Note: This issue explained in this article is now resolved. On 25 October 2023, the Levelling Up and Regeneration Bill was passed, which includes provisions to ensure that a lease extension no longer impacts the qualifying criteria for the Building Safety Act.
Do you own a flat in a block of 11+ metres or 5+ storeys? If so, this article might relate to you.
Under the Building Safety Act 2022 some leaseholders in such buildings are protected from some costs associated with building safety defects. If you qualify, you will have protection from costs relating to cladding issues and structural defects created since 1992.
If you own more than three properties, you might not qualify for this protection.
On 6 April and 21 April 2023 there were updates to Government guidance, the second made a full admission that their lawyers made an error in the way that the Building Safety Act was written.
The Government's mistake means that the protections mentioned above may be unintentionally removed if a leaseholder does a lease extension.
Following the first announcement, the Association of Leasehold Enfranchisement Practitioners wrote to the Government on 17 April 2023 and notified their members, bringing the issue to the attention of the wider sector.
This article explains:
- What protections are offered by the Building Safety Act 2022
- The issue with lease extensions
- How to check if you qualify as a leaseholder
- How to check if your building qualifies if it is
- 3 storeys or under
- 4 storeys
- 5 or more storeys
- When will the Government fix their mistake?
- How to proceed
What is the Building Safety Act?
Under the Building Safety Act some leaseholders of tall buildings are protected from costs relating to rectifying some building safety defects.
Who has these protections?
It only applies to flats in blocks which are 11 metres or above OR have five or more storeys.
There are some exclusions, notably if you owned more than three properties on 14 February 2022 you might be excluded.
If you currently have the protections they will be passed on to future owners of your flat. If you don't have protections, no future owners of your flat will either.
What defects do the protections relate?
The protection relates to building safety defects that were created by building (or refurbishment work) completed between 28 June 1992 and 27 June 2022.
The most obvious example of the types of costs are those resulting from combustible cladding (including interim measures like Waking Watches). However, it would also cover some other safety defects such as those which could cause the collapse of some or all the building. It may also indemnify leaseholders against other related costs, such as their landlords professional service fees (e.g. legal fees) relating to the issue. Depending on the defect, this could provide leaseholders with protection against paying significant remediation costs for which they would otherwise be liable via their service charge.
It doesn’t cover general defects such as a broken lift or leaky windows.
What’s the issue with lease extensions?
When you do a lease extension, it gives you a new lease which usually references the old lease. This is technically known as a “surrender and regrant”. The new document will be given a new date, invariably after the cut-off date for protections of 14 February 2022.
Because of the defect in the wording of the legislation, this means that if you qualified for assistance under the Building Safety Act 2022 before your lease extension, you're unlikely to qualify for all the protection after.
If there is a defect in your building this could mean you have to pay your share of significant costs of remediation, as mentioned above.
This doesn't necessarily mean that you definitely won't qualify for any protection. For example, if your landlord is responsible for the defect (e.g. they were the owner / developer when the work causing the defect was completed) then they may still be on the hook for the costs. An obvious example of this is a building owned by a Local Authority - they may be prevented on passing costs back to leaseholders for any relevant defects, irrespective of whether or not that person has extended their lease.
How do I know if I qualify?
If you don't qualify under the Building Safety Act 2022, you haven't currently got any protections to lose - so you can continue with your lease extension as a result.
Check 1: Do I qualify under the Building Safety Act?
The first thing is to ascertain whether either you or anyone else you own the property with currently qualify or not under the Building Safety Act.
In short, if you owned more than three residential properties on 14 February 2022 then you might not qualify.
If you don’t have the protection already, it is difficult to see how you could be adversely affected by doing a lease extension.
You can get an answer on whether you qualify on this Government form. We would recommend saving a copy of the result.
Check 2: Does my building qualify?
Only buildings which either have 5 or more storeys OR are 11 metres or above qualify for protection under the Building Safety Act.
A “storey” includes the ground storey. It isn’t entirely clear, but we think the safest interpretation of the legislation is the count should include any lower ground storey - unless it is completely below ground. The count is considered to exclude the roof, unless it is occupied in its own right (e.g., there is a flat up there!)
When measuring the building you only measure from the ground on the lowest part of the building to the floor of the top residential storey. Because you only measure to the floor of the top storey, this essentially means the top residential storey and anything above it (the roof) are excluded from the measurement.
My building has two or three storeys
A rule of thumb is that each storey in a block is likely to be below 3 metres in height. This means in practice it is unlikely that a building with just three storeys would qualify.
You can continue your lease extension knowing that you don't have any protection to lose.
My building has four storeys
It is also quite unlikely, but possible, that a building with four storeys would qualify, because only the distance from the ground to the top of the first three storeys are included in the measurement.
You may already know the height of your building or have been told whether it qualifies under the BSA 2022. You could also ask your freeholder. Particularly if your freeholder is an institution (e.g. a local authority, housing association or large private freeholder) then they should have this information because they need to understand their own obligations in relation to the Building Safety Act and Fire Safety Regulations. Certainly if you instruct us for a lease extension we will ask them as part of our process.
The only way you can be 100% sure of a building height is to measure it yourself – or instruct someone to do it for you. Most local building surveyors should be able to do this, or we have spoken to THS Concepts who have developed a specialist Building Height Survey service where they can do this and can travel across England and Wales.
If you want to understand how a surveyor would measure your building (or want to do it yourself) you may find this guide provided by the Government or a more detailed one provided by THS Concepts helpful.
My building has five or more storeys
The Building Safety Act 2022 includes any building which is 5 or more storeys, irrespective of how high it is.
As a result, if it is 5 storeys, then there is no need to measure it.
If you own a flat in a 5+ storey building, unless you have an urgent need to do a lease extension - or you don't qualify for the protections anyway - it seems advisable to hold fire for the moment.
The Government has promised to fix their mistake.
For flats in five-storey buildings Homehold are not currently taking new lease extension instructions for leaseholders who qualify under the Building Safety Act. This is because we want to focus on resolving these issues for existing clients first.
As soon as we have a concrete and tested way forward, we intend to resume taking lease extensions for this type of building.
The exception for this is investors who are not Qualifying Leaseholders. If you own a flat in a block with 5 or more storeys and have checked that you don’t qualify under the Building Safety Act using the Government Tool, then please get in touch.
Are the Government going to fix their mistake?
The Government have said that it was not their intention to exclude people extending leases from protection under the Building Safety Act and have suggested a work around in the first instance.
The "Work Around":
The Government have suggested that: “Leaseholders should seek legal advice to make sure explicitly in their agreements that their protections are extended as part of their lease. It was intended to work like this, and freeholders should make sure that lease extensions reflect this position.”
Unfortunately, the Government’s interim suggestion to “extend” the qualification as part of the lease extension might not be legally robust. Having included such a clause, we are hopeful most freeholders would be unlikely to try and wiggle out of it later. However, ultimately we won't know that such a clause is watertight until it is argued in a Court case.
We are attempting to include such clauses in affected lease extensions and some freeholders are agreeing to the clauses and some are not. It isn't clear how we could force them to do so if they refused.
The "Proper Fix":
The Government updated their guidance further on 21 April 2023 to state “We are looking to legislate to resolve this issue as soon as Parliamentary time allows.”
Promisingly, in September 2023 the House of Lords proposed amendments to the Levelling Up and Regeneration Bill which would have essentially closed the loophole. Really importantly, it also works retrospectively. This means that anyone who has already extended their lease and lost their protection, would essentially have it reinstated.
On 17 October 2023, the amendments were reviewed by the House of Commons and while they rejected the exact wording, they replaced it with alternative drafting which has the same effect. This is good news because it shows that closing the loophole has support of the Government and both Houses of Parliament.
These specific changes were approved by the House of Lords on 23 October 2023, which means the loophole in the Building Safety Act is highly likely to be closed imminently.
The only thing preventing these becoming law are a few other wrinkles in the Levelling Up and Regeneration Bill, which both Houses need to agree to before the bill as a whole can become law. It was last discussed on 24 October 2023 in the House of Commons and is due to be discussed next in the House of Lords on 25 October 2023. So far, the bill seems to be ping-ponging between the two houses fairly quickly.
There is a reasonable hope that this bill may be approved by Christmas, or early in the New Year and affected leaseholders can put this rather sorry saga behind them.
If you own a flat with three-storeys or below this article probably doesn’t affect you.
If your flat has four storeys, the Building Safety Act adds another layer of complication to your lease extension, but this is something we can navigate as part of the process.
If your flat in a building of 5 or more storeys, then you can choose between (a) starting your lease extension on the assumption that will be fixed when the Levelling Up and Regeneration Bill is passed or (b) holding off until the changes are fully approved by parliament.
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