Commercial enquiries and building safety

The Building Safety Act 2022 is one of the most important and complex pieces of legislation to have been introduced in the UK this century. It will have a far-reaching impact on the real estate industry.  Passed in response to the Grenfell Tower disaster in 2017, the Act introduces significant reforms, in particular: A “gateway” process to ensure that “higher-risk” buildings are constructed safely and in accordance with Building Regulations; “Accountable persons” to ensure the ongoing safety of higher-risk buildings; A “golden thread” system for keeping all safety-critical information in one place; and Restricting the ability of landlords to pass on the cost of remedying “building safety risks” to tenants through service charge. The Act is aimed primarily at “higher-risk” buildings, which are buildings that are at least 18 metres high or (if shorter) seven storeys, and that contain at least two residential units. For some purposes, care homes and hospitals are also included. The building does not, therefore, need to be entirely residential and mixed-use buildings may qualify. CPSEs The commercial property standard enquiries were introduced in 2002 with the aim of speeding up commercial property transactions for lawyers and, more importantly, clients. They are now almost universally used in commercial property acquisitions.  They have developed over time to encompass a variety of different scenarios, and alongside the general enquiries (CPSE.1) there is also a set of enquiries for properties that are subject to residential tenancies (CPSE.6). It is these two sets of enquiries that are now being updated to include additional enquiries relating to the Act. Construction phase From October 2023, the Act introduces various hold points, or “gateways”, that will regulate the construction of a higher-risk building from the design phase up to practical completion. No such building may lawfully be occupied until it has received final clearance from the Building Safety Regulator.  Clearly, a buyer will want to raise detailed enquiries before buying a higher-risk building that is in the course of development. These are technical construction enquiries that fall outside the scope of the CPSEs. Buyer beware When a higher-risk building is being sold, the buyer will want to know who the “accountable person” is and obtain the safety-critical information that it will need to comply with its legal obligations under the Act. A well-advised buyer will expect full and detailed information, and any noticeable gaps should raise concerns. CPSE.1 introduces a new enquiry 15.  As a preliminary, an enquiry is made as to whether the building is a “higher-risk” building for the purposes of the Act and, if it is, details of the accountable person are required.  The remaining questions in enquiry 15 do not need to be answered until the relevant part of the Act comes into force (expected to be October 2023). These questions enquire whether the seller is aware of any breaches of the Act and seek confirmation that the building has been signed off by the Building Safety Regulator. They also ask for copies of the safety-critical information that the Act requires the building owner to keep (eg safety case reports, details of complaints from residents and any contravention notices) and contact details for the representative of the seller who has been tasked with ensuring compliance. As has always been the case, the ethos of the CPSEs is to keep the enquiries brief and to the point. The enquiries do not ask for information that the buyer could discover for itself. Service charge One of the most noteworthy aspects of the Act is that it limits a landlord’s ability to recover from tenants the cost of remedying historical building safety defects. A landlord that is responsible for the defect or meets a “net worth” test will be unable to recover the cost of remedying the defect from tenants under leases that were in existence on 14 February 2022. This restriction carries forward to the current landlord, so a buyer will be very keen to know the status of the seller in this regard. The Act also imposes a cap on the amount that landlords can recover from qualifying tenants through the service charge for remediation works. Information on whether either of these restrictions applies to the landlord or benefits the tenant is not straightforward and is obtained by means of a “landlord’s certificate” and “leaseholder’s deed of certificate”. New enquiry 21 in CPSE.6 introduces a series of short enquiries to extract this information. This is a complex area and the guidance notes help to explain the purpose behind each of the enquiries. Do not delay The new editions of CPSE.1 and CPSE.6 will become available before the end of May. As can be seen, some of the enquiries are relevant now. The others will apply from October 2023, so buyers and sellers will have a chance to familiarise themselves with the information that will be needed and have time to prepare themselves. An investor buying a higher-risk building before October may insist on the seller providing (now) all the information that the buyer will need to register the building after completion.  Alternatively, it may be agreed that the seller will get started with the registration process itself, right away, rather than leaving it to the buyer to deal with after the purchase. Ali Murrin is an expertise counsel at Ashurst; Johnny Kelly is a knowledge lawyer at Mishcon de Reya; Roger McDonald is a professional support lawyer at Birketts; and Roy Perrott is a professional support lawyer at Fladgate. All are writing here on behalf of the London Property Support Lawyers Group and the Association of Property Support Lawyers Photo © Anthony Harvey/Shutterstock (13867410n)