In brief
- The Building Safety Levy (BSL) will significantly affect scheme viability, with particular impact on brownfield development and those schemes with a focus on communal space.
- Developers currently bringing forward residential developments should pay particular attention to the 1 October 2026 implementation date, as schemes having their viability assessed now may submit their Building Control Application after this date.
- The BSL is a forthcoming charge on developers of new residential buildings in England, chargeable on floorspace.
- It is the latest in a suite of post-Grenfell measures aimed at increasing building safety and funding remediation of unsafe buildings.
- However, it is unclear whether the risks to housing delivery, and especially for social housing, have been fully understood.
The Background to the BSL: Grenfell and the Building Safety Act
On 14 June 2017 a fire at Grenfell Tower tragically claimed 72 lives. The rapid spread of the fire, amongst other building safety failings, was attributable to the aluminium composite panels with a combustible polyurethane core which constituted the external cladding of the tower.
Since then, over 5,000 buildings above 11m tall have been identified as having unsafe cladding similar to that present at Grenfell. The scale of the construction issues facing the sector, identified in the Hackitt report, led to the introduction of the Building Safety Act. Compliance with the Act and other new regulatory measures aimed at enhancing building safety has left a country-wide remediation bill in the range of £12.6 to £22.4 billion.
The BSL
While some major developers have voluntarily signed up to the Developer Remediation Contract, committing to remediation of unsafe cladding in their buildings over 11m, the Government has turned to taxes to foot the remainder of the remediation bill. The Residential Property Developer Tax, expected to raise £2 billion over 10 years, is now to be supplemented by the BSL, designed to raise £3.4 billion by 2030. The key points on the chargeability of the BSL are:
- The BSL will apply to "major" new residential development, regardless of height, including private homes, build-to-rent schemes, purpose-built student accommodation, retirement housing and changes of use to residential.
- Developments of fewer than 10 new dwellings or, for purpose-built student accommodation, of fewer than 30 new bedspaces, are exempt from the levy.
- Hotels are excluded from the scope of the BSL.
- The BSL will be calculated on the 'gross internal area of floorspace' of a development, including communal space, with the chargeable rates based on average house prices in the charging authority area.
This article explores the effect the BSL will have on viability and the extent to which this is compatible with the Government's present house building aims.
The effect of the BSL on viability
In the first instance, the BSL will obviously increase the general costs of development as it will be charged on floorspace of developments. All relevant developments will see some increase in cost.
The increase in cost will vary substantially depending on where the new development takes place. For example, the regulations set Kensington & Chelsea’s (RBKC) rate at £100.35 per sqm, whereas Stockton-on-Tees' rate is set at £14.70 per sqm. This means that an average-sized London flat would be subject to an added £4,315 cost in RBKC, with additional expense for any associated floorspace such as stairwells and corridors. Local authority-wide values are a relatively blunt tool that will not always accurately reflect changes in land values and need (and therefore viability) across administrative areas.
Irrespective of location, this additional cost will need to be built into viability considerations. The BSL will not only affect whether a scheme comes forward, but also the manner in which it comes forward. Added cost will directly affect, for example, the affordable housing that schemes can support. Many of the housing schemes which are already unable to meet full affordable housing contributions will inevitably deliver even less once the BSL comes into force. This means that viability will be affected even for straightforward developments, which do not have special characteristics making them particularly vulnerable to the BSL (as explored further below).
The viability of brownfield developments
Particular viability concerns arise in the context of brownfield development. Where a site is 'Previously Developed' under the Regulations, there is a 50% discount for the BSL payable. This aims to make development of costly sites more attractive.
However, the Government's definition of 'Previously Developed Site' (PDL) is likely to significantly affect the viability of brownfield development post-BSL. The new regulations require 75% of the land to have had a building situated on it at some point since 1948. Rather than adopting the definition used in the National Planning Policy Framework (NPPF), the BSL regulations have narrowed the scope of brownfield land by requiring a building to have been situated on the land. The NPPF defines PDL more broadly:
"Land which has been lawfully developed and is or was occupied by a permanent structure and any fixed surface infrastructure associated with it, including the curtilage of the developed land"
Many brownfield sites consist only partly of buildings and will largely be made up of ancillary facilities such as car parks. This means that less land will fall within the definition of PDL under the BSL regulations and will not qualify for the 50% discount.
It is still to be seen how this stricter definition of PDL aligns with the Government's agenda that "the first port of call must be brownfield land" in reaching housing targets, and that developers should be "prioritising the development of previously used land wherever possible". What is apparent, however, is that site layout, design and phasing are unlikely to improve when driven by arbitrary definitions. There is a real risk of "salami-slicing", with developers bringing forward residential buildings only on land where buildings where previously situated to fall within the PDL definition and secure the discount, while deferring associated infrastructure to later permissions. It is difficult to see how this serves either good planning or the Government's agenda.
The viability of communal space provision
The BSL is not only charged on the dwelling itself, but also on all ‘residential floorspace’ including ‘communal space’. Regulation 11 defines communal space as areas "wholly or mainly for the benefit of occupants". Government guidance gives the examples of stairways, lobbies, landings and service areas.
Charging the BSL on communal space has two effects. First, it increases the cost of providing communal spaces. Facilities such as gyms, shared workspaces and lobbies will be subject to added cost which may affect their provision within developments. Second, many required design elements of developments, such as London's second staircase requirement, will attract additional BSL as "communal space". This means that building safety improvements, which already increase expense, will result in even higher costs.
Developers may respond by reducing communal spaces, opting instead to increase the number of residential units in a development to secure value for money. Alternatively, they may open the use of the spaces to external visitors, in order to take the floorspace outside the 'communal space' definition. For example, gyms may be open for public use, with discounts or fee waivers for occupants of the building.
Looking forward: What can we expect?
BSL coming into force
The BSL will apply to Building Control Applications (BCA) from 1 October 2026. Developers should be aware of this deadline for three key reasons.
First, developers should note that if a BCA made before the deadline is rejected and needs to be resubmitted after 1 October 2026, this may bring a site within the scope of the BSL. This is particularly pertinent given the current delays in processing applications.
Secondly, some developments will already have gone through viability assessment under the planning system but will not yet have submitted a BCA. This presents a challenge to the viability of these projects, with the potential for significant costs that were not factored into the original viability assessment.
Finally, there is an additional consideration for developers in London, where emergency housebuilding measures were introduced in March 2026 to tackle the housing crisis. These include a time-limited planning route (where planning permission can be secured without a viability assessment if developers commit to at least 20% affordable housing) and a temporary reduction in the Community Infrastructure Levy for sites delivering at least 20% affordable housing (the greater the proportion of affordable housing, the greater the reduction). London developers therefore have a limited window during which certain developments will be considerably more viable, before the BSL comes into force and erodes some of that benefit.
Future viability discussions
The BSL will increasingly appear in discussions between developers and local planning authorities about the viability of projects. Major projects will now have to build in this additional expense when considering the viability of affordable housing proposals and section 106 contributions.
The feasibility of the charge, in light of these obligations and contributions, will undoubtedly be the subject of significant debate, particularly with the Government's pledge to build 1.5 million homes by 2029. With the S&P Global UK Construction PMI (which measures the performance of the construction sector) remaining at its lowest levels since May 2020, indicating a contracting sector, and emergency measures already introduced by the Greater London Authority, will the BSL be shelved? While this seems unlikely, the Government has already consulted on the possibility of raising the exemption threshold from 10 to 49 dwellings. This may indicate growing concern about the impact of the BSL and signal that further changes are to come.
How Mishcon de Reya can help
Mishcon de Reya's Real Estate department can help both developers and investors understand and navigate the Building Safety Levy and the wider Building Safety Act. The team advises on timing and Building Control risk ahead of the October 2026 implementation date, supports negotiations with local planning authorities on affordable housing and section 106 obligations, and analyses eligibility for brownfield discounts.
If you have any queries about how the Building Safety Levy or the Building Safety Act will affect you, please get in touch.