Building Safety Act 2022 and its implication on Lease Extensions

Introduction:-

Under the Building Safety Act 2022 some leaseholders in qualifying buildings are protected from some costs associated with building safety defects.

On 6 April and 21 April 2023 there were updates to Government guidance, the second update in particular was a full admission that their lawyers made an error in the way that the Building Safety Act was written. The important issue to be aware of is that the Government’s mistake means that the protections mentioned above may be unintentionally removed if a leaseholder completes a lease extension.

What protections are offered by the Building Safety Act 2022.

The protection relates to building safety defects that were created by building (or refurbishment work) completed between 28 June 1992 and 27 June 2022.

Examples of the costs are those resulting from combustible cladding or some other safety defects such as those which could cause the collapse of some or all the building. It may also indemnify leaseholders against other related costs, such as their landlords professional service fees relating to the issue. Depending on the defect, this could provide leaseholders with protection against paying significant remediation costs for which they would otherwise be liable via their service charge.

Does the Building Qualify for Protection in the first place?

Only buildings which have 5 or more storeys OR are 11 metres or above qualify for protection under the Building Safety Act.   A “storey” includes the ground storey. When measuring the building you only measure from the ground on the lowest part of the building to the floor of the top residential storey. This means the top residential storey and anything above it (the roof) are excluded from the measurement.  The building must contains at least two dwellings and not be owned by the Leaseholders themselves.

If the property doesn’t qualify under the Building Safety Act 2022, the Lease hasn’t currently got any protections to lose – so Lease Extension is unaffected as a result.

The implications on Lease Extensions:-

When a Lease Extension is completed, it will provide the Lessee with a new lease which usually references the old lease. The new Deed will be dated on completion and invariably after the cut-off date for protections of 14 February 2022.  Due to the defect in the wording of the legislation, any Leaseholder who previously qualified for assistance under the Building Safety Act 2022 (in particular the protections afforded in Schedule 8) would lose the protection upon entering into the Deed. Meaning any defect in the building and the share of the cost of remediation may fall on the Leaseholder.

Although this is a potential problem for all types of long residential leases in relevant buildings, there is a particular focus on shared ownership properties. This is partly because older shared ownership leases may be reaching, or have already reached, the critical 80 year term point where it becomes harder to get a mortgage.

Are the Government planning to fix the flaw in the Legislation?

The Government have said that it was not their intention to exclude people extending leases from protection under the Building Safety Act.

They updated their guidance further on 21 April 2023 to state “We are looking to legislate to resolve this issue as soon as Parliamentary time allows.” 

The Government also stated:

“Leaseholders should seek legal advice to make sure explicitly in their agreements that their protections are extended as part of their lease. It was intended to work like this, and freeholders should make sure that lease extensions reflect this position.”

How to proceed:-

While we await the Governments amendments to the legislation, landlords are being urged to re-create the statutory protections by including equivalent contractual protections in any affected re-granted leases.

Although RPs who find themselves in this position are not obliged to do anything, but many will want to follow the government guidance and ensure that all qualifying leaseholders get the same protection.