Building Safety Bill

Written evidence submitted by Consensus Business Group and Estates & Management Limited to the Public Bill Committee on the Building Safety Bill  (BSB39)

Company background

Consensus Business Group (CBG) owns the freehold interest in, or asset manages around 300,000 leasehold homes , representing approximately 6.5% of the national stock of 4.6m leaseholds and currently employs 185 staff.

Estates & Management (E&M) is a professional freeholder within the CBG group of companies and is FCA regulated, and ISO 9001/2008 approved. E&M is also a member of the Property Ombudsman Scheme.

CBG seeks to operate in a highly professional manner, ensuring building safety and leaseholder satisfaction underpins the professional stewardship role it plays. Its senior team includes accountants, lawyers, chartered surveyors, as well as numerous IT, conveyancing, and insurance specialists. A number of the senior professional team oversee building safety matters across the portfolio, supporting a dedicated Building Safety team with qualifications from The Institute of Occupational Safety & Health (IOSH), The International Institute of Risk and Safety Management (IIRSM) and The Institution of Fire Engineers (IFE).

CBG’s professional staff are regulated by various professional bodies, including the Solicitors Regulation Authority (SRA), Royal Institute of Chartered Surveyors (RICS), Institute of Residential Property Managers (IRPM), Institute of Chartered Accountants (ICAEW) and The Chartered Institute of Management Accountants (CIMA).

Executive Summary

CBG and E&M welcome the Building Safety Bill (the Bill) and the important work of the Public Bill Committee in examining the Bill as currently drafted.

Building safety and the safety of residents are undoubtedly two of the most important areas of focus in the residential housing sector and are in need of urgent and immediate reform. Since it became clear that the current building regulations were unfit for purpose, we have worked with a wide range of relevant stakeholders across Government, Parliament, and industry to ensure the best measures are designed and implemented, with the aim of delivering a world-leading building safety regime.

This Bill certainly represents a significant step forward towards this aim and the measures to increase accountability and transparency are an essential part of this. We welcome homeowners being given an extended period of 15 years to claim compensation for sub-standard construction work, to highlight that developers should be held accountable. However, our main concern – which is shared by other freeholders, agents, investors and operators in this space – is that the Government has not given proper consideration to the practical operation of the legislation including who exactly will perform what role when it comes to the oversight of safety, particularly in terms of the Accountable Person, which is a critical role within this new framework.

This lack of detail characterises the rest of the Bill, making it challenging to helpfully comment on and scrutinise to the degree required to ensure its’ successful implementation. We would therefore welcome clarity across a number of other areas to ensure that we are able to provide a clear view on what the Bill will mean for residents and building safety in both the short and long-term.

Previously, we have submitted evidence to a series of Committee inquiries, including the consultation on the Draft Building Safety Bill in September 2020. The majority of this evidence has focused on the evolving role of professional freeholders under a new regulatory regime.

The Bill cannot be viewed in isolation. It is important to note that, running concurrently with this legislation, the Government is seeking to introduce reforms to the leasehold sector, which would ultimately result in the removal of experienced freeholders from the residential leasehold market, giving homeowners no choice but to take on numerous responsibilities, liabilities and obligations which would otherwise sit with freeholders. As professional freeholders we have the significant experience and resource to effectively comply with these obligations. We are concerned that if Government pursues current proposals to reform the residential leasehold sector, institutional investors like ourselves will cease to invest and subsequently withdraw from the market.

The inevitable consequence is that the expertise of institutionally backed responsible freeholders will no longer be available to leaseholders to ensure compliance with landlord covenants. This will lead to a decline in market expertise, the long-term maintenance of properties and ultimately be to the detriment of residents. Poor practice by smaller, unregulated, and unscrupulous freeholders is also likely to proliferate . The Government’s leasehold reform agenda will make the well-intended reforms to building safety harder, more complicated to deliver and more expensive for consumers. This will have a direct impact on building safety, which requires urgent examination as part of the scrutiny of the Bill.

The Government’s own Impact Assessment on the Leasehold Reform (Ground Rent) Bill recognises the other negative impacts this legislation will have on the housing market, notably increasing house prices and creating more barriers to entry for consumers trying to get on the property ladder, far outweighing any perceived benefits. The Impact Assessment states that removing ground rent will lead to an increase in the price of flats by over 3% and concedes that removing ground rent will require future buyers having higher deposits, or borrowing more, and accepts this "may not be viable" for all potential buyers.

The Building Safety Bill already distinguishes higher-risk buildings from other residential properties, but the Government should go one step further to avoid these unintended consequences by implementing an exemption for large and complex buildings in the Leasehold Reform (Ground Rent) Bill, which the HCLG Select Committee Inquiry into Leasehold Reform agreed with. The Committee clearly understood the difference between apartments and houses, recommending they be treated differently. It is vital that this point is not overlooked in the legislative process.

We therefore request that the Committee consider our submission in the context of the policies pursued by this Government to the wider housing market and take a holistic view of what these changes to legislation will mean for consumers. Put simply, this Bill will not be able to deliver on its stated objectives effectively if professional building owners and the stewardship role they play are removed from the market.

With regards to specific measures contained in this legislation, we have a number of observations and concerns, which we have summarised below.

Role of the professional freeholder

Professional freeholders have long-term interests in the buildings they own and provide a number of crucial services to leaseholders, at no cost, due to their stewardship role and professional teams which allow them to better protect leaseholder interests and, above all, ensure they are kept safe.

This role encompasses not just building safety but also maintenance, planning provisions for future events, emergency responses, insurance, dispute resolution, future development and balancing the needs of various parties who have a vested interest in the building, including its residents.

Professional freeholders have significant expertise and qualifications to perform this stewardship role and hold all parties to account, including property managers. This is the role that we already play across all of the sites we are responsible for and would argue that this is precisely the role that responsible freeholders should play with our expertise and operational experience. A legal extension of these responsibilities to formalise our role as the ‘Accountable Person’ would only increase the levels of accountability and drive-up standards, thereby protecting the end-consumer.

Building Safety Bill

Accountability in high rise residential buildings

The Bill proposes a new regime for managing higher-risk buildings, including the new defined roles of an Accountable Person (AP) and a Building Safety Manager (BSM) who will have ongoing duties to manage the safety of the building and maintain a Safety Case Report. The AP will have to produce a Resident Engagement Strategy and allow for residents to be able to request specific information. As part of this, the AP must put a complaints process in place, including the potential for escalation to the Regulator. To ensure this is actioned, an enforcement regime will be implemented.

We recognise the need to improve building safety and have been urging the Government to introduce robust regulation for building owners and managing agents for the past three years. We welcome the introduction of an AP and the appointment of BSM’s and believe we are well-placed to deliver on this in line with our existing practice.

Roles of Accountable Person and Principle Accountable Person

 

The Bill defines an AP as a person or a body who will have responsibility for compliance with a number of the requirements under the provisions of the proposed legislation.

A party or parties that meet(s) defined requirements under the Bill will automatically become an AP and bear the responsibilities created by its provisions. There can be more than one AP. The definition includes both the holder of the legal estate and the party with legal obligations to repair - creating a complicated arrangement because it means both block freeholder (as owner of the legal estate) and a properly formed Right to Manage (RTM) company in the same block (because it has legal obligations to carry out repairs) would be AP’s.

The lease obligations to maintain a property pass from the freeholder to the RTM company once the process to acquire the RTM is exercised under the Commonhold and Leasehold Reform Act 2002. The RTM company steps into the freeholder’s shoes in all matters of maintenance under the respective lease. The RTM company will communicate with leaseholders in relation to works, but has minimal requirements for communication with the freeholder creating conflicting legal frameworks.

S70(1)(b) of the Bill provides that where there is more than one AP, the Principal Accountable Person (PAP) will be:

"the accountable person who holds a legal estate in possession in the relevant parts of the structure and exterior of the building"

The application of S70(1) (b) would make the freeholder the PAP because it holds the freehold title, making it liable to sanctions under the Bill if it failed to comply with its duties.

However, where new statutory obligations contained in the Bill are placed on the freeholder, as the PAP, there is no effective mechanism to deal with requirements to implement measures at the property which are the RTM company’s responsibility, as it holds the management obligations contained in the lease. For example, preparing Safety Case Reports under S85 lies with the PAP. The information required to produce the Safety Case Report is held by the RTM company - having acquired the right to manage the building. It is unclear if proposed mechanisms in the Bill are sufficient to secure the necessary cooperation between an RTM company and freeholder to ensure compliance with the freeholder’s obligations as PAP in this and other scenarios created by the Bill. These gaps and conflicting legal positions need to be addressed properly and the various parties’ obligations made absolutely clear.

Implications of the Leasehold Reform (Ground Rent) Bill for building safety

The Government’s Leasehold Reform agenda and Leasehold Reform (Ground Rent) Bill, which is currently moving through Parliament, threaten our ability to oversee and ensure the safety of buildings under our stewardship. With the country in the midst of a national cladding and building safety crisis, brought about by poor building practices and a failed regulatory system, policymakers should be asking serious questions about the appropriateness of removing professional oversight of large apartment buildings - leaving residents with the legal responsibility for managing these large and complex blocks by themselves, especially if obligations increase through the Bill.

A poll conducted by Savanta in December 2020 [1] indicates only 31% of residents would willingly take on responsibility for managing their block (which would be the case if freeholders were no longer in the market) and 1 in 3 would consider selling if faced with increased obligations (including criminal liabilities) under proposed Building Safety legislation. An accompanying report, also conducted by Savanta in 2020, found that many residents are reluctant to accept the role of AP due to concerns around competence, legal exposure and time commitment required. Of the 1,000 leaseholders interviewed, 75% felt negatively about the new obligations they would have in this position, with 67% worried about their building not being maintained properly, as well as health and safety issues presented by the proposed leasehold reforms at the time.

There is concerning evidence that the Scottish model, which sees residents take control of such matters, has had negative impacts on building maintenance and the lifespan of residential buildings has shortened significantly. Since 2012, when legislation was introduced in Scotland, replacing the leasehold system with commonhold, research from the Royal Institute of Chartered Surveyors (RICS) found that 80% of buildings need some form of repair and leaseholders are unable to fund the £2bn needed for essential remedial works. Naturally, resident decision making is also often driven by cost and personal interests rather than safety requirements. Some leaseholders withhold service charges, and the commonhold model means these are less likely to be effectively pursued to ensure services and maintenance is carried out properly and in a timely manner.

It is important that this evidence is considered carefully as part of the scrutiny of the Bill. If leaseholders are unwilling or unable to take on these important health, safety and other management responsibilities then it would be ill-judged and counter-productive to simply increase these responsibilities, in some cases making residents criminally liable when they would otherwise choose not to and would prefer these obligations to be taken on by freeholders.

Dissolution of Resident Management Companies and Management Companies

Another challenge is that the Bill still fails to address what happens if a Resident Management Company (RMC) or Management Company (ManCo) ceases to exist. This is an area the Government must provide further clarity on as evidence of leases in our portfolio clearly shows that the process for dealing with dissolved or failed RMC and ManCos varies considerably depending on the specific provisions in the lease. Often, under the current system, if RMC’s or ManCo’s fail, lease obligations to maintain the development do not automatically revert to the freeholder or intermediate landlord.

In light of this, where an RMC or ManCo fails, buildings can be left with no AP. The freeholder will have had no oversight of the previous management and may not have rights under the lease to step in to deal with management failings or ongoing management of the block.  There is no mechanism to resolve this situation quickly in the Bill. Applications for a Special Measures Order contained in the Bill are at the discretion of the Regulator only, will take a long time, and incur unnecessary costs for leaseholders. There is no provision that would allow freeholders to seek the assistance of a tribunal, should that be necessary, allowing the freeholder to take on this role, if required.

With the above complexities in mind, for the Building Safety Bill to work effectively, the Government needs to reconcile its policy agendas and introduce an exemption for large and complex apartment buildings in the Leasehold Reform (Ground Rent) Bill, so freeholders remain in the market and continue to play a valuable oversight role.

The cost of the new regime for leaseholders and fire safety costs

Building Safety Charge

The introduction of a Building Safety Charge has the potential to be a positive change that will ensure certain charges levied on leaseholders are clearly highlighted as critical for building safety purposes rather than for day-to-day routine maintenance.

Practical implications of implementation of Part 3 obligations

There is a general difficulty in planning for compliance because of a lack of detail throughout the Bill and an absence of regulations. Whilst there are obligations on the APs and sanctions set for failure, no detail is given of the requirements for compliance. The industry, including residents who are responsible for building management, needs to have sight of the relevant regulations as soon as possible to ensure it is properly prepared and that they do not face criminal sanctions for non-compliance due to insufficient lead-in times.

By way of example:

· S73 - All high-risk buildings must be registered.

There is no detail as to what information will be required to achieve registration. With older buildings, obtaining details that are preserved in the "golden thread" for new buildings will be difficult, expensive and, in some cases impossible to obtain. For example, if the developer went into administration some years ago there would be little chance of recovering the original construction details.

· S74 – Building Assessment Certificate.

A building assessment certificate is required if the regulator directs this. An offence is created for failure to comply, but no details are given as to the circumstances in which a request may be made or what information will be needed to comply.

· S78 – Building Safety Manger.

A Building Safety Manager must be appointed by the PAP before a building is occupied. No details are given as to the requirements or qualifications for this role or where a PAP can find suitable Building Safety Managers. There is likely to be a shortage of suitable competent persons to fill the roles for each and every one of the estimated 12,500 [1] over 18m blocks across England within the given timescale making it potentially impossible to comply with the Bill requirements.

· S85 – Building Safety Report.

Safety case reports are required for all high-risk buildings, but no detail is given as to the content.

· S87 - Mandatory reporting and maintaining prescribed information.

Prescribed information must be kept and produced if required. There is no detail as to the nature of this information.

In the case of older buildings, historic information concerning the building construction may not be available. Compiling such information by means of surveys will be time consuming and costly.

We consider it critical that more detail on clauses within the Bill are published as soon as possible.

Conclusion

The Building Safety Bill cannot be considered without the context of other policies pursued by this Government; specifically, Leasehold Reform. As currently drafted, the compounding effects of this legislation will have far-reaching implications on building management, accountability and, crucially, the safety of apartment buildings, thus undermining what the Government is trying to achieve through this Bill.

September 2021