Building Safety Bill

Written evidence submitted by The Association of Residential Managing Agents Ltd (ARMA) (BSB10)

Building Safety Bill comments

Overall ARMA warmly welcomes the Bill as a means to help improve standards. Observations that we would make are as follows:

General Observations

1. It fails to protect leaseholders from historic safety costs that are not their fault. While providing a welcome route to making people safe and potentially identifying alternative sources of funding, in the end the leaseholders will be held liable for cost if no sources are either available or a viable option. It points at other routes such as warranties, developer claims etc., and provides protection of reasonableness via S20D – but if all avenues are exhausted the onus will fall on the leaseholder.

2. ARMA has publicly endorsed the "Polluter Pays" amendment.

3. The ability of residents, particularly in RMC/RTM/Commonhold blocks to take legal action against plc developers is minimal on the basis of prohibitive cost alone. However, leaseholders facing life changing bills will be incentivised to take their boards to court if they have not secured alternative funding.

4. Non-External Wall System related costs (such as "concrete cancer" in the supporting structure) are not covered by the BSF. Whilst appreciating that Government is not liable to return buildings to an "as new" standard, on a practical level what if leaseholders do not have the sums available to remediate these costs that often come to light only once works have begun?

5. Moving the building safety works themselves back into the service charge allows for the S20 process to take place. But the administration and legal costs remain. This will increase costs for leaseholders as it represents a second set of demands, reconciliation, debt collection, accounts etc that will need to be provided

6. The Building Safety regime will likely impose significant costs for leaseholders. The impact assessment states (Summary Page 3) the first two years will incur one-off transitional costs of £820m plus an annual recurring cost of £442m. The bulk of these, although earmarked for "industry" will inevitably be passed on to consumers via increased charges rather than be absorbed under any current margins.

7. The PAS for the Building Safety Manager (PAS 8673) requires BSMs to have knowledge and experience to deliver life safety compliance (health, safety, fire, environment, public health etc.). The BSB only requires "spread of fire" and "structural failure". Is the PAS over-engineered, resulting in BSMs that are more qualified (and therefore rarer and more expensive?). Please refer Specific Clauses in the BSB Item 1 below.

8. Advantages of the Building Safety Charge outside of the service charge are that it will avoid confusion that normal service charges have somehow increased – the separate charge will avoid that. That said it is highly likely that some leaseholders will be confused by service charge demands followed by an additional demand for building safety works, requiring substantial explanation of why there are multiple bills, why the demands look different etc.

9. The Bill refers to Accountable Person(s) in Clause 69 (p85) – a) A person who holds a legal estate in possession in any part of the common parts (i.e., FH/ headlessee etc); or b) A person who doesn’t hold a legal estate but who’s under a relevant repairing obligation (i.e. RMC in tripartite lease). It also refers to the Building Safety Manager. The fire safety bill refers to the ‘responsible persons’.  It would useful to understand how the three duties compliment or overlap with each other to prevent confusion. Perhaps it would have been better to have consistent duty holder descriptions for residential blocks across both acts and clarity would be welcomed.

10. What about any buildings sub 18m that require remediation? The BSB will not apply re routes to redress.

11. Clarity on the requirement for Golden Thread for existing buildings would be welcomed. This is not going to be cheap as legacy buildings that have all their information are rare to non-existent. The Impact Assessment Para 241 estimates £10k - £19k for existing stock (Note: FRC , an independent form closely engaged in the management of remediation project, estimate for BIM Level 1 a cost of £24 k -£34 k per block for new builds and £30-£40k for existing stock) .

12. Government direction is towards the self-management of residential blocks (Commonhold, abolishing grounds rents). In addition, many managing agents act as a n RMC or RTM director (to keep the RMC/RTM from collapsing) and it is very common f or the managing agent to act as company secretary as a service separate to the management agreement. In Part 6, Para 138(1) (page 143) it states:

"However, where an offence under Part 2 or Part 4 committed by a body corporate:

 

a. is committed with the consent or connivance of any director, manager, secretary or other similar officer of the body corporate, or any person who was purporting to acting in any such capacity, or

b.  is attributable to any neglect on the part of any such person

 

that person as well as the body corporate commits the offence and is liable to be proceeded against and punished accordingly."

Clause 138 also deals with situations where offences are not committed by body corporates, but are committed by partnerships, unincorporated bodies, etc.

We take this to mean that the entire board could face imprisonment. This will mean greater reluctance for home owners to join a lay board and depending upon the minimum requirements in the Mem & Arts could mean that the board cannot be quorum. In addition, managing agents will consider withdrawing from the company secretary role. The latter is not ruinous as third-party alternatives could be found to act as Co Sec – but there will likely be an insurance premium and a risk premium added to the cost of the Co Sec service. This also assumes that Professional Indemnity Insurance (PII) is available for the Managing Agents in the first place and for the Company Secretary.

13. The cost benefit analysis identifies a net cost over the next 15 years of £3.285bn, comprising £6.085bn of direct costs, offset against potential avoided costs of £2.8bn due to reduced fires and loss of life. Section 11 in the Impact Assessment estimates in Para 312 for these to average £100 - £400 pa per leaseholder, with a central estimate of £200 pa. This estimate does not include the costs to bring existing buildings up to scope (Para 313). Para 318 estimates these to cost the average leaseholder £9,000 in one-off costs. This must raise the question of affordability. Please note that of the average cost roughly 33% is for facades and the assumption here is that the Building Safety Fund would cover that portion in the over 18m blocks.

14. Multiple Accountable Persons can only serve to create confusion, administration and additional costs and there may well be disputes on complex sites where the Tribunal will be asked to determine who is (or rather is not) the Principal Accountable Person. Should the Tribunal have the power to make an interim direction to avoid a vacuum until the determination?

15. It would still appear that the role (whether individual or corporate) of the Building Safety Manager is responsible for day-to-day communication with residents. A BSM is unlikely to be a cheap resource (the Impact Assessment states in Para 321, £60,000 pa) and this is not an effective use of their time. It also means that there will be inevitable cross-over with the Property Manager (people will notify both of a bicycle in the hall for example) and increase costs.

Specific Clauses in the Building Safety Bill

1. Para 120G(5) p 19 – introducing a level of proportionality to building safety risk by limiting it to the spread of fire and structural failure is welcome. It does suggest that the PAS8673 for the Building Safety Manager should reflect this more precise role in order to avoid cost escalation in the latter role due to overqualification and a potentially smaller pool of suitable individuals

 

2. Para 83 (2)(a) p95 states that the assessment of building safety risks should be undertaken "at regular intervals". Is this intentionally left as a subjective period? Would it not be better to stipulate a required assessment period such as every 3 years? Will this be addressed via Secondary Legislation?

3. Para 91 (4)(a) p 99. The resident’s engagement strategy states that the accountable person must give a copy of the strategy to each resident aged 16 or over and resides. The impetus here should be that each resident receives the information and hence it would make sense that the best method to achieve this should be employed. In reality, the identity of people actually living in flats is very hard to determine by a landlord or managing agent – either through a time-lag in information being provided (post sale or sub-letting) or through wilful attempts to conceal (to avoid fees for sub-letting; avoidance of HMRC tax payment on rental income; or even just reluctance to provide personal information on family members). Although the accountable person need take "reasonable steps" and it is acceptable for them to be "not aware", which is a sensible observation, it would seem better to replace the accountable person with the flat owner as the latter is the only person who truly knows if the flat is let/occupied and, if so, to whom. In addition, mandating the accountable person will increase costs and be less effective than the onus being on the flat owner.

4. Para 91 (6)(b) states that the Secretary of State may by regulation "make provision about the way in which a copy of the strategy is to be given" – clarity would be welcome about when a copy is "given" for these purposes and hopefully assurance that electronic means of communication will be accepted.

5. Para 91 (1) makes the Principal Accountable Person responsible for preparing the Residents Engagement Strategy, but Para 91 (4) dictates that the Accountable Person must give a copy of the Residents Engagement Strategy to each resident etc. How does this work e.g. PAP prepares and cascades down through the AP’s?

6. Para 93(1) What is the definition of a relevant complaint? It is important that some clarity is given to this to avoid missing issues or even incurring unnecessary legal action. For example, if a property manager is on site and engaged with a resident who states "It’s a bit dark in the corridor" – is that a grumble? an observation? a rueful comment upon the state of their own eyesight? Or is it a genuine complaint that must be logged, actioned and reported on (and in this example incur costs by upgrading the lighting)?. Perhaps giving a structure to such an important interaction such as, for example, a complaint must be made in writing and contain the word "complaint" or some such would help avoid potentially costly misunderstandings.

7. Para 124 (4)(2) p130 states that the landlord must take reasonable steps to secure funding for remediation works via (a) grants, (b) third parties or (c) other funding. This onus could potentially, particularly for RMC’s, prove ruinous. For example, the ability of an RMC to pursue a case through court, including Appeals, against a well-funded plc is slim and could be contrary to the Director fiduciary duty. However, should they choose not to follow that course they would have to defend themselves against understandably disgruntled leaseholders facing the large remediation bills. Although worthwhile in its intention this clause is unlikely to provide a route to remediation redress. Frankly the scale of remediation costs, even on a single block, will ensure a robust defence and perhaps only Government can effectively pursue this course.

8. Para 124 (4)(4) states that any funding so obtained is to be deducted from the remediation costs. There appears to be no mechanism for the landlord (such as an RMC) to recover the costs of pursuing any alternative funding. It will most likely not be possible to recover these costs against the lease. Landlords and RMCs could be made insolvent by pursuing such actions. Or is that what the Building Safety Charge is intended for?

9. Para 134 (4)(6) p138 states that section 21A (1) applies to a building containing two or more sets of domestic premises. This is an amendment to the Regulatory Reform (Fire Safety) Order 2005. Does this apply only to HRRBs or to all stock? If the latter a requirement to provide information to all residents of a maisonette two flat conversion? Is that proportional?

10. Para 1 (4)(b) p 184 re Building Safety Charges – legal fees, professional fees, regulator fees and management costs are to be included in the Building Safety Charge and the latter is outside of the service charge. This will increase costs (two sets of demands, accounts, debt collection, notices), potentially confuse residents and remove the legal case law that has been laid down over decades for service charges – meaning that legal cases for determination of the applicability of charges under the new, untested regime, will be required which will increase costs. It would be better if the administration costs are within the service charge with a requirement to clearly split them out in the accounts. See also para 4 (2) p186

11. Para 2 (1)(b) requires the tenant at least 28 days to pay the building safety charge. 28 days is a very short period for a tenant to investigate and, if necessary, challenge a charge.

12. Para 11 (9) p 191 – "if more than four premises the summary must be certified by a qualified accountant". The certification for more than 4 units is applicable to a S21 summary of costs request, not as standard for every set of accounts that is produced. This would suggest an additional cost.

Specific Clauses in the Impact Assessment

13. Para 65 p 19 – states "The role of Building Safety Manager is new, and the expectation is that it will most usually be fulfilled by a management company, commonhold association or a Right to Manage Company, or an employee thereof." Is this really suggesting that a lay board of RMC/RTM/Commonhold residents i s expected to be the BSM as the body corporate? Aren’t they the Accountable Person who appoints the BSM?

September 2021