This type of enforcement action has significant implications for contractors, consultants, and their insurers, impacting both ongoing claims and remedial works, as well as future claims. If building owners are unable to sell or lease their developments, claim values may increase substantially due to increased or new claims for loss of profit or rent, loss of opportunity, LADs, and/or extended programme periods.
Key takeaway: If you or one of your Insureds act as a Dutyholder for a development or are undertaking remedial works commencing after 6 April 2024, there is an increased risk that, should the Building Safety Regulator deem those works non-compliant, the sale or occupation of the development may be prohibited, potentially resulting in significant increases in claimed losses and values.
Overview of Dutyholder Regime
The Building Safety Act 2022 introduced the Dutyholder Regime, which applies to all building work subject to building control under the Building Regulations 2010 (as amended), not just Higher-Risk Buildings (HRBs). It places legal responsibilities on clients, building owners, principal designers, and principal contractors to ensure compliance with Building Regulations and maintain accurate records, including the Golden Thread of information.
The roles of Building Regulations Principal Designer and Principal Contractor under the Act are distinct from those under CDM 2015 (the Construction (Design and Management) Regulations 2015). While responsibilities may overlap, they must be clearly defined in formal appointments to avoid liability risks.
The Building Safety Regulator (BSR) can enforce these duties with broad powers, including investigations, notices, and court applications. Its first emergency injunction at Deakins Yard, a student accommodation project, prevented occupation until compliance was achieved, setting a strong precedent for enforcement under the new regime.
Emerging Risk for Contractors, Consultants, and Insurers
The BSR’s injunction at Deakins Yard signals a significant shift in potential liabilities for Dutyholders, introducing the potential for an additional head of loss where the financial consequences of non-compliance could be severe. In sectors such as student accommodation or commercial premises, delays in selling or leasing developments can result in substantial losses.
Dutyholders now face heightened exposure following the recent judgment in respect of any developments that fail to comply with Building Regulations.
Where occupation of new buildings or remediated buildings are prohibited by an injunction, contractors, sub-contractors, and consultants may face claims with new or far greater measures of loss and damages than anticipated. As set out above, claims for loss of profit or rent; loss of opportunity; or liquidated and ascertained damages can quickly extend beyond the direct costs of remediating the alleged defects.
Existing claims where negotiations are ongoing, but ‘building work’ has not yet commenced may require reassessment given the potential for additional losses arising from BSR scrutiny. A common example that we are seeing is in relation to complex claims which were first commenced by building owners before the Grenfell Fire, c. 7 years ago. During the intervening period, the issues complained of – as well as potential remedial solutions – have evolved. There are therefore a significant number of developments across the UK where there are known issues but no definitive remedial scheme and/or settlement agreement. It is therefore entirely possible that the BSR’s views could differ from the relevant parties that have spent potentially years investigating and have multiple experts’ inputs.
Conclusion
Contractors, sub-contractors, consultants, and their insurers must therefore recognise that the BSR not only holds these powers but is prepared to proactively exercise them. The potential impact of a development remaining vacant while compliance issues are resolved would be significant.
It is therefore paramount that, in respect of any claims (whether new or existing), rigorous attention is given to remedial schemes and/or settlement strategies to mitigate the risk of potential BSR intervention.
If you have any questions in relation to the BSR or Dutyholder liabilities, please do not hesitate to contact Clyde & Co.
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