Unpacking the Building Safety Act's industry overhaul

06 March 2024. Published by Zoe Eastell, Partner and Zack Gould-Wilson, Senior Associate

On June 28, 2022, the Building Safety Act 2022 received royal assent, bringing about the biggest change to building safety in 40 years.

The BSA introduced significant changes to how buildings are designed and constructed and the management of high-rise residential buildings, and there has already been a huge raft of secondary legislation implementing elements of the BSA.

Various new responsibilities and systems were introduced from Oct. 1, 2023, with the most recent statutory instrument — the Building Safety Act 2022 (Commencement No. 6) Regulations 2024 — entering into force on Jan. 13, 2024, and more expected in the future.

There have already been several court decisions on the interpretation of key aspects of the BSA. Of particular note, since August 2023, the First-Tier Tribunal has handed down two decisions on remediation orders pursuant to Section 123 of the BSA, bringing the number of reported decisions to three and provide welcome insight into the FTT's approach to applications in this developing area.

The first decision is Sarah Waite v. Kedai Ltd., which was handed down on Aug. 9, 2023, and the second is Triathlon Homes LLP v. Stratford Village Development Partnership, Get Living PLC and East Village Management Ltd. — the first contested remediation contribution order, or RCO, under Section 124 of the BSA — which was decided on Jan. 19.

It is clear from the recent RCO decision that the policy of the BSA is to pass on the primary responsibility for the cost of remediation onto the developer, and others associated with them, and that public funding should be seen as a matter of last resort. Further case law is expected in the coming months due to the emerging nature of the law and parties being able to add in additional arguments concerning breaches of the Defective Premises Act 1972, or DPA, which were previously time barred, and that are not limited to fire or structural issues.

The BSA has introduced new potential liabilities for construction industry stakeholders, which need to ensure that their insurance arrangements adequately protect them in the developing regulatory environment.

The BSA has introduced a new principal designer role

Among the many changes, the Building Regulations etc. (Amendment) (England) Regulations 2023 came into force on Oct. 1, 2023, which provide further clarity on the duties and responsibilities of the principal designer under the BSA. This is a role that is new and distinct from the role of a principal designer under the Construction (Design and Management) Regulations 2015, and places responsibility on the principal designer to ensure the design work on a project is coordinated to demonstrate compliance with the Building Regulations.

Principal designers should now be checking their contractual terms and professional indemnity, or PI, insurance policies to ensure they cover the additional obligations, and consider increasing rates to account for the additional scope and risk. This is one of a number of changes introduced, and all construction industry stakeholders must understand the new duties imposed on them by the BSA and secondary legislation. Stakeholders should also take steps to understand and comply with their obligations, including reviewing their contracts to ensure they provide adequate warranty, guarantee and insurance provisions to sufficiently apportion the risks, and deal with the legislative changes brought about by the BSA.

The BSA has extended the statutory time limit for claims concerning building defects

One of the key changes introduced by the BSA is the extension to the statutory time limit for bringing claims under the DPA. Sections 133 to 135 of the BSA introduced a new Section 4B into the Limitation Act 1980, providing for a retrospective limitation period under the DPA of 30 years for any causes of action that have arisen within 30 years of the BSA coming into force, i.e., back to June 28, 1992.

The BSA also introduced a prospective limitation period under the DPA of 15 years for any causes of action that arise after June 28, 2022. This is a significant extension from the previous limitation period of six years from the date of completion of the property.
The extensions to the limitation period apply to any defects rendering the building not fit for habitation, not just fire safety defects or defects in buildings over a certain height.

Moreover, on July 3, 2023, the Court of Appeal of England and Wales confirmed in URS Corp. Ltd. v. BDW Trading Ltd. that this extended statutory time limit should be treated as always having been in force.[1] It therefore applies to claims under the DPA that, prior to the BSA coming into force, had already become statute barred.

There may therefore be opportunities for claimants to pursue claims under the DPA in new or existing proceedings, even if those claims were previously statute barred, including at the commencement of any existing proceedings.

The BSA has also added a new Section 2A to the DPA, which extends its remit to include work carried out on existing dwellings, including refurbishments. This represents a significant expansion in the scope of the existing DPA regime and increases exposure for firms and their insurers. However, this extension only applies to work completed after June 28, 2022, and so the applicable limitation period for bringing such claims is 15 years.

What are the implications of longer limitation periods for construction industry stakeholders?

The longer limitation periods present legal and practical difficulties for those defending claims. Retention policies may need to be updated to ensure that records are retained for sufficient periods of time and maintain access to documents and information necessary to defend claims relating to historic developments and future projects. This is at least 30 years for existing projects completed before June 28, 2022, and at least 15 years for subsequent projects after June 28, 2022.

The BSA has introduced new potential liabilities

In addition to the longer limitation periods, Sections 122 to 125 of the BSA relate to the costs of remediating buildings and provide for a mechanism to allow the FTT to make remediation orders against a relevant landlord, as well as RCOs by which developers, landlords and their associates may be required to contribute towards the costs of remedying relevant defects. Moreover, Sections 130 to 132 of the BSA introduce provisions to allow the High Court of Justice of England and Wales to make building liability orders, including orders for information in connection with BLOs, thereby extending liability to associates of the original developer or landlord under the DPA or as a result of a building safety risk.

The changes in legislation create a much wider exposure for those involved in the design and construction of buildings and their insurers, particularly in light of the new categories of potential liabilities arising from RCOs and BLOs. There have already been several reported cases under the BSA, including the FTT's Jan. 19 decision in Triathlon Homes, in which it made an RCO in the sum of approximately £18 million ($23 million), passing on primary responsibility for the cost of remediation onto the developer and others associated with them.[2]

The FTT's decision further clarified that public funding should be seen as a matter of last resort. Further case law is expected over the coming months as the implications of the BSA are tested and liability for remediating defects continues to be a hot topic of dispute.

How is the PI insurance market reacting to the BSA?

The market for PI insurance, particularly for fire safety and cladding risks — predominantly in connection with combustible materials used in buildings — was reduced in the years following the tragic fire at Grenfell Tower on June 14, 2017.

Restricted market capacity arose due to some PI insurers' perception of poor profitability and increased claims exposure in a politically volatile regulatory landscape. Some PI insurers adjusted their risk profile and appetite to underwrite such risks, while other PI insurers identified lucrative opportunities in an economy where demand significantly exceeded supply.

The market is now showing signs of improving and normalizing, with fire safety and cladding risks being written back into some PI insurance policies, although some are subject to bespoke and sometimes demanding terms and conditions, such as restricted cover available for contracts predating a specified date.

However, the market is not as robust as it was before the Grenfell Tower tragedy, and PI insurers are following developments closely and assessing their risk profile and appetite to underwrite fire safety and cladding risks in the context of the BSA and considering what this holds for the future of the construction industry.

For example, the extent to which RCOs and BLOs may be indemnifiable under a PI insurance policy is an emerging risk for PI insurers, and it is likely to be the subject of dispute in the coming years as applications for RCOs and BLOs appear to be a quicker and more cost-effective approach to recovering remedial costs compared to potentially lengthy and expensive litigation in the specialist Technology and Construction Court, King's Bench Division.

Given the above, it is feasible that some PI insurers may continue to take action to limit their exposure to claims, including potentially restricting their policies that cover the extended limitation periods and potential liabilities arising from RCOs and BLOs. Some PI insurers may only be prepared to underwrite professional indemnity fire safety and cladding risks subject to a significant self-insured excess or certain exclusions and policy limitations.

Firms with good claims histories and strong risk management processes are inevitably going to be better received by the market. As such, it is vital that firms ensure that the terms of their PI insurance adequately protect them in the evolving landscape of the construction industry.

This article was first published on Law360.

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