Q Thank you, Chair, and welcome to our witnesses. I have an easy question for you. Will the Bill fundamentally improve the building safety regime in this country and change the culture of profit over safety that we have witnessed over the last 30 years? If not, what will?
The immediate impact on building practices is not clear. One would hope that, under the new regime, buildings might become, and be kept, safer. The immediate impact on building premises that we know have not been great is hard to see. Frankly, without stronger liability for the building sector, that is unlikely to change.
Not immediately is the answer, for two reasons. One is that there is so much to be fleshed out in SIs that it is pretty hard to know where this will ultimately go. Until you see the SIs and, in some cases, the guidance, it is quite a nice framework, but it does not matter until you get the secondary legislation.
The other reason why things are unlikely to change immediately is that the focus of the new regime is primarily tall buildings—18 metres-plus—and, as you can all appreciate, there are lots of buildings, both new and existing, that are under 18 metres. While I anticipate that, over time, they will be brought within scope of the regime, that is not the starting point, so nothing much will change for them immediately.
To be frank, I am not sure that legislation can change culture. You can legislate for all the things you want, but if people build on the cheap because there is no real comeback on them, that is the position. For example, you cannot sue building control, regardless of whether it is local authority or private, if they sign off rubbish buildings. If you want to make building control a lot more effective, let people sue them when they get things wrong. We will talk about this later, but one of the flagships in the Bill is extending the limitation period in the Defective Premises Act 1972. You can have the longest limitation period you want, but if all the building is done by SPVs—special purpose vehicles—worth £1, which are wound up the minute they are built, the law does not help you at all. There is a limit to what you can do via legislation, and the Bill is a pretty modest start, even at that.
Q I have a question about statutory instruments. One of the issues that many of us are trying to grapple with is what should be in primary legislation and what should be in secondary legislation. We have heard from representatives of the Cladding Action Group and other leaseholders that they want to have a voice when it comes to fleshing out the statutory instruments. At the moment, they see it as a stitch-up between the Government and the industry. On the other hand, we have received evidence from industry bodies that this is a necessary evil, because they think they will have to flesh out some of these things as they go, and the critical thing for them is to ensure that there is sufficient scrutiny of statutory instruments. I would welcome your view on where you are on that spectrum. Do you see the process moving forward by giving residents a voice or having further scrutiny?
There is probably no way of doing this without significant SIs, because to legislate at the level of detail that you probably need, you would have a 10,000-page Bill—you guys would still be in Committee at Christmas. There is also a value to doing it by SI for an element of future-proofing, because it will be easier to update it as things change. I do not see why you could not have at least a draft of the SIs to accompany the Bill, to be considered as part of the scrutiny. One assumes that the thinking as to what will be in the SIs must be reasonably advanced. The moment you have them, this Committee or some other Committee is as well placed as anyone else to do that kind of scrutiny and to bring in the leaseholder and external voices. At the risk of sounding like a typical lawyer, I suspect I am sitting somewhere in the middle.
I think I would agree. There are very significant operational elements of this Bill that will be done by statutory instrument, so we are largely in the dark about the way in which it will play out and operate, inasmuch as we have no idea what will be in the SIs. The difficulty with scrutiny of SIs is, I suppose, a parliamentary problem rather than a legal one, but I support Justin’s suggestion that at least drafts, indications or outlines of where the SIs will be going would be significant at this point.
Q I am slightly repeating what I asked earlier, but on clause 84 of the Bill and reasonable steps, from your perspective as lawyers, is there a way to scope the drafting of this legislation, either through primary or secondary legislation, so that we limit the need for judicial intervention later on? The phrase “reasonable steps” always strikes fear into me, and we could end up just going round and round. Is there scope there to try to define that, either in the body of existing precedent or from what we know from a policy perspective, to try to scope that definition of reasonable steps in respect of this legislation?
I suspect that would be a matter for guidance; guidance would not necessarily avoid the risk of litigation on the issue, but it would mitigate it. The risk for all involved, particularly those who will end up paying for it, is that “reasonable steps” will be seen to be taken as doing every single thing possible to avoid any prospect of being sued or losing one’s insurance, and with that sort of risk avoidance there is a clear risk, particularly when you are looking at potential criminal liability in some aspects. We need some sort of clear guidance on the extent of “reasonable steps”. The difficulty is, of course, that you are looking at a wide range of potential safety issues, and I do not think you could draw a bright line under every single one. Inevitably, without something beyond clause 84, the accountable person will be running scared of what the potential consequences for them will be, if they do not do literally everything.
The phrase “reasonable steps” is one that the draftsman of this Bill really likes, because it crops up in quite a few places. Contrast clause 84 with clause 124, inserting proposed new section 20D(9) into the Landlord and Tenant Act 1985. That is the one about how you regulate service charges, and in that one the Secretary of State is giving himself a power expressly to issue guidance about what will be reasonable steps. I cannot see that he has done the same in clause 84. He is making the accountable person go back to the prescribed principles, but prescribed principles are not the same thing as guidance. I do not see why you could not add a new subsection (6) to clause 84, stating that the Secretary of State may issue guidance from time to time about what constitutes a reasonable step for these purposes. That would be quite useful—and if you wanted to make him lay it before the House before it takes effect, you could even scrutinise it.
Good afternoon, gentlemen. Which parts of the Bill do you feel will be the key areas of interest for the legal profession? Following on from that, which do you think will take the most time to understand and prepare forQ ?
It will depend on who you act for and what you do. For both of us, our primary focus is on residential property law—leasehold, freehold, tenants and so on—so I am really interested in from about clause 120 onwards, the service charge and the building safety charges. Those are all my Christmases come at once, in terms of the amount of litigation you are creating for me, which is probably not what you intended. I want to come back to who you act for. If you act for a developer, one of the things that will worry you is the extension of limitation periods under the Defective Premises Act 1972. At the moment, it is six years from building control sign-off and, in practice, very few people know enough about the problem within that timeframe. 15 years is obviously better than six. If you have developer clients, you will advise them to do as much building as possible through SPVs and then wind them up, once finished, because your exposure after the Bill will be much more significant. That is even more true for refurbs, because you are extending the Defective Premises Act to include refurbishments, not just new builds. That is an aspect that will very much interest the legal profession.
I think there is a lot here that will end up in litigation, and there is not a lot you can be done about that because this is a pretty significant change to the structure of how buildings are regulated, and to the structure of the landlord-tenant relationship. You cannot lawyer-proof this, but you might not need to be quite as generous to lawyers as you are being. In a moment, we will come on to where you could be more exacting with your wording, to be clearer about what you want.
I think that is right. In some ways, the Bill is actually inviting more litigation through the extension of limitation. To be honest, that is probably the one thing that will not happen, for reasons we will probably get on to—or it might happen, but to a very small degree. I have no doubt that there will be considerable tribunal activity over the new requirements in clause 124, from a leaseholder perspective. The advice to developers might be quite expensive, but it will be very short and sweet: “Limit your liability in any way you can”. SPVs will be the way they do that.
Q What more could be done to protect leaseholders from historical remediation costs and ensure that those responsible for this mess are pursued and pay? You have referred to suing them. How would you strengthen the role?
The extension of limitation is a start. The problem with suing developers and builders has always been twofold; limitation is one, because problems usually do not manifest themselves within the first six years. The other problem is finding somebody worth suing, and that is the big problem. I get a lot of inquiries about potential new build cases. Most of them are out of time, but most of them also do not have anybody they can actually sue, because developers have liquidated or wound up. One thing that could be considered—although it is difficult and goes against some fundamental tenets of English company law—is to allow tracing profits, to make parent companies liable for special purpose vehicles. That would be one way to cut out the simple “take the profits and run” approach. Justin suggested properly enabling the suing of building control; that is currently off the table, but it might improve the attention to detail, although the professional insurers are already going bust.
Again, if you are feeling adventurous, you could make directors liable for the acts of their companies—make them personally liable for any building defects. That is not as radical as it sounds—you did that to directors of rogue landlord companies in the Housing Act 2004 and the Housing and Planning Act 2016. I appreciate that every company director hearing this is having a wince and every company lawyer is pulling their hair out, but you have done it twice in relation to rogue landlords, so it is not that big a stretch to go to rogue developers.
There is a danger in asking litigation lawyers for policy advice because every problem that I see involves suing people. That is what I do for a living, so take everything I am about to say with a large pinch of salt. Fundamentally, Parliament has to decide what is the nature of the current building safety crisis that it is dealing with. Is it one that requires a collective response or an individual response in individual buildings? The Bill is about individual buildings. If you are lucky enough to be a leaseholder or freeholder who benefits from the Defective Premises Act 1972 extension and you can find someone worth suing, there is some good stuff for you in here. I personally think that would be, at most, 15% of affected buildings at the moment, and you have got the June 2020 National Audit Office report if you want to see MHCLG’s response to that. It thinks that even that would be a higher figure.
Likewise in clause 120 and the restrictions on when you can pass service charges on. There will be some buildings that benefit from that, but it is all happenstance. You are not solving the collective problem. You are creating some remedies for some buildings. If you think this is a collective problem, the only way is for some collective body to take control of it, such as central Government, to fund works, at least up-front—that would be one solution—and then recoup.
You could have a scheme, which I understand is a variant of what is in Australia, whereby central Government fund works on affected properties but a condition of the funding is that it requires all affected parties to assign their rights to central Government, who then get round to suing when they feel like it, because central Government do not really care if their litigation takes five years to work through. Central Government will still be here in five years’ time, whereas individual leaseholders do not have five years to wait for cases to pan out. There is lots you could do if you want to adopt a more collective approach, but you need to be clear that this is a very individualistic response here. That will help some people, but probably not many.
If the Bill works in the way it is envisaged, you should at the end of the construction stage of the building be able to go to one place and have all the documents relevant to that building. You should have the plans, the design and so on. One problem that you have seen coming out of the Grenfell inquiry, for example, is that no one had all of the plans for the building. Firefighters went in and discovered there were two floors that did not exist on the plan that they had. If this works, this will be better for pulling together a centralised and collective set of records, which will help. That is the obvious one that I can think of, comparing it with a problem that we know exists. Can you think of any others?
There will be more accountability via the accountable person, certainly from the point at which the building is occupied. I am not clear how far that accountability will transfer back to the people actually responsible for the problems, if there are problems. The basic idea of having a person accountable for the building’s safety is in itself a good idea, but the complexities that follow on are immense. I am not sure that the issue of establishing who is the accountable person, particularly in properties where there might be multiple people who would be candidates or would fall under the list of who would be an accountable person, has been adequately solved.
How can I put it? I am fine on the principle; I am less certain about the practice, particularly as we are still waiting for statutory instruments—quite a lot of them—on how the accountability will be seen through. A lot of it will be down to the approach taken by the regulator. As we have seen with the regulator of social housing and so on, that can be quite a variable approach.
Until we see all the secondary legislation, you cannot start to work out where all the problems will be. You have Dame Judith Hackitt’s report in the background. Dame Judith effectively concludes in her interim report that we have a building industry that cuts corners and throws up the cheapest buildings it can, to sell for the most profit as quickly as it can. That is the cultural problem. If you have still got that culture, people are going to find a way to get around the law. That is what they do. If you are really worried about building standards, you have to address that cultural bit first.
I am not saying that I have any answers to that, which was one of the earlier questions. Legislation by itself cannot make people be morally good, but you can impose enormous and painful penalties on people who do bad things. For example, building control is liable to pay damages if it turns out it was negligent in some respect. That will focus a lot of minds. It will end the practice that is rumoured to exist of some building control being very keen to say yes, because it does not want to get the reputation of being the person who says no, because then they do not get any other work.
There is indeed case law on building control signing off on non-existent flats without having seen them. Despite being clearly negligent, and potentially fraudulent, no liability was found. Yes, there is certainly a case for focusing building control’s minds on what it is they are doing.
Q The Bill as drafted would to my mind enshrine a legal principle that leaseholders who are not at fault have to pay for defects not of their making. Could you talk us through the legal implications of that in terms of what leaseholders may choose to do if the Bill goes ahead unamended, and for housing and building law in general?
The current position on leaseholders potentially having to pay for building defects is somewhat hotch-potch. By and large, for the huge majority of leases, they will have to, because it will be under the lease. There will be some leases where that is less than clear and some where they may not have to. So far, there have been no such successful cases at the first-tier tribunal or the upper tribunal, but it is theoretically possible—I am not ruling it out.
The Bill certainly takes as read that the cost of remedial works will pass under the service charge. There is no envisaging otherwise; it is simply the case, as far as the Bill goes. In terms of inserting, for instance, a direction by the regulator, it makes it 99.9% certain that the costs will indeed pass under the service charge. Not so much by specifying but by presenting the framework by which the remedial works will be assessed under the serviced charge, yes, it does enshrine that principle.
Clause 124 is the critical one for this. Clause 124 assumes that the leaseholder is going to have a contractual liability under the lease, and it is right to make that assumption. In 99.9% of leases the starting point position will be that the leaseholder pays. By one route or another, there will be a clause in the lease that could be used. I agree it is theoretically possible that you have a lease that does not allow for that. I do not think it is very likely.
Clause 124 does not actually do anything to stop that. It takes the contractual position—that the leaseholder pays—and says, “We are going to ameliorate that in a relatively limited way.” First off, it only applies to a particular type of work, which is going to be specified by the Secretary of State in regulations. We do not actually know what kind of work it will apply to yet. I know it is not just cladding we are talking about here, but for simplicity’s sake let us say the Secretary of State passes an SI that says it applies to cladding replacement. In those circumstances, the Bill puts the freeholder under an obligation to look at alternative sources of funding. He has to go and look at granting funding—building safety fund money would be an obvious example. He has to look at insurance funding that might be available. He has to look at any other third parties that might have to pay because the developer could sue them, and he has to look at anything else the Secretary of State specifies, which is why it would be useful to know what the Secretary of State intends to specify. But it is only a duty to take reasonable steps to see whether any of those parties can pay up. What will reasonable steps mean in these circumstances? Once the building safety fund is exhausted, there is no publicly announced plan for any further grant funding. You know the building safety fund will get exhausted, because the Select Committee has done the work on that.
On insurance, it is good to have it enshrined in law that you should be looking to your insurers to pay up—frankly, case law has got there already, so it is not much of a development but it is always useful to have it confirmed in one place. The one that troubles me is the idea that the freeholder has to take reasonable steps possibly to sue third parties. What will reasonable steps mean here? Presumably, the freeholder will go and get legal advice from someone, and lawyers being what they are, they will say the prospects of success are somewhere between x and y. If he says there is a 51% chance of success, does the freeholder have to do it? Bear in mind that the legal costs of a failed claim will almost be certainly be a service chargeable cost. If he says it is 70%, does the freeholder have to do it?
If he does have to bring litigation, in the meantime, what will you do about the actual work on the building, because suing someone does not get a building made safe? In the meantime, all the leaseholders—your constituents who write to you about waking watches and higher insurance premiums—will keep paying that while the freeholder and the developers have a fight about who should pay the ultimate work.
I understand what it is trying to do: it is trying to give freeholders a meaningful kick to make sure they exhaust other sources of funding before they go to leaseholders. I just see this generating a lot of litigation to achieve very little.
To follow that through, clause 124 appears to make it an obligation for the accountable person to actually carry out works in the meantime while searching for the other sources of funding. Where is that money coming from? It is not going to happen. There will be no money, unless they charge the leaseholders in the meantime and then refund them, but they cannot do that.
If you are looking at potential litigation by the freeholder, I do that kind of work—you are looking at two or three years before there is an outcome, whether successful or not. Costs of failed litigation could be immense and will go through the service charge—that is entirely right under this Bill. But if the accountable person does not bring litigation, you are looking at the leaseholders prospectively bringing a challenge in the tribunal that they do not have to pay the remedial costs, whatever they are, as specified in the statutory instrument, because the accountable person has not complied with the relevant section of 20D. You are then asking the first-tier tribunal to reach a finding on what the landlord’s reasonable prospects of success would have been had they pursued a claim against the developer, as a condition of whether the charge has to be paid. That is a huge stretch for the FTT. How do you evidence that? The leaseholders bring along someone like me who says, “I put it at 70%.” The freeholder brings along their solicitor who advised them and said, “It’s a 40% chance.” What is the FTT to do? I cannot see that working. It is years and years of litigation one way or another.
Q To ensure that this is absolutely right for the parliamentary record, am I right in saying that, if the leaseholders want their freeholder to take reasonable steps and the freeholder refuses, they might end up having to pay for litigation to prove that the freeholder has or has not taken reasonable steps? If the freeholder then does take some reasonable steps and gets some legal advice, they then may choose to take action or not, and if they take a decision that the leaseholder disagrees with, that may also end up in litigation. If the freeholder decides to try and take legal action against those who they deem responsible, and that fails, the leaseholder may have already gone through one or two stages of the investigation, and if that fails, they are then facing the costs, as you said. I do not know whether you said “epic” or “massive,” but there was a word you used—
Immense—there you go. I was almost there. They are facing immense costs on top of that. Am I right in saying that those are the choices you have just outlined facing leaseholders under this Bill?
Q My first question is whether there is added complication if, in between the leaseholder and the freeholder, there is a head leaseholder such as a housing association or another property owner.
Q My question is about the concern raised in the joint evidence we were sent by the UK Cladding Action Group and End Our Cladding Scandal. They use the term
“moral hazard between the roles of the accountable person and the building safety manager”,
particularly the use and misuse of concerns about fire safety to do works that are not about fire safety, and may not even be necessary. I think I was reading that they feel this legislation could be used for work that is not the intention of this Bill. Do you recognise that, and is that an issue?
I am not entirely sure that is a different position to the current one. There is the eternal struggle between freeholders and leaseholders as to what works are necessary and what works are recoverable under the lease. Again, we are not sure what would count as remedial work, so that would be specified, but undoubtedly, yes, there will be attempts to smuggle in other kinds of works that could not otherwise be charged for. I am not saying that this is right: this is just what happens, and there will doubtless be tribunal disputes as to whether that is correct. That would require leaseholders to take it to the tribunal, so I am not sure there is a great difference with the current situation on that, but the current situation is hardly great.
It is important to remember that this Bill is not only about fire safety. We are all talking about that because that is the current crisis, but clause 59 says that a building safety risk is:
“(a) the spread of fire;
(b) structural failure;
(c) any other prescribed matter.”
That is what this Bill is concerned about. It is not limited to fire safety. Suppose you had this Bill 60 years ago: it might have been the vehicle you used to deal with asbestos, for example. You could have prescribed asbestos as one of the other matters there. As I understand it—this is where the SIs would be a legitimate tool—this is intended to be a structure that you do not have to come back to for 50 years. That is why having it beyond fire makes sense, because there will inevitably be another problem that we discover in years to come. Yes, focus on fire at the moment because that is your immediate concern, but this is not a Bill limited to fire safety.
Q I just want to follow on about the interaction between the Fire Safety Act and the Building Safety Bill. When you have those complex structures, the accountable person and the responsible person under the fire safety legislation could be different, and the Government are suggesting that this is addressed with the duty to co-operate. As someone who has been a councillor for a long time and is no fan of the duty to co-operate—it does not work, and I am pleased to see it being ditched in the planning White Paper—I am surprised to see this duty to co-operate appearing here. Do you think this will work? Could it be problematic?
I suppose that it would be straightforward in a number of situations, because the building safety manager would, in effect, be appointing the person to carry out the fire risk assessments and would effectively work as the responsible person. However, there is obviously the potential for adding yet more people with yet more responsibilities in relation to the building.
I am not sure that is a question for a lawyer, because a lot of it depends on the personalities involved. Joint working can work: think of the GLA’s taskforce, for example, which is doing good work on fire safety at the moment. They have local authorities and the fire brigade working together. There is no inherent, logical reason why joint working is bad. Much of it depends on the personalities involved and the political will behind each organisation to make it work. I am afraid that I am probably not the person to help you with that question.
We have been wracking our brains about this one. I know the clause that you are referring to. We are not entirely sure why it is there. I think it is probably just to avoid there actually then being a human rights challenge to BSA on whatever relatively spurious basis. I cannot see a valid human rights challenge, and certainly not in terms of the removal of the six-year limitation. A limitation defence is not a property for the purposes of article 1 of protocol 1; they could not pull an article 1 complaint.
I do not think that there are any article 6 issues, because limitation does not stop you being liable; it just stops you being sued. You are still responsible for the problems. If the period for which you can be sued is extended, where is the article 6 problem? You will still get your fair trial in court. After wrestling with it, I cannot see one.
What has almost certainly happened is that because we are designing for legislation with retrospective effect, the draftsman of this has realised that retrospective law is something that does flag up human rights concerns. You can do it—your Parliament is sovereign; you can do whatever you want—but it does flag up human rights concerns. Rather than having a fight about whether there is a human rights defence or not, the draftsman has said, “If anyone ever manages to succeed in one, this will be the outcome”.
These words could be hostage to fortune, but I suspect that it is a clause that will not go very far because you would see more litigation about whether the defence was available at all. This assumes that the defence is available, and it has decided what the outcome will be. I can understand why it has been put in there, because if it is not in there and a developer brings a human rights defence and wins, what happens is that the developer is still liable in damages, but a declaration of incompatibility is made, and you then have to deal with your incompatible legislation. I can see why the possibility of that has been headed off at the beginning, but I do not think it will go anywhere. I know that Giles takes a slightly different view.
I do take a slightly different view. I have a horrible feeling that that clause will invite people to try, which would inevitably mean at least three to five years of litigation on that issue, but we will see.
Q I want to return to Rachel’s question on the duty to co-operate. Just to push back a little bit, it is not really about joint working; it is about a legal obligation to work with another party. The reason why it is such a headache in planning law, as I am sure you know, is that you often have two authorities that are diametrically opposed in terms of what they are legally obliged to do. Both are legally obliged to build more houses, and they both want to offload onto each other. It is possible that they might both fail their duty to co-operate.
My question, to follow up on Rachel’s point, is this. Based on what is currently published in this Bill, are you able to ascertain whether or not there is a situation in which the two roles that Rachel mentioned—the responsible and accountable people—might be diametrically opposed in what they are legally obliged to do, or are you simply of the view that not enough has been published to ascertain that?
At the moment, I would lean towards the latter. I do not think the planning analogy is a good one, because this is not like two elected bodies, each with their own political concerns, fighting over where the houses should be; it is between two supposedly neutral public authorities. I see the co-operation duty as closer to the duties that exist under the Housing Act 2004, whereby local authorities and fire brigades have to work together when they are doing certain kinds of inspection.
I am not for a second pretending that you do not get areas of conflict. In pure housing law disputes between district councils and county councils about homeless children, you get enormous fights—a very common fight is about whether it concerns housing or social services—so I am not saying that there are no fights to be had. As far as I am aware, that problem does not come up under the Housing Act. That is probably the closest analogy. Can I think about it and send something in afterwards if I think of any particular problems?
If there are no further questions, I will draw this evidence session to a close. I thank our witnesses for their time. We are really grateful to them for bringing their expertise to the Committee.
BSB01 Elizabeth Mollatt
BSB02 Paul Bullock
BSB03 Josh Botfield
BSB04 Amanda Gourlay
BSB05 Local Authority Building Control
BSB06 Albanwise Wallace Estates Limited, Wallace Partnership Group Limited
BSB07 Gerald Kennedy
BSB08 Architects Registration Board
BSB09 Electrical Safety First
BSB10 The Association of Residential Managing Agents Ltd (ARMA)
BSB11 Alison Hills
BSB13 Town & Country Planning Association
BSB14 British Property Federation
BSB15 U.K. Cladding Action Group and End Our Cladding Scandal (joint submission)
BSB16 Business Sprinkler Alliance
BSB17 Peter L Caplehorn, Chief Executive, Construction Products Association
BSB19 National Fire Chiefs Council (NFCC)
BSB20 National Housing Federation