The Building Safety Act 2022 introduced ground-breaking reforms to provide tenants and owners with more rights and powers to make homes across the country safer, including certain protections from the costs associated with remediating historical defects affecting building safety.
The Building Safety Act 2022 provides an ambitious toolkit of measures to hold those responsible for building safety defects to account. These measures include building liability orders and information orders. This article considers why they have been introduced, what needs to be established before these orders can be made and whether there are any defences.
Developers and contractors often have complex corporate structures involving subsidiaries, shell companies and special purpose vehicles (SPVs). It is common practice in the construction industry for works to be carried out through a joint venture company (JV) or a SPV.
Contracting with a JV or SPV was previously seen as high risk, as following practical completion of the works/development, the JV or SPV, which often held limited/no assets, would be wound up, meaning that corporate groups had no long-term liability for their developments. This left owners of properties within those developments with little recourse to hold those responsible to account in the event that any defects were established post completion of their properties. Building liability orders were introduced by the Building Safety Act 2022 to reduce the number of developers and contractors escaping liability in this way.
Building liability orders may be granted by the High Court to extend the liabilities of a body corporate, let’s say Company A, to its associates, let’s say Company B, to make them jointly and severally liable for the ‘relevant liability’, provided that it is ‘just and equitable’ to do so. It does not matter if Company A has been dissolved prior to, or subsequent to, a building liability order being made.
The effect will be that a person, or entity, with a claim arising from a ‘relevant liability’ caused by Company A can sue both Company A and Company B and, if the claim is successful, the assets of both A and B can be considered when looking to recover any damages which might be awarded. This erodes a long establish principle of company law that companies, generally, have a separate legal personality from one another.
Applying for a building liability order is not entirely straightforward. There are a number of threshold issues that the applicant will need to overcome before a building liability order will be made. These include establishing the presence of the following four factors:
A ‘relevant liability’ means a liability that is incurred under any of the following:
Note that as at the time of writing, s38 of the Building Act 1984 is not yet in force.
The wide definition of ‘relevant liability’ means that it is not just limited to fire safety and cladding related defects.
Furthermore, apart from liability under the Defective Premises Act 1972 (which relates to the provision and refurbishment of dwellings), there is no constraint on the types of buildings in which a relevant liability can be incurred, consequently there is no constraint on the types of buildings for which a building liability order may be requested. A building liability order can therefore be sought in relation to defects relating to both domestic and commercial properties.
Companies will be ‘associated’ if one controls the other, such as a parent company who holds the majority of the voting rights, or a third body corporate controls them both, where they would be sister companies. ‘Associated’ also includes any indirect power to control a company, that is through commonality of directors. There are detailed provisions within the Building Safety Act 2022 to establish whether companies are considered to be ‘associated’ for the purposes of a building liability order.
Potential applicants for building liability orders ought to take legal advice as to whether the threshold for ‘associated’ is likely to be met prior to any application being made, as this is not always straightforward to establish from public records.
The ‘relevant period’ is the time from commencement of the works in relation to which the liability was incurred and ending on the date a building liability order is made.
Whether it is ‘just and equitable’ for a building liability order to be made will turn on the specific facts of each case. The nature of the defects, the extent of the damages sought, whether a fair trial can take place and whether the applicant has alternative methods of recourse, for example, insurance, are all potential factors which will be considered before a building liability order is made. Potential applicants for building liability orders ought to take legal advice as to whether the ‘just and equitable’ threshold is likely to be met prior to any application being made.
It is possible to defend an application for a building liability order. Any defence will be based on one or more of the above threshold criteria not having been met. Whilst there are few reported cases, we anticipate that the majority of defences will be predicated on the ‘just and equitable’ threshold not having been met.
Information orders are separate orders that can be made by the High Court under the Building Safety Act 2022. It is an order that requires a company to provide information or documents to a potential applicant for a building liability order regarding persons who are, or have at any time in a specified period, been associated with the body corporate. This is to provide the potential applicant of a building liability order with the necessary information, to determine any potential companies who could be the subject of a building liability order.
Building liability orders are one of many groundbreaking reforms introduced by the Building Safety Act 2022. They challenge a number of well-established legal principles of both company law and contract law.
It remains to be seen how the courts will interpret the provisions including, in particular, the ‘just and equitable’ test. However, it is clear that it will no longer be possible for developers and contractors to use complex corporate structures to protect themselves from liability for serious defects.
Our construction and infrastructure team and can advise developers, building owners, management companies, leaseholders and homeowners in relation to bringing and defending applications for building liability orders and information orders.
For more information, please contact Mark Manning or Sian Barrett. For more information on the Building Safety Act 2022, please visit our Building Safety Hub.
