Building Safety Bill

Written evidence submitted by The Institute of Residential Property Management Limited (BSB26)

IRPM response to the Building Safety Bill

About IRPM

IRPM is a not-for-profit professional body of approximately 5000 individual members. It provides OFQUAL accredited qualifications (levels 2, 3 and 4) in the leasehold, build to rent and Scottish factoring residential property management sectors, together with ongoing CPD and member support. IRPM does not have firms as members and is neither a regulator nor a trade body. Individual members have to adhere to a Code of Conduct.

This response relates to the draft Building Safety Bill, however for background information, IRPM has taken the following positions on the building safety crisis:

· Leaseholders should not pay to fix bad buildings bought in good faith.

· A national systemic failure to build properly requires a state led solution beyond funding. There should be a coordinated approach to identifying buildings at risk and then to prioritising their remediation according to risk to life.

· Determine the scale and scope of remediation works required. A substantial number of residential buildings above and below 18m should be surveyed to sample the frequency of other building safety failures such as compartmentation, so that the scale of building defects can be accurately understood. We also call for the scope of remediation works to be rationally agreed between all stakeholders, including residents, so that a proportionate and risk-based response can be applied to remediation. By understanding scale and agreeing a proportionate scope, government and the sector can collaborate towards evidenced based policy and actions.

· In the absence of other quickly available funding, the cost of remediation should be met by government in the first instance to get buildings remediated at pace, with costs recovered where possible from those ultimately held responsible for poor construction. Fund first, fix now, fight over who pays later.

· We would not expect the taxpayer to make good wear and tear in defective buildings. However, where external wall system remediation projects come to a halt due to other related faults not covered by the Building Safety Fund, where other sources of funding are not available save for leaseholders, and where some leaseholders cannot pay (as opposed to won’t pay) then some funding arrangement is necessary to keep remediation projects moving forward.

· We see no distinction between buildings above and below 18 m in height, so far as the application of the building safety fund is concerned.

· We do not believe that the proposed loan scheme for flat owners under 18 m is either just or viable.

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IRPM response to the Building Safety Bill

IRPM warmly welcomes the Building Safety Bill. The Bill heralds a landmark change in the culture and practicalities of managing buildings safely. However, it is a substantial bill with far-reaching provisions and inevitably that brings with it a risk of unintended consequences. We make some observa tions below:

1. We confine our advice to the management of residential apartment buildings and have not commented upon the structure of the regulator, nor the proposals for improving the design and construction of buildings or the material certification processes.

2. We recognise the unpalatable reality that, in the absence of other funding from grants, warranties, developers, etc., the cost of making good historic construction defects will fall to the leaseholders. The Bill does not protect leaseholders from these historic costs, though they are not to blame for these failures. We would like to see the Bill protect leaseholders from these historic costs but that would require government to put in hand other arrangements to meet these costs, otherwise buildings will simply fail and be unfit for habitation.

3. Government is proposing to massive culture changes to residential building management. One is structural and fire safety, the other is tenure reform. Both sets of reforms are worthy endeavours, but they conflict. The 13th Law Commission has proposed far-reaching changes to the way flat owners own their property and control their developments. The Commission proposals centre on the principles of democracy, whereby leaseholders and commonholders become responsible for the governance and management of their developments. IRPM is broadly supportive of these recommendations, but they too come with challenges and the risk of unintended consequences. Increasingly in the future, the responsibility for the safe management of a development will sit with the residents themselves. There will be no third-party landlord. Unpaid lay directors, however intelligent, civic-minded and well-intentioned, will find themselves taking on very significant liabilities and personal risks, including the risk of criminal prosecution and jail under the provisions of the Building Safety Bill. To some extent this situation exists already with RMC (residential management company) directors and already it is difficult to recruit residents into directorships once the responsibilities and liabilities are explained to them. There are developments presently with no resident directors prepared to stand. Most developments allow only residents to be directors of the development, including the appointment of external directors. We have heard government argue that high-risk liabilities accrue to directors of thousands of limited companies across the land, which is true. However, the behaviours and risk-reward calculations of the directors of commercial entities cannot be applied to unpaid volunteer directors with little-to-no expertise in property management. It takes on average three years to fully qualify through IRPM as a competent property manager; the legal frameworks around tenure, company law, financial accounting and building safety are complex and few residents will have the necessary competencies. Without directors, the limited company vehicle within which the development is vested will be struck off and the freehold interest will revert escheat to the Crown, uninsured and unmanaged. In summary, the Bill must make provision for

a. lay directors to choose either to manage the building themselves or to override Articles of Association and imply terms into leases to enable them to employ a professional director as their Accountable Person.

b. A technical and legal support resource for lay directors who wish to manage their own affairs. This should include optional basic training in the safe management of large residential buildings.

4. When existing buildings still have third party landlord but also an RMC, the Bill the makes the RMC directors the Principal Accountable Person, rather than the building owner. This places the responsibility for building safety governance with the above-mentioned unpaid lay directors.

5. The Bill still retains the concept of the Building Safety Charge. We appreciate that this will bring clarity of the cost and purpose of costs relating to the building safety regime to service charge payers. However, it will also bring confusion; payers will receive two bills each year, both of which will have headings for health and safety. Non-structural/fire safety costs and all other health and safety related costs will be recovered through the normal service charge invoice, as will all necessary works required to comply with the building safety regime. If it is felt that the existing service charge regime is not transparent, it follows that lack of transparency will continue in the new regime, simply with the addition of a new and apparently duplicate invoice. The Building Safety Charge provisions should be removed. The Bill would do better to address the root cause of the problem, providing a stout if boring fence at the top of the cliff rather than a shiny new ambulance down in the valley, and focus on improving the transparency of the existing service charge regime rather than adding an additional layer of complexity and administrative burden, the increased cost of which will be met by the service charge payer.

6. The very existence of a new service charge regime will cause the wording, intentions and drafting to be tested for years in court and tribunals. The existing service charge regime has taken decades to settle and introducing a new regime will reset the clock and see current service charge lawyers into their pensions.

7. The lack of clarity of roles between the Building Safety Manager and the day-to-day building manager continues to hold back early adoption of the principles of the Building Safety Bill. Clarity over the forthcoming regulations is urgently required. As written, both of the two managers will be responsible for removing a bicycle from a fire exit route, a wasteful duplication and a waste of the expensive time of a Building Safety Manager.

8. The draft Building Safety Bill has reverted to two definitions of higher risk buildings. There are technical challenges with both definitions and clarity is urgently required in the form of regulations yet to be issued.

9. The role of the Building Safety Manager is effectively a new profession. The current draft PAS Standard sets a very high standard of knowledge and experience which will challenge the supply of suitable managers. The market solution will demand generous packages for such people, the cost of which will be met by the service charge payers. The regulations confirming the role and responsibilities of the BSM are urgently needed if the sector is to confidently prepare for the new regime. The property sector has a long memory over investing in expensive policies only to have government change its mind (Home Information Packs) and is cautious in the absence of certainty.

10. Moving the responsibilities of the BSM onto the Accountable Person will help the professional indemnity insurance industry support BSMs. However, the professional person being paid to manage safety will at times have their responsibilities passed to the above mentioned unpaid, non-expert, lay volunteer directors. See 3. above.

11. Complying with the likely requirements of the Golden Thread and providing the appropriate information into the management phase for inclusion in the Building Safety Case should be eminently deliverable for new buildings and is very warmly welcomed. However, it will be a very substantial and expensive challenge to gather and often for the first time, create the required information for existing buildings. We believe the government’s impact assessment of £10-19,000 per block is profoundly optimistic, not least because there will be a massive surge in demand for the services of suppliers to gather and create this information. Even using the government’s upper figure will cost each service charge payer several hundred pounds. This will be on top of the other costs relating to the Building Safety Charge. There will also be further costs meeting works that come to light as buildings are inspected and certification is required (though we recognise that the carrying out of these works will improve safety, the objective of the exercise). The total expense for most leaseholders will be considerable and some will simply not be to afford it. The surge in demand for professional services will also create delays that will challenge the regulatory deadlines, and will create a gold rush mini-industry of questionable quality, as happened at the introduction of GDPR.

12. Clause 124 requires landlords to take steps to recover money for remediation works from grants, third parties or others and take prescribed steps relating to any other prescribed funding for works of a prescribed description. The word prescribed is used three times but remain subject to future regulations from the Secretary of State. These definitions are required urgently. There also appears to be no ability for a landlord doing this work to recover the costs of pursuing such funding.

13. The same clause and provisions could also apply to lay RMCs. It would be a courageous RMC that seriously litigated against a national plc, exposing the RMC directors (and service charge payers, if cost recovery were possible) to substantial and potentially ruinous financial risk.

14. The Building Safety Charge can demand payment within 28 days. This is a very short period of time for a service charge payer to investigate and challenge such a charge.

September 2021