders and there is a large amount of protection for leaseholders but we have to remember they are still duty holders in the eyes of the law. Residents are also, tenants are also duty holders in the eyes of the law so, the Act for them is to foster more of a dialogue between the accountable person and the occupants of that building, particularly in respect of providing relevant information. So a part of the new obligations under the Act is all about having a residents engagement strategy to identify how safety would be managed in practice and how complaints can be addressed, again all of that came out of Grenfell because that was a big criticism of how things were managed previous to that. Park that and think about the implications of prosecution under the Act as well as breaches of the Health and Safety at Work Act, breaches of the construction, design and management regulations, which are currently governed by our sentencing guidelines, based on level of culpability of an organisation, the seriousness of harm risked, so we’re talking about risk not injury, and the financial means of the company. That can also result in two years imprisonment for individuals and million pound fines, depending on how large the organisation is. So, I think there’s just so much to take into account when it comes to criminal liability that we need to think about how do we manoeuvre our way through or how do the duty holders that we’ve talked about manoeuvre their way through these overlapping regulatory regimes enforced by the local authority, Health and Safety Executive and the building safety regulator, which I think gives them three bites of the cherry. You could be prosecuted three times, born out of the same facts, so for me the only answer has to be proactive, preventative approaches to building safety and fire safety. You’ve got this additional complexity, particularly on fire safety, where you could have a number of responsible persons within one building and any particular responsible person under fire safety may or may not be an accountable person under the Act. You could have a number of accountable persons under the Building Safety Act but you’ve got appoint a principal accountable person. I just think there’s so much scope for just things to go wrong in terms of finger pointing and people not knowing what part of the responsibility they need to hold at any given time.
So, if I can kind of end with maybe on a more positive note, apart from saying you know it’s all doom and gloom, you could be sued, you could be liable financially and you could go to prison, you know, all of that is pretty dire but there are some things that I think our particular clients or our contacts could be interested in, in terms of the ways in which they could mitigate the risk of falling foul of the law. One of those things might be being aware of the need to review their existing documentation, consider whether or not there is scope for claiming against third parties in respect of defects being identified, relevant documents need to be retained, look at document retention policies, look at third party contractual arrangements and protections, look at your existing risk assessments, look at you know all of those introductory measures that are normally in place in respect of your interaction with others in the supply chain. Another thing to look at is insurance, so insurance is important from an indemnity perspective but even that has had it’s own issues in respect of what insurers are willing to indemnify. I know there’s been some issues in respect of fire safety and cladding products exclusions in respect of liability for developers and contractors but on top of having insurance to indemnify for potential civil claims, there is an issue in relation to insurance to cover criminal investigations because if you’ve got the right insurance in place, if a regulator finds a duty holder in breach of a building safety or fire safety regulation, the investigation could be covered financially by the insurers, if you’ve got the right insurance, because you have then had to seek legal advice to protect you or to defend a criminal prosecution or criminal investigation. What you can’t insure against though, is the fines, and because these fines can now be millions of pounds, that’s the incentive to be proactive about this. You get your insurance in place, you get legal advice, you get consultancy advice if necessary as an expert to help you manage risk and you make sure you don’t find yourself at the wrong end of the law. I think you also need to look at this whole cooperate, communicate, collaborate approach that we’re very familiar with in the construction industry. You’ve got to find ways as a duty holder to demonstrate the ways in which you are doing that and that goes beyond the construction, design and management regulation, communication, collaboration, cooperation and it’s much more about looking at how safe we are dealing with the process of carrying out work, as opposed to how safe the resulting building is in CDM, we’re looking at the lifecycle of a building. And I think finally, we just need to pre-empt what those additional changes are going to be so we’ve got some already but there are further changes afoot. We are going to see some focus on information in the fire safety boxes for fire authorities that talk about risk assessments and evacuation plans. I’m thinking very specifically about disabled persons and personal emergency evacuation measures being in place. Also looking at floor plans and firefighting equipment being situated in the right places, regular checks for lifts, smoke control system, suppression systems, fire door issues, now I think there’s just a lot of things that are going to come into place and I think those duties are going to extend to buildings that are 11 metres in height rather than just focussed on the 18 metres higher risk buildings.
What I wanted to just touch upon as well is, we’re talking a lot about these changes but when do they come into effect? You are going to have some time as a duty holder to get some things in order. So, many of these provisions that we are speaking about are not likely to come into force for another twelve to eighteen months. Alex has talked about the defective premises limitation periods that are already in place, I think it was the 28th of June they got, came into place and the gateway golden thread of information, the planning stage requirements, are also in place. We’ve got to wait twelve to eighteen months I think for the secondary legislation in respect of fire safety and to give us some specific guidance on duty holder responsibilities and what that looks like, the residential panels, so we’ll have some time to prepare for that and I think even longer will be this registration of building inspectors and building control approvers, the duty is on the accountable person, the construction products changes in terms of safety markings and making sure each product is safe and the continuation of the golden thread requirements for gateways two and three. It’s a lot, it’s a lot to take on board and I think, in time, this act is going to be the ground-breaking bit of legislation that we’ve been talking about for two years but I think in the short-term what the Act is going to do, is going to place an immense amount of pressure on the real estate development market, the construction industry, consultants and I think product manufacturers and suppliers because they are going to find that their potential liabilities are going to widen and hopefully, by listening to podcasts like this and seeing what else is out there in terms of making you aware of responsibilities, that will help manage and mitigate risk.
Alex Barker, Managing Associate, Mishcon de Reya
Thanks, Kizzy. I think that’s probably all we have time for. To our listeners, we hope you have found this podcast series informative. If anyone has any queries, you can find our details on our website www.mishcon.com. Thanks for joining us today.