Focus on fire safety: where are we now?

In brief

• Building safety focus has implications for residents, developers, design and build contractors, construction professionals, property owners and Building Inspectors alike.

• There will be increased regulation of construction products, of building safety and of professions involved in the design, construction and management of buildings. The draft Building Safety Bill is expected to make its way through the legislative process in 2021. 

• Disputes over the costs of cladding and other remediation works required to make buildings safe will continue.

• The UK government announced an additional £3.5bn of up front funding for cladding remediation works on tall residential buildings in February 2021, accompanied by a developer levy and a loan scheme for leaseholders in shorter buildings outside of the remediation fund's scope.

Introduction

Pressure continues to build on those involved in designing, building, owning or managing residential high-rise buildings, with implications too for those investing in or insuring such buildings, or insuring the professionals involved in their construction. The focus on buildings' fire safety long ago moved beyond ACM cladding, and includes other types of external wall systems as well as many other aspects of building design.

The Grenfell Inquiry Phase 2 hearings resumed, via Zoom, on 9 February 2021. The Phase 2 timetable is obviously subject to Covid-19 restrictions and other factors, but it is expected that the hearings will run until early 2022, focusing until March 2021 on evidence in relation to cladding products.

Building Safety Bill

The Building Safety Bill is expected to make its way into law during 2021, which will increase regulation of building safety and construction products and impose new or additional legal responsibilities on many industry participants. As the regulations change, legal and commercial pressure to retrofit is likely to lead to disputes over the costs of doing so.

The draft Bill was published in July 2020, following the April 2020 announcement of a series of measures to improve building safety for new and existing buildings.  The outcome of pre-legislative scrutiny of the draft Bill by the Housing, Communities and Local Government Select Committee (the Select Committee) was published in November 2020.   Their recommendations include adding necessary clarificatory detail in a number of respects, and publishing secondary legislation, statutory guidance and a clear timetable and transition alongside the draft Bill.  The government response to the committee was due on 24 January 2021, so we are looking out for that with interest.  We expect to see an amended draft of the Building Safety Bill being published relatively early in 2021. 

The stated objectives of the draft Bill are to "learn the lessons from the Grenfell Tower fire and to remedy the systemic issues identified by Dame Judith Hackitt by strengthening the whole regulatory system for building safety." The Bill will:

• impose a new and stricter regulatory regime for higher-risk residential buildings (currently defined as those where the top storey level is 18m or over, or the building contains more than 6 above-ground storeys);

• focus on all matters that may impact upon a building's safety risk, both during construction and in relation to occupied buildings. Key people and organisations (duty holders) will be responsible for building safety throughout the lifecycle of higher-risk buildings, from design and construction through to occupation.

• subject industry participants, including building control inspectors and architects, to new responsibilities and regulatory oversight. A Building Safety Regulator (within the Health and Safety Executive), will be established with enforcement and sanctions powers.

• increase regulation of construction products marketed in the UK. A national construction product regulator (within the Office for Product Safety and Standards) was announced on 19 January 2021, with powers to withdraw from market any products deemed to present a risk, and the potential for civil and criminal sanctions for breach. 

Updates to guidance on building safety

In early 2020, in response to the Phase 1 Grenfell Inquiry report, the government announced a package of reforms, including revised guidance from MHCLG for owners of multi-storey, multi-occupied residential buildings. Our commentary on that guidance, and other fire safety developments, can be found here. A revised version of the statutory guidance to the building safety regulations - Approved Document B - was published on 26 November 2020. From a fire safety perspective, this incorporates and implements changes first signposted in May 2020, including requirements for sprinkler systems for new residential buildings 11m or above, and consistent wayfinding signage in blocks of flats.

In November 2020, the UK government also published a Supplemental Note to MHCLG's January 2020 guidance.  The Supplemental Note serves as a reminder for building owners that the purpose of the Building Regulations is safety, not property protection, and that, apart from in relation to ACM panels, in the Government's view the presence of combustible materials on a building does not automatically mean that a building requires remediation or is non-compliant with Regulations. The Note makes clear that the continued primary focus is on buildings above 18m in height. It also reiterates that the relevant Building Regulations are those in force at the time of construction, and that "professional judgment [is] to be made regarding the safety of a building's external wall system". In particular, it states that in the Government's view even if "some combustible materials have been used [in an external wall system], replacement may not  necessarily be required", and further that this is a matter which will depend upon the fire safety risks and mitigations present in relation to the building as a whole, and is a question which should be for professional judgment on a building-by-building basis.    Emphasis is also placed on building owners obtaining professional advice that considers fire safety holistically, rather than simply assessing the components of the external wall in isolation.   While it should be recognised that this Note is expressly not the law, nor statutory guidance, nor a guide for valuation or insurance purposes, it is still of value as a reminder to building owners, and to those who lend on or insure buildings, of the wider context of the fire-safety regulations in which their properties should be considered, and that the presence of combustible products may not necessarily give rise to unacceptable fire-safety risks. 

Remediation costs and waking watch fund

In the face of continued pressure over delays and difficulties with the funding of remediation works, the UK government announced on 10 February 2021 that it will provide an additional £3.5bn to fully fund the cost of replacing unsafe cladding in residential buildings 18 metres (above 6 storeys) and over in England. The hope is that this will speed up remediation works where they are needed.The additional funding is the first item in a five point plan, which also includes a loan scheme to provide cashflow for leaseholders in buildings between 11 and 18 metres (4 to 6 storeys), and plans for an industry levy and tax to pay for building safety works. A consultation will follow in due course on those loan schemes.

Many potentially affected buildings are not eligible for the remediation fund. The fund is not available for non-residential buildings, for example hotels or hospitals, nor for residential buildings without leaseholders, nor for buildings under 18m in height, which are considered lower risk. This doesn't mean at lower risk of a fire, but because it is easier for residents to escape if there is a fire.  The loan scheme for leaseholders in buildings between 11 and 18 metres will apparently be a long-term, low interest, government-backed financing arrangement, with a maximum of £50 a month asked of leaseholders towards the costs.  It is worth noting that asking leaseholders to pay at all has already been heavily criticised by campaigners and politicians across the political spectrum. In its pre-legislative scrutiny of the Building Safety Bill, the Select Committee suggested that the Bill should explicitly exclude historical costs from the building safety charge, as "residents should not bear any of the costs of remediating historical building safety defects and [we] are deeply concerned by the Government's failure to protect them from these costs."

In addition to the funding for the removal and replacement of certain types of cladding systems (both ACM and non-ACM), the government announced a £30m Waking Watch Relief Fund in December 2020. This is intended to fund the installation of alarm systems in tall buildings (above 17.7m) with unsafe cladding, where leaseholders are currently paying for a waking watch service to mitigate the risk.

Installation of alarms will have the benefit of curtailing or reducing what are often astronomical waking watch costs, and in turn reduce the quantum of consequential loss claims against developers and contractors for such costs.  It is hoped that there will be a robust uptake of the scheme.

Buying and selling high-rise residential properties; costs and red tape

Many high-rise leaseholders are also struggling to move; their insurance premiums have reportedly soared, and they face exposure to remediation costs and, in the meantime, expensive waking watch services through their service charge. During a parliamentary debate on cladding and fire safety issues on 1 February, it was noted that one development saw a hike in its building insurance premiums from £36,000 to £321,000; and another was unable to obtain insurance at all for a period.

In part, delays experienced by residents of taller, multi-occupancy buildings when trying to sell or re-mortgage their properties have been caused by the (mis-) use of an External Wall checking process introduced by RICS in December 2019.  Although the aim was to help the lending and valuation industry assess those residential properties with actual or potential combustible external wall systems, in practice the assessment started being requested or required on a wide range of building types and heights. The result is that the disposal or re-mortgage of many lower risk properties has been held up too. The government sought to clarify the position in relation to EWS1 forms, in a November 2020 press release. The key message of the Government's press release is that owners of flats in buildings without cladding in their external wall systems will no longer need to have a form.  Further improvements should come in around spring 2021 from proposed RICS guidance, on which a consultation closed on 25 January 2021 (Improving consistency in EWS1 requests (rics.org)). Subject to final approval, the guidance will contain clear criteria to help valuers decide where they can assume that remediation work is unlikely to be needed, so that an EWS1 form should therefore not be required.

Professional liability implications - Building Safety Bill

The changes proposed by the Building Safety Bill, in particular, will impose additional duties on those professionals involved in building design and construction. The new Building Regulator will have significant oversight and enforcement powers, including the ability to impose civil and criminal sanctions.  The Select Committee has asked the government for additional clarification and guidance in relation to a number of aspects of the Bill. There is recognition that the new duties may impact on the ability of construction professionals to access professional indemnity insurance, and that "early publication of the general duties of duty holders could help to alleviate concern in the industry and facilitate the development of appropriate insurance products".

The Select Committee has also proposed the establishment of a national system of third-party accreditation and registration for design and construction professionals working on the design and construction of higher-risk buildings.

The Bill currently provides that provides that the Building Safety regulator will regulate building inspectors, and will "facilitate improvement of competence of organisations and individuals in the industry, or members of" the building control profession. This will include maintaining a register of inspectors and, potentially, mandating a system of accreditation. Although the Select Committee suggests a number of additional requirements and changes to the Bill, there is clearly going to be increased scrutiny and regulation of the building inspection profession going forward.  

An increased risk of fire safety claims, alongside a harder professional indemnity insurance market across the piece, mean that premium costs have soared for construction professionals. Architects, engineers and contractors find themselves having to pay more, but agree to increased excesses and reduced limits of indemnity to make cover affordable. PII policies also often now routinely limit or exclude cladding and, more broadly now, fire safety risks. Professionals may be priced out of practice, and/or certainly may be unwilling to take on certain types of work if a lack of comprehensive PI cover may mean personal liability.  We are likely in turn to see disclaimers and contractual exclusions in the retainers of those professionals who do agree to engage in high risk projects.

The changes proposed by the Building Safety Bill, in particular, will impose additional duties on those professionals involved in building design and construction. There is clearly going to be increased scrutiny and regulation of the construction professionals going forward.   It may be that greater industry regulation will alleviate the concerns of PI insurers, giving them comfort that risks are being managed and opening up more cover to the industry.

What this means

Clearly, the implications of the focus on fire safety are wide ranging. The UK government has committed billions of pounds to fund the up-front costs of remedial works for tallest (18m +) buildings in order to speed up the remediation process. This is obviously good news for leaseholders, but disputes over the costs of those works, and issues for lower risk buildings, will continue. The government is asking leaseholders or building owners who receive government funds to take reasonable steps to make recovery claims against third parties in order to repay the funds, so developers, contractors and their consultants may still face claims. In addition, if you are a developer, you may be subject to levies and taxes on future projects. 

In addition, fire safety defects (and not just those giving rise to potential non-compliance with Building Regulations) are likely to affect a far greater number of properties than will qualify for government funding. Disputes over who will pay to remediate those issues are also likely.

Further, the regime under the Building Safety Bill will comprise obligations in relation to all matters that may impact upon a building's safety risk in a higher-risk building, and these apply both during construction and in relation to occupied buildings. Although the requirements of the Building Regulations themselves are not retrospective, owners of all multi occupancy residential buildings will obviously be mindful of the risk (to life and property), and of both the reputational and the commercial implications, of owning a building on which safety or fire risk issues have been identified. Facing such reputational and commercial pressures, Persimmon, the UK housebuilder, has, for example, recently announced a £75m provision to help fund the removal of potentially unsafe cladding on its buildings, even on those which it insists met all regulations at the time of construction.

Developments in fire safety will remain under the spotlight (rightly so).