The Building Safety Act 2022: A Risk Assessment for Conveyancers

The Building Safety Act 2022 (BSA 2022) has been implemented with the aim of protecting leaseholders from the financial strain associated with cladding and fire-related repairs. However, this Act has sparked apprehension among lenders due to the potential risk of incorrectly classifying a property as protected by the Act, leading to possible claims from buyers and lenders.

 

Sections 116 to 125 and Schedule 8 of the BSA 2022 offer a safety net to leaseholders, shielding them from the expenses of repair work on their properties. 

This applies if the defect being rectified is a Relevant Defect – a safety hazard related to fire spread or building collapse.

 

The coverage of the Act, however, is not all-encompassing. It only applies to Qualifying Leases. A lease qualifies if it was issued prior to 14 February 2022, lasts for over 21 years, covers a single dwelling in a Relevant Building, which is essentially a building in England standing at least 11 meters tall or five storeys high and containing a minimum of two dwellings. Furthermore, the tenant must be responsible for a service charge, and on 14 February 2022, the dwelling should have been the tenant’s primary or only home, or the tenant should have owned no more than three dwellings in total.

 

If a lease is a Qualifying Lease, the leaseholder will be exempted from paying repair costs related to Relevant Defects if the fault lies with the landlord or someone linked to them, such as a contractor. The Council of Mortgage Lenders (CML) recognises this as a crucial protection as these expenses can be considerable and could make a property un-mortgageable.

 

However, determining whether a lease qualifies for these protections often depends on factors that a buyer may not be aware of at the time of purchase and may be difficult for the solicitor to confirm. This uncertainty makes it challenging for solicitors to assure clients that they won't face a significant repair bill in the future.

 

The CML, representing mortgage lenders, has set stringent requirements for lenders to lend against a property in a Relevant Building for these provisions. These requirements might be difficult for a solicitor to fully comply with.

 

One key requirement is for the existing leaseholder to complete and submit a Leaseholder Deed of Certificate to their building owner. This document verifies whether the lease met the requirements for a Qualifying Lease at 14 February 2022. It also requires the leaseholder to provide evidence that they owned no more than three dwellings in total at that date, which may not be within their knowledge and may necessitate investigations of previous title holders.

 

Solicitors may find themselves in a tricky position, having to depend on indirect assurances about the status of a lease and whether it's protected from liability to pay for repair. Therefore, it would be prudent for solicitors to alert clients about the difficulties in meeting the CML's requirements, obtaining the necessary information for the Leaseholder Deed of Certificate, and the impossibility of guaranteeing that the lease qualifies for protection.

 

When representing a buyer, solicitors should obtain an undertaking from the seller's solicitors that the Leaseholder Deed of Certificate is accurate and correct. However, if representing a seller, solicitors should 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 procure the necessary information to satisfy the CML's requirements, they cannot fulfill their duty to the lender and will need to withdraw from the retainer. Clients should be informed upfront about such a possibility in engagement letters. It's better to be transparent with clients about this possibility than to proceed regardless and risk a claim by the buyer and/or lender if a property turns out not to be protected by the BSA.

 

To effectively address Building Safety Act (BSA) compliance challenges, lawyers should consider the use of disclaimers at the start of a retainer. The disclaimer should highlight the complexities of BSA compliance and ask for the client's acknowledgement. It should also clarify that the lawyer can't guarantee the accuracy of a Deed of Certificate and may have to cease services if unable to meet the Council of Mortgage Lenders' requirements.

 

Lawyers can adopt various strategies to better serve their clients. Firstly, they can keep their clients informed about potential delays related to the Building Safety Act (BSA). It's also crucial for them to review any planned repair works, which may include contractor inspections and possible disruptions.

 

In some cases, they may need to refer their clients to specialist counsel for expert advice. Regular reviews of lender requirements are especially important in long transactions to always ensure compliance.

 

Legal professionals should also understand the specific rules applicable to transactions in Wales, as these differ from other regions. It's essential to consider ancillary costs that are not directly related to cladding, such as the waking watch, sprinklers, and balconies.

 

Monitoring the expiry dates of mortgage offers is another crucial task, particularly in extended transactions. Lawyers should also verify the dates of fire risk assessments to make sure they were conducted after the enactment of the Fire Safety Act 2021 on May 16, 2022.

 

Lastly, all actions and advice given regarding BSA issues should be properly documented, ideally through written correspondence like letters or emails. If this is not possible, at least maintaining attendance notes would be beneficial. 

For further information please email ben.pett@mjpconveyancing.com