How the Government’s developer remediation contract will affect developers

On 30 January 2023, the Department for Levelling Up, Housing and Communities (DLUHC) set a six-week deadline (until 13 March 2023) for developers to sign a new 93-page developer remediation contract originating from the Building Safety Pledge.

Under that contract, developers are expected to commit an estimated £2bn or more for repairs to buildings that they have developed or refurbished over the past 30 years. With the Building Safety Levy, which is payable by developers and chargeable on all new residential buildings in England requiring building control approval, it is estimated that the industry will contribute around £5bn to the building safety pot.

Background

The Government began negotiations with developers back in February 2022, when it also announced significant amendments to the Building Safety Bill (which is now the Building Safety Act 2022). Those negotiations had the express objective of pressing the industry into paying for remedial works relating to building safety.

The Building Safety Pledge letter was published in April 2022, committing those that signed to fixing ‘life-critical fire-safety issues’ on all buildings 11 metres and above in England that they had developed or refurbished since April 1992.

The Contract

The intention was always for the Building Safety Pledge to be formalised into a legally binding contract, and the first draft was published in July 2022.

The DLUHC issued the final draft of the Contract to developers on 30 January 2023 with a mandate that it must be signed by 13 March 2023 – effectively giving the industry an ultimatum.

The Contract comprises Self Remediation Terms and Deed of Bilateral Contract and a copy can be found here. A copy of the letter which accompanied the Contract (issued by the DLUHC the same day) can be found here.

What does the Contract address?

The Contract imposes robust obligations upon developers, requiring them to:

• identify and assess buildings which require work as soon as reasonably practicable after the date of the Contract being entered into between the developer and the DLUHC;
• carry out and complete the works at the developer’s own cost, as well as procuring suitably experienced and qualified sub-consultants, sub-contractors or suppliers or any other persons;
• keep residents informed of the progress towards meeting these commitments; and
• reimburse taxpayers where public money has been used to fix unsafe buildings.

What happens if the Contract is not signed?

Failure to sign the Contract, or comply with its terms, could have serious consequences for developers, particularly regarding their ability to operate fully within the housing market.

The DLUHC has stated that they will use powers under the Building Safety Act 2022 (BSA) to effectively force them to sign up. The most serious of those consequences, that will effectively blacklist non-compliant developers include:

• A Responsible Actors Scheme (RAS) will be created under s.126-129 of the BSA to be introduced under legislation to be brought forward this spring. Developers that do not sign, will not be allowed to join. Secondary legislation (not yet published) will set out the detail.
• Powers conferred on the Secretary of State to block developers who have not signed the Contract or failed to comply with its terms from carrying out development and from receiving building control approval, preventing them from operating as normal in the housing market “for as long as they do not resolve the problems of the past”.

In addition, the DLUHC states that it may also:

• make public the identities of developers that have not signed;
• inform investors and customers of the risks arising from continuing commercial relationships; or
• review its own commercial relationships and procurement frameworks accordingly.

What does the DLUHC say?

The Secretary of State for Levelling Up, Housing and Communities, Michael Gove, said, upon issuing the Contract:

“Today marks another significant step towards righting the wrongs of the past and protecting innocent leaseholders who are trapped in their homes and facing unfair and crippling costs.

Too many developers, along with product manufacturers and freeholders, have profited from these unsafe buildings and have a moral duty to do the right thing and pay for their repair.

In signing this contract, developers will be taking a big step towards restoring confidence in the sector and providing much needed certainty to all concerned.

There will be nowhere to hide for those who fail to step up to their responsibilities – I will not hesitate to act and they will face significant consequences.” 

This is a bold statement and demonstrates the Government’s determination to ensure that building safety issues are resolved as swiftly as possible and that those who were involved historically step up to play their part.

What next?

Of course, we will have to wait and see how the significant sea change brought in by the BSA is played out in real-time within the industry and the market. Crucially, developers procuring the remedial works should ensure that:

• projects are effectively prioritised as they come under mounting pressure from management companies;
• design and procurement of the works is properly managed and robust downstream contracts are put in place at the earliest opportunity to ensure that developers discharge their own obligations under the Contract; and
• the works are properly managed and monitored throughout the remedial project.

There will be no room for error this time. With extended limitation periods and a greater emphasis on building safety, it is vital that:

• all contracts connected with a remediation project that are carried out pursuant to the Contract are carefully drafted, that proper due diligence is carried out on the parties involved in the project; and
• designs, specifications and works are compliant with the Standard as defined in the Contract.

Failure to follow proper due diligence may result in even greater financial exposure through, for example, claims brought under the Defective Premises Act 1972 or the Building Act 1984 (when it comes into force). If downstream contracts are not ‘back-to-back’ there is a potential greater exposure for developers.

Those risks aside, the Contract still represents a significant financial liability and this comes at a time when there is already economic fragility within the industry. The required investment in time and money for building safety measures, for existing and future projects, will be a primary focus and likely a game changer within the housing development sector.