Building Safety Act 2022: Key Issues For Lenders

The Building Safety Act 2022 (BSA) is a key piece of legislation for all those involved in the property industry.

Gateways 2 and 3 are expected to come into force in October 2023 and several other measures are either already in place or are anticipated in the coming weeks and months. This webinar is aimed at lenders and focuses on the role of the Building Safety Regulator and the new Dutyholder regime, the Gateways and the ‘Golden Thread’ as well as other key aspects of the BSA.

With the potential to impact on conditions precedent and subsequent, transaction timeframes and drawdown milestones (including possibly upending the traditional reliance on the certificate of practical completion), the BSA has wide-ranging implications for anyone involved in financing development or financing a property recently developed.

Key takeaways:

• Currently, 1 October 2023 is a key deadline for the implementation of key provisions of the Act, including Gateways 2 and 3.  It is not at all clear yet whether everything that is intended to happen by then is practically capable of being achieved, not least the registration of an estimated 13,000 existing buildings in England.

• The Act has significant implications for the parties being appointed to carry out construction and the timings for the planning, pre-construction and completion phases.  It also impacts on recently constructed buildings.  So there will be practical and legal issues to consider for both development and investment loans.

• It is not simple to classify which asset classes and buildings will fall within the scope of the Regulator's authority during the construction and occupation phases, particularly for mixed-use properties.  Similarly, the definition of "commencement" for the purposes of the Act is not simple.  So borrowers and lenders alike will need to carefully examine whether the property being funded is within the scope of the Regulator's authority.

• Gateway 2 (Pre-Construction Phase) and Gateway 3 (Construction Phase) introduce "hard stops" which require approval from the new Building Safety Regulator.  Initial response times from the Regulator are initially expected to be up to 12 weeks, but market commentary already suggests that in reality the response times could be as long as 4 - 5 months.  So whilst the Regulator approval has the positive aim of ensuring safety considerations are thoroughly addressed, the negative consequence could be delays in the construction process with knock-on implications for pricing and availability of finance.

• Reputational issues will be relevant too.  The new concepts of the Accountable and Principle Accountable Person, Dutyholders, the Developer "pledge" and Responsible Actors' Scheme have already attracted press attention and certain information is (or will be) publicly available, including a "prohibitions list" which will bar planning permission or building control approval being granted.

• There will be various issues to work through in terms of impact on construction and finance documentation.