The Building Safety Act 2022: a guide for conveyancers
We explain below how the BSA is intended to protect leaseholders, what steps solicitors can take to ensure purchasers and lenders are protected and what to do if that protection cannot be obtained.
The Building Safety Act 2022 (BSA 2022) introduced some protections for certain leaseholders from liability for cladding- and fire-related remediation works. The costs of these works can be ruinous to a leaseholder, and lenders have been reluctant to lend against properties without assurances that the protections in BSA 2022 apply to the lease in question. Mistakenly identifying a property as being protected by these provisions may result in claims by purchasers and lenders.
What does BSA 2022 do to protect leaseholders?
Sections 116 to 125 and Schedule 8 of BSA 2022 protect certain leaseholders from being required to pay for remediation work on their property when the defect being remedied relates to a safety risk arising from the spread of fire or the collapse of the building (defined as a Relevant Defect1 ).
The protection from remediation costs applies only to Qualifying Leases.
A lease is a Qualifying Lease if:
- It was granted before 14 February 2022;
- It was granted for more than 21 years over a single dwelling in a Relevant Building (essentially a building in England that is 11 metres tall or 5 storeys high and contains at least two dwellings2);
- The tenant under the lease is liable to pay a service charge; and
- On 14 February 2022 the dwelling was the tenant’s only or principal home, or the tenant owned no more than three dwellings in total (whether as leaseholder or freeholder)
If a lease is a Qualifying Lease, a leaseholder will not be liable to pay for remediation costs related to Relevant Defects if the defect was the responsibility of the landlord or somebody associated with the landlord (e.g. a contractor engaged by the landlord). This is an important protection for the leaseholder because these remediation costs can be substantial (e.g. for cladding being completely removed and replaced) and could even make a property potentially unmortgageable. That, at least, seems to be the view of the Council of Mortgage Lenders (CML).
Pitfalls for purchasers and solicitors
The question of whether a lease qualifies for these protections depends, to a significant extent, on matters which may well be outside the knowledge of a buyer at the time of purchase and difficult or impossible for the solicitor to verify (e.g. whether or not the selling leaseholder owns more than two other properties, thereby losing the protection of a Qualifying Lease3). This means it may be difficult or even impossible for solicitors to give clients confidence that the property they are buying will not, at some point in future, be subject to an onerous remediation bill.
The CML, on behalf of mortgage lenders underpinning the purchases of these leases, has set out some requirements for lenders to lend against a property in a Relevant Building for the purpose of these provisions. They are onerous and may be very difficult for a solicitor to fully comply with.
Notably, lenders require that the existing leaseholder has completed and sent to their building owner a Leaseholder Deed of Certificate4 in which the leaseholder certifies whether at 14 February 2022 (regardless of whether they were the leaseholder at that date) the lease met the requirements for a Qualifying Lease. The leaseholder preparing this Deed of Certificate needs to supply evidence that at 14 February 2022 the leaseholder owned no more than 3 dwellings in total – which may not be within their knowledge and may require investigations of previous title holders. It may be difficult for subsequent purchasers (and thus their solicitors) to verify the accuracy of the Deed of Certificate, and it is not clear what will happen in the event the Deed is challenged by a building owner.
Solicitors may therefore be placed in the difficult position of having to rely on second- or third-hand assurances as to the status of a lease and whether it is protected from the liability to pay for remediation.
Risk management for solicitors
There is currently no guidance from the Law Society on how solicitors should go about discharging their duty in this situation, so there is real uncertainty as to how solicitors can protect themselves and their clients. It will be prudent to warn clients looking to purchase a dwelling in a Relevant Building that it may be difficult to satisfy the CML’s requirements/obtain the information needed for the Leaseholder Deed of Certificate and that the solicitor cannot give an assurance that the lease qualifies for protection.
If acting for a Buyer a solicitor would be prudent to obtain an undertaking from the Seller’s solicitors that the Leaseholder Deed of Certificate is accurate and correct. However, if acting for a Seller, it would be prudent for a solicitor to avoid giving such undertakings due to their strict liability and the difficulty in verifying the accuracy of the Leaseholder Deed of Certificate.
If a solicitor cannot obtain the information needed to satisfy CML’s requirements, then the solicitor cannot discharge their duty to the lender and will need to withdraw from the retainer. Clients should be warned up front about such a possibility in engagement letters. Although an awkward issue to broach, it is far better to be open with clients about this possibility than to proceed regardless and risk a claim by the buyer and/or lender if/when a property turns out not to be protected by the BSA.
It would be prudent to keep an eye out for Law Society guidance and if and when it publishes guidance, ensure it is followed. In the meantime, one option is to prepare a disclaimer at the outset of a retainer explaining the difficulties in complying with BSA and asking clients to acknowledge and sign the disclaimer. A solicitor would be wise to ask clients to confirm they are aware that their solicitor cannot and does not guarantee the information in a Deed of Certificate. It is also sensible for the disclaimer to spell out that a solicitor may need to cease acting if they cannot comply with the CML’s requirements. Pending Law Society guidance, disclaimers of duty are a prudent measure and the best protection a solicitor can achieve. The disclaimer should also be incorporated in a firm’s terms of business. Of course, seeking to limit the scope of a solicitors' retainer can have regulatory implications, with the SRA taking the view that such limitations must be in the client's best interests; however, it may be the best tool available in the circumstances if firms wish to take on this work.
Our other recommendations are:
- Warn clients of the possibility of delay arising from BSA issues;
- Investigate what remediation work is proposed, whether the contractor has inspected the site and whether the works will be disruptive to the occupier;
- Signpost clients to specialist counsel where appropriate;
- Check lender requirements (several times throughout the transaction if it becomes protracted);
- Check the rules if advising on a transaction in Wales as the rules differ;
- Remember to consider ancillary costs (i.e. costs other than "pure" cladding costs, such as waking watch, sprinklers, balconies);
- Beware of expiry of mortgage offers where transactions become protracted;
- Check the date of any fire risk assessment to ensure it was carried out after the Fire Safety Act 2021 came into force on 16 May 2022;
- Document document document! Ensure your advice to clients on BSA issues is documented, ideally in a letter or email; alternatively in an attendance note.
1 s.120 BSA 2022
2 s.117 BSA 2022
3 S.119(2)(d)(iii) BSA 2022
4 UK Finance Lenders’ Handbook Part 1 (England and Wales), paragraph 5.14.17