The Building Safety Act 2022 (BSA) introduced protection for qualifying leaseholders from liability for cladding and non-cladding related remediation works. The costs of these works can be substantial and it is the responsibility of conveyancers to suitably advise their client. Failure to do so, or doing so mistakenly, may find conveyancers subject to claims by purchasers and lenders.
To reduce the likelihood of claims, conveyancers should take steps to clarify their responsibilities and mitigate their exposure. This is particularly important when other parties in the transaction may try to push responsibility for confirming a position onto the conveyancer. However, there will be practical difficulties in establishing the position for some buildings/leases; therefore, the conveyancer should take care to advise their client of risks involved in the transaction but not be led into providing inappropriate confirmations or assurances.
Proper attention and understanding in this area will help to reassure firms’ professional indemnity insurers if necessary.
BSA protections for leaseholders
Under the BSA, leaseholders have been granted statutory protection from the costs of cladding remediation. Instead, most major developers and housebuilders have agreed to fix ‘life-critical fire safety defects’ in relevant buildings, and have entered into developer remediation contracts with government.
A ‘relevant building’ is one which is:
- At least 11 metres in height or has at least five storeys (whichever is reached first)
- Contains at least two dwellings
- Not a leaseholder-owned building
For non-cladding remediation work, the BSA also introduced a ‘cascade’ of responsibility. This makes developers, manufacturers, and freeholders responsible for costs in the first instance where they meet specific criteria. At the end of the cascade, leaseholders who do not otherwise qualify for additional leaseholder protections may be required to contribute to remediation costs.
Where there is no developer remediation contract in place, and non-cladding related remediation is not being covered elsewhere, ‘leaseholder protections’ apply. These significantly reduce the cost of remediation work for leaseholders.
- The leaseholder is likely to qualify for protection from the costs of remediation if the flat being acquired was, on 14 February 2022:
- The leaseholder's only or main home and the leaseholder did not own any other dwelling in the United Kingdom, or
- The leaseholder did not own more than three dwellings in the UK in total, and the flat:
- Is in a ‘relevant building’ and is demised by a ‘qualifying lease’ granted before 14 February 2022 (‘the qualifying time’); and
- Has ‘relevant defects’ (which relate to a safety risk arising from the likely spread of fire or the prevention of a collapse of the building); and
- Is in a building that was constructed after 28 June 1992 but before 27 June 2022 or contains a defect which was created by works carried out in that time.
Responsibilities for conveyancers
Since the BSA’s introduction, many conveyancers have been reluctant to take on matters involving affected properties, owing to a lack of clarity in the legislation around their responsibilities, as well as the extra checks and paperwork required. Despite subsequent efforts to clarify the legislation, including amendments to the UK Finance Mortgage Lenders’ Handbook, these issues remain a source of concern.
- When acting in residential leasehold conveyancing matters, conveyancers should consider whether a property:
- May be located in a relevant building; and
- whether there may be relevant defects and what is known or discoverable about these; and
- whether there may be qualifying leaseholder protection under the provisions of the BSA, and what is known or discoverable about this.
This consideration will help the conveyancer in determining their approach to the engagement and whether there are risks which they should be bringing to their client’s attention. It is important to consider these matters not only at the outset of the engagement but also as the engagement proceeds.
In practice, whether qualifying leaseholder protection exists depends, to a significant extent, on matters which it may well be difficult or impossible for the conveyancer to verify. In turn, conveyancers may find it impossible to give clients confidence that they will not, at some point in the future, find themselves liable for remediation costs. As such, conveyancers should be careful to warn of risks in a transaction but should take care themselves that they are not led into giving assurances on matters which are outside of their professional expertise or that they cannot verify.
Risk mitigation and insurance implications
It is up to individual firms to determine whether they will act in transactions involving affected properties. However, where firms do choose to act, and fail to advise clients properly, they could see negligence claims brought against them.
In February 2024, the Law Society released guidance for conveyancers, intended to help conveyancers make informed decisions about taking on matters with potential building safety issues.
General steps that firms can consider when taking this decision include:
- Develop policies and set criteria for accepting instructions in BSA-applicable matters – including the circumstances in which firms will act, limits to number of cases taken on, and how work will be assigned, etc.
- Review engagement letters – to include information about BSA related issues.
- Consider whether to limit the scope of retainers – this should make clear on what the firm will, and will not advise, as well as the reasons for this, and implications for clients.
- Review general client advice and conveyancing precedents – including recording to clients that solicitors cannot advise on issues such as physical structure of buildings or fire safety, and cannot definitively advise on the specific provisions in the BSA, information obtained from registers, or information provided by landlords or managing agents, etc.
Firms should also be prepared for the possibility of questions from their professional indemnity insurers regarding the BSA. Insurers will expect firms to have considered in detail the risks associated with BSA-applicable work, and to have implemented an agreed stance on such work across its relevant teams.
Firms should have a meaningful risk assessment in place at the outset of a transaction, which is recorded on file. Firms should be able to say how many transactions in the year are BSA-applicable. They should also be able to demonstrate how such transactions are being handled and supervised.
The qualifying leaseholder protection has attracted significant attention, but it should be noted that this is only one of a number of changes introduced by the BSA. The responsibilities of Accountable Persons for Higher Risk Buildings are a good example of other changes which may be relevant, and again firms should consider to what extent they should be making clients aware of responsibilities, considering the transfer of golden thread information and clarifying and setting boundaries in letters of engagement where the firm is acting for clients in relation to a Higher Risk Building.
As the operation of the BSA becomes more established over time, requirements and guidance are likely to evolve. Firms should monitor closely for any further clarification to their responsibilities under the legislation.
Firms should take their own legal advice on any matters relating to the Building Safety Act.
For more information, visit our Solicitors page, or contact:
Nicola Anthony, Risk Manager