Tenant fit-out works in higher-risk buildings

Katie Dunn considers the impact of regulations released in the wake of the Building Safety Act 2022 on tenant fit-out work, including key considerations for landlords and practical points to avoid delays. The approvals regime for the construction of new higher-risk buildings is now well known, but the requirements for works to existing higher-risk buildings continue to slip under the radar, causing unexpected delays to tenant’s fit-out works in mixed-use developments.  The Building (Higher-Risk Buildings Procedures) (England) Regulations 2023 came into force on 1 October 2023 and require anyone carrying out works to an existing higher-risk building (over 18 metres or seven storeys high, with at least two residential dwellings) to submit an application to the building safety regulator – including large amounts of information about those works – and obtain building control approval before starting any work.  There are various, very specific, types of work that are exempt, so it is worth checking Schedule 2 to the 2023 Regulations to check whether an exemption might apply to some or all of the work.  Approvals for tenant fit-out works The new requirements can apply to tenant’s fit-out works, which are usually documented in an agreement for lease or licence to alter, requiring the tenant to obtain the necessary consents from any local or other competent authority under any statute or regulation to lawfully carry out those works. However, this may not go far enough to protect landlords from the enhanced obligations under the 2023 Regulations.  Potential delays  Many landlords and tenants are unaware of these new requirements, or that commercial premises – where they are located within a mixed-use higher-risk building – are subject to them. Tenants making eleventh-hour applications risk having them rejected and spending weeks gathering the necessary information to resubmit the application.  The 2023 Regulations give the regulator eight weeks to determine the application, but it typically takes much longer. Many applications are only validated and passed to a case officer within that period, with no indication of what the outcome of the application might be. There is a real risk that this will only get worse as the number of applications rises. These delays can result in long-stop dates being missed. If either party is able to terminate an agreement as a result, landlords could find themselves with a longer rental void as they re-market the premises, and tenants could lose not only the premises but the time and cost of fit-out plans.  If an agreement for lease is conditional on regulator approval and a landlord has not reserved a right to terminate in the event that it is not provided swiftly, the landlord risks losing rent as a result of regulator delay.  Other obligations The obligations under the 2023 Regulations do not end with building control approval – they also require various actions throughout the works, including giving notice when the works start, documenting any changes to the plans or contractors (and potentially submitting a further application for significant changes), updating the golden thread of information and reporting safety occurrences (risks to the structural integrity or fire safety of the building).  Once the works are completed, information about the works must be provided to the accountable person and a completion certificate obtained. Implications for landlords These obligations largely fall on the principal contractor, the designer or the “client” (the person for whom the work is carried out), which, for tenant fit-out works, is often the tenant.  Nonetheless, landlords should ensure the regulations are followed. They may have their own obligations under a headlease to ensure regulations are complied with. Where the landlord is an accountable person, the tenant’s works could impact the building safety arrangements already in place. Accountable persons are required to maintain the golden thread of information for the building, which includes details of the tenant’s works under the 2023 Regulations. From 1 April 2024, accountable persons can be called on by the regulator to apply for a building assessment certificate at any time, and will have just 21 days to provide information about the building safety arrangements with their application. This article focuses on tenant fit-out works, but the obligations under the 2023 Regulations apply to any works carried out to an existing higher-risk building, including landlord works. A breach of Building Regulations could result in the relevant authorities imposing a “stop notice”, preventing the works from continuing until certain steps have been taken, or requiring completed works to be altered or even pulled down.  Additional contractual protections Prudent landlords may wish to beef up the obligations imposed on tenants carrying out works. This could include obligations to apply to the regulator within a specified time, to use reasonable endeavours to ensure the application is progressed, and to respond to queries promptly, and notify the landlord of the outcome.  The tenant should also be required to comply with the 2023 Regulations in relation to the works and/or building. Some landlords may require an indemnity for any loss and damage incurred as a result of a failure to comply. Finally, the tenant should be under an express obligation to provide the golden thread and other information required under the 2023 Regulations.  Where an agreement is conditional on regulator approval, landlords should consider a long-stop date with a right to terminate for the landlord if approval is not obtained by that date. Landlords and tenants should also address what will happen if the regulator rejects the application or imposes conditions that are unacceptable to the tenant. Katie Dunn is a senior associate in the real estate disputes team at Hogan Lovells International LLP Photo © Antoni Shkraba/Pexels