Summary of the McPartland-Smith Amendments to the Building Safety Bill



Summary of the McPartland-Smith Amendments to the
Building Safety Bill

1.             
The Building Safety Bill is a wide-ranging reform of the rules around
planning, construction and occupation of “higher-risk buildings”.  A
higher-risk building is to be defined as any building containing 2 or more
residential units and which is taller than 18 metres or has more than 7
storeys.

 

2.             
The Building Safety Bill is currently at Report and Third Reading stage
in the House of Commons.  Michael Gove has said that he expects the Commons to
pass the bill before Christmas.  The Bill will then go to the House of Lords to
complete its passage through Parliament.

 

3.             
The Bill is currently expected to become an Act of Parliament (a law) early
in 2022.  The new law will then be brought into effect over a period between
roughly 2022 and 2025.  The new law will apply to both current and future higher-risk
buildings.

 

4.             
Stephen McPartland MP and Royston Smith MP offer amendments to the
Building Safety Bill to protect current and future leaseholders.  The
amendments as at 12 November 2021 are here:  https://publications.parliament.uk/pa/bills/cbill/58-02/0177/amend/building_rm_rep_1112.pdf

 

5.             
This summary explains the McPartland-Smith amendments as at 10 November
2021.  The McPartland-Smith amendments apply to buildings of all heights.  Some
apply to current buildings.  All of the amendments apply to future buildings.

 

6.             
Value Added Tax (VAT) Amendments:  Amendment NC4 makes future
cladding and fire safety remediation works taxed at 0% instead of 20%.  This
includes things like waking watch costs and replacement fire alarms.  Amendment
2 allows people who have paid VAT on works and waking watches between 17 June
2017 and 31 July 2022 to apply for a refund of that VAT.  Amendment 2 also
provides that if landlords receive a refund of VAT then they must repay all of
that refund to leaseholders in accordance with the terms of their leases.

 

7.             
Better protection for current and future leaseholders:  Housing Act
1985 amendments
.  Amendment NC5 changes Part 16 of the Housing Act 1985. 
This law, originally passed as the Housing Defects Act 1984, allows the
government and local authorities to provide money to pay to fix buildings they
think are in need of fixing. 

 

8.             
The powers in Part 16 of the Housing Act 1985 apply to both public and
private housing.  These powers were created and used in relation to Pre-cast
Reinforced Concrete (“PRC”) houses built in the 1950’s and 1960’s.  The
external walls of around 140,000 PRC houses had to be rebuilt as a result of
defects in the concrete reinforcement.  Many of the affected PRC houses were
sold as part of the early Right To Buy initiative. The new owners found PRC houses,
even if unaffected, were impossible to mortgage or to sell due to the issues
with the walls. 

 

9.             
Recognising the injustice of the PRC housing situation, the Thatcher
government stepped in with public money to make repairs to the PRC houses. 
Homeowners received grants of up to 90% of the cost of the remediation works. 
In some cases the affected properties could be bought back at a price that did
not take into account any issues with the walls.

 

10.          
Amendment NC5 gives the government and local authorities the necessary
powers to deal with issues related to cladding and fire safety.  That then allows
the government and local authorities to provide grants to leaseholders of up to
90% of the cost of remedial works, or else to buy back the properties.

 

11.          
Amendment NC6 is a trigger.  It requires the government to consult with
the Treasury and the Prudential Regulation Authority on the effects of the
MHCLG’s Advice Notes on the housing market and on leaseholders and to report to
Parliament on its findings.  This must be done within 6 months of the Bill
being approved by Parliament. 

 

12.          
Amendment NC6 requires that, if the government concludes that using its
new powers under Part 16 of the Housing Act 1985 (as amended by NC5) would help
leaseholders and the market, then it must use those powers and provide the
money itself or via local authorities to fund grants for repair work. 

 

13.          
The House of Commons must approve the government’s report.  If it does
not, the government cannot bring into legal effect the new regulatory regime set
out in Part 4 of the Bill.  The government must then make a further report to
Parliament within 90 days.  The process will continue until the Commons approves
the report.

 

14.          
Better protection for current and future leaseholders: Building
Safety Indemnity Scheme. 
Amendment NC7 requires the government to create a
fund (the “Scheme”) into which anyone seeking building control approval,
anyone supplying building products regulated by the Building Safety Act, residential
mortgage lenders and residential building insurers must make contributions.  No-one
will be able to obtain building control approval to construct any building
unless it becomes a member of the Scheme and pays its dues. 

 

15.          
The money raised by the Scheme will be used to pay for cladding and fire
safety remedial works.  These  payments could be made through the amended
Housing Act 1985 (see above), or could be made through the Scheme itself.  The proposed
Scheme works in a similar way to the Motor Insurers’ Bureau (“MIB”). 
The MIB pays for damage caused by uninsured drivers.  All car insurers are
required by law to be members of the MIB.  The costs of the MIB are paid for by
a charge on all car insurance policies.

 

16.          
Another example of a similar scheme is FloodRe (for house insurance) and
PoolRe (for terrorism insurance).  In both cases, a risk that would otherwise
not be covered by insurance is spread around many payers so that it becomes
insurable.  The principle underpinning the proposed Scheme is the same.

 

17.          
The proposed Scheme could raise substantial amounts of money through
relatively modest levies on the targeted bodies, by way of example only:

 

a.             
According to Financial Conduct Authority data between Q3 2020 and Q2
2021 net new mortgage lending amounted to £82.2 billion.  A 0.25% levy on new
mortgages would therefore raise £411 million a year;

b.             
According to Association of British Insurers’ data to the end of 2018
(the most recent available) commission on residential buildings insurance
totalled £1.98 billion in the year ending 31 December 2018.  Levels of
commission are likely to have increased as a result of huge increase in the
costs of insuring buildings with cladding.  A 10% tax on insurance commission
would therefore generate £198 million a year.

 

c.              
In terms of building products, according to its most recent accounts the
UK arm of Saint-Gobain (owners of Celotex, who supplied the cladding on
Grenfell) in the year ending 31 December 2020 had a turnover of £684 million
and profits before tax of £118 million.  A 10% turnover tax would raise £68.4
million a year from Saint-Gobain.

 

d.             
A similar picture emerges in relation to Kingspan, which supplied
insulation used on Grenfell.  In the year ending 31 December 2020 it reported a
turnover of £318 million and a profit before tax of £38 million.  A 10%
turnover tax would raise £31.8 million a year from Kingspan.

 

18.          
It is not been possible to identify how much another major cladding
supplier – Trespa – sells in the UK.  Trespa’s UK subsidiary only reports
commission on sales.  The holding company for Trespa – the HAL Trust – reported
construction product sales of €3.65 billion in the year ended 31 December
2020.  There may be further revenue available by taxing Trespa’s cladding and
building products sales in the UK.

 

19.          
Adding together the amounts identified in paragraph 17(a) to 17(d) would
bring in £709 million a year.  Combined with the £200 million a year expected
from the Residential Property Developer Tax, that would generate £909 million a
year.  That would be enough to cover the current estimated £10 billion
shortfall in around 11 years. 

 

20.          
One option would be for the government to advance the money to do the
works up front and then to recover it by the types of taxes suggested above. 
The choice of who to tax is ultimately a matter for the government.

 

21.          
Better protection for current and future leaseholders and home buyers:
limitation period reforms. 
Amendment 4 extends the time allowed (known as
limitation periods) for making claims under the Defective Premises Act 1972 and
section 38 of the Building Act 1984.  The limitation periods are extended to 25
years, instead of the 15 years proposed by the government.  1556 966

 

22.          
The change to the Defective Premises Act 1972 limitation period applies
retrospectively, meaning it will capture all buildings built between early 1997
and early 2022, depending on when the Bill is passed by Parliament.  This
change will also mean all future home owners and leaseholders will have 25
years to make claims, instead of the 15 years proposed by the government.

 

23.          
The amendments offer an alternative for the government to consider on
limitation.  That is by changing the basis on which time limits apply to
building defect claims.  Currently time starts to run from when a building is
completed.  That is so whether anyone is actually aware of an issue or not. 

24.          
Amendments 5, 6 and 7 change the basis of time limits for claims under
the Defective Premises Act 1972 so that they run only from the date of actual
knowledge of an issue, rather than completion of the building in question. 
These changes are suggested for both newly constructed buildings and building
renovations.  There would be a longstop date of 25 years, meaning that no claim
could be brought 25 years after the building or renovation was completed.

 

25.          
Amendment NC11 also improves the claim under section 38 of the Building
Act 1984.  That gives a right to claim damages for injury or death resulting
from negligent building control work.  Amendment NC11 expands this to cover “economic
loss”  which is money losses as a result of negligent building control work. 

 

26.          
Again, the suggested basis for limitation is actual knowledge of breach
of duty leading to economic loss, subject to a limit of 25 years from the date
the work is completed.  The amendment would leave the rules on limitation
regarding personal injury the same as under the current Limitation Act.

 

27.          
Clause NC12 also proposed further protection for flat owner and home
owners by abolishing the rule against recovery of economic loss in negligence
claims, or in claims under the Defective Premises Act 1972. 

 

28.          
Amendment 10 protects current leaseholders and homeowners where the 25 year
limitation period runs out within 1 year of the Bill being approved by
Parliament.  It allows those homeowners and leaseholders up to 2 years to
prepare a claim under the Defective Premises Act 1972.  The current draft of
the Bill only allows 90 days to prepare such claims, which is unlikely to be
enough time even where claims are possible.

 

29.          
Clause 128(5) of the current Bill gives builders who may be subject to
retrospective claims under the new law a potential “get out of jail free card”
based on human rights arguments.  Amendments 8 and 9 remove this potential
issue.  The courts will then be left to decide human rights issues, if any,
arising from the extra time allowed to make claims in the ordinary way, as
would happen in any other case.

 

30.          
Better protection for future leaseholders: implied terms in building
and renovation contracts and compulsory insurance for builders. 
Amendments
NC8, NC9 and NC10 protect future leaseholders and home buyers.  These
amendments would change the law to make contracts for house and flat building
and renovation subject to automatic rules (called implied terms).  Similar automatic
rules already apply to things like toasters and cars.  The new automatic rules
are to be backed with insurance policies or warranty schemes.

 

31.          
Amendment NC8 provides for implied terms in every residential building
contract.  These implied terms are promises that the flat or house is of an
adequate design, is fit for residential occupation, complies with Building
Regulations and uses materials that are of satisfactory quality.  Similar rules
will apply to residential renovation work.

 

32.          
Future buyers of flats and houses will have the benefit of protection in
the form of a direct claim against the builder for breaking these promises, as
they do now in relation to their toasters and cars.  This claim will be backed
by insurance.  Any owner of the flat or house in question, not just the
original owner, will be able to bring a claim.  It will be for the builder to
prove that the building complied with the implied terms.  The same rules will
apply to residential renovation works. 

 

33.          
Amendment NC9 gives a 25 year limitation period for bringing claims in
relation to breach of the implied terms.  The 25 years is to run from the date
the property is completed.  The current law allows a 6 year period for making this
type of claim.

 

34.          
Amendment NC10 requires any builder who is a member of the New Homes
Ombudsman offering to sell, or selling, a house or flat to take out an insurance
policy that is at least as good as the basic policy terms to be set down by the
government.  The government can also identify warranty schemes it thinks meet
the same standards as the basic insurance policy.  The aim of this amendment is
to ensure that there will always be an insurer or warranty provider standing
behind the implied terms created by amendment NC8 for at least 25 years.  The
same rules will apply to residential renovation works.

 

Summary prepared by
Liam Spender

10 November 2021

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