Building Safety Bill (Second sitting)

Selaine Saxby Excerpts

Thursday 9th September 2021 Public Bill Committees

[Mike Amesbury]

Q What more could be done to protect leaseholders from historical remediation costs and ensure that those responsible for this mess are pursued and pay? You have referred to suing them. How would you strengthen the role?

Giles Peaker: The extension of limitation is a start. The problem with suing developers and builders has always been twofold; limitation is one, because problems usually do not manifest themselves within the first six years. The other problem is finding somebody worth suing, and that is the big problem. I get a lot of inquiries about potential new build cases. Most of them are out of time, but most of them also do not have anybody they can actually sue, because developers have liquidated or wound up. One thing that could be considered—although it is difficult and goes against some fundamental tenets of English company law—is to allow tracing profits, to make parent companies liable for special purpose vehicles. That would be one way to cut out the simple “take the profits and run” approach. Justin suggested properly enabling the suing of building control; that is currently off the table, but it might improve the attention to detail, although the professional insurers are already going bust.

Justin Bates: Again, if you are feeling adventurous, you could make directors liable for the acts of their companies—make them personally liable for any building defects. That is not as radical as it sounds—you did that to directors of rogue landlord companies in the Housing Act 2004 and the Housing and Planning Act 2016. I appreciate that every company director hearing this is having a wince and every company lawyer is pulling their hair out, but you have done it twice in relation to rogue landlords, so it is not that big a stretch to go to rogue developers.

There is a danger in asking litigation lawyers for policy advice because every problem that I see involves suing people. That is what I do for a living, so take everything I am about to say with a large pinch of salt. Fundamentally, Parliament has to decide what is the nature of the current building safety crisis that it is dealing with. Is it one that requires a collective response or an individual response in individual buildings? The Bill is about individual buildings. If you are lucky enough to be a leaseholder or freeholder who benefits from the Defective Premises Act 1972 extension and you can find someone worth suing, there is some good stuff for you in here. I personally think that would be, at most, 15% of affected buildings at the moment, and you have got the June 2020 National Audit Office report if you want to see MHCLG’s response to that. It thinks that even that would be a higher figure.

Likewise in clause 120 and the restrictions on when you can pass service charges on. There will be some buildings that benefit from that, but it is all happenstance. You are not solving the collective problem. You are creating some remedies for some buildings. If you think this is a collective problem, the only way is for some collective body to take control of it, such as central Government, to fund works, at least up-front—that would be one solution—and then recoup.

You could have a scheme, which I understand is a variant of what is in Australia, whereby central Government fund works on affected properties but a condition of the funding is that it requires all affected parties to assign their rights to central Government, who then get round to suing when they feel like it, because central Government do not really care if their litigation takes five years to work through. Central Government will still be here in five years’ time, whereas individual leaseholders do not have five years to wait for cases to pan out. There is lots you could do if you want to adopt a more collective approach, but you need to be clear that this is a very individualistic response here. That will help some people, but probably not many.

[Selaine Saxby (North Devon) (Con)]

Q Could you expand on how, or even if, clearer accountability for a building across its design, construction and occupation will help improve safety?

Justin Bates: If the Bill works in the way it is envisaged, you should at the end of the construction stage of the building be able to go to one place and have all the documents relevant to that building. You should have the plans, the design and so on. One problem that you have seen coming out of the Grenfell inquiry, for example, is that no one had all of the plans for the building. Firefighters went in and discovered there were two floors that did not exist on the plan that they had. If this works, this will be better for pulling together a centralised and collective set of records, which will help. That is the obvious one that I can think of, comparing it with a problem that we know exists. Can you think of any others?

Giles Peaker: There will be more accountability via the accountable person, certainly from the point at which the building is occupied. I am not clear how far that accountability will transfer back to the people actually responsible for the problems, if there are problems. The basic idea of having a person accountable for the building’s safety is in itself a good idea, but the complexities that follow on are immense. I am not sure that the issue of establishing who is the accountable person, particularly in properties where there might be multiple people who would be candidates or would fall under the list of who would be an accountable person, has been adequately solved.

How can I put it? I am fine on the principle; I am less certain about the practice, particularly as we are still waiting for statutory instruments—quite a lot of them—on how the accountability will be seen through. A lot of it will be down to the approach taken by the regulator. As we have seen with the regulator of social housing and so on, that can be quite a variable approach.

[Selaine Saxby]

Q You said, “if this works”. Could you expand on the risks around that?

Justin Bates: Until we see all the secondary legislation, you cannot start to work out where all the problems will be. You have Dame Judith Hackitt’s report in the background. Dame Judith effectively concludes in her interim report that we have a building industry that cuts corners and throws up the cheapest buildings it can, to sell for the most profit as quickly as it can. That is the cultural problem. If you have still got that culture, people are going to find a way to get around the law. That is what they do. If you are really worried about building standards, you have to address that cultural bit first.

I am not saying that I have any answers to that, which was one of the earlier questions. Legislation by itself cannot make people be morally good, but you can impose enormous and painful penalties on people who do bad things. For example, building control is liable to pay damages if it turns out it was negligent in some respect. That will focus a lot of minds. It will end the practice that is rumoured to exist of some building control being very keen to say yes, because it does not want to get the reputation of being the person who says no, because then they do not get any other work.

Giles Peaker: There is indeed case law on building control signing off on non-existent flats without having seen them. Despite being clearly negligent, and potentially fraudulent, no liability was found. Yes, there is certainly a case for focusing building control’s minds on what it is they are doing.

[Daisy Cooper]

Q The Bill as drafted would to my mind enshrine a legal principle that leaseholders who are not at fault have to pay for defects not of their making. Could you talk us through the legal implications of that in terms of what leaseholders may choose to do if the Bill goes ahead unamended, and for housing and building law in general?

Giles Peaker: The current position on leaseholders potentially having to pay for building defects is somewhat hotch-potch. By and large, for the huge majority of leases, they will have to, because it will be under the lease. There will be some leases where that is less than clear and some where they may not have to. So far, there have been no such successful cases at the first-tier tribunal or the upper tribunal, but it is theoretically possible—I am not ruling it out.

The Bill certainly takes as read that the cost of remedial works will pass under the service charge. There is no envisaging otherwise; it is simply the case, as far as the Bill goes. In terms of inserting, for instance, a direction by the regulator, it makes it 99.9% certain that the costs will indeed pass under the service charge. Not so much by specifying but by presenting the framework by which the remedial works will be assessed under the serviced charge, yes, it does enshrine that principle.

Justin Bates: Clause 124 is the critical one for this. Clause 124 assumes that the leaseholder is going to have a contractual liability under the lease, and it is right to make that assumption. In 99.9% of leases the starting point position will be that the leaseholder pays. By one route or another, there will be a clause in the lease that could be used. I agree it is theoretically possible that you have a lease that does not allow for that. I do not think it is very likely.

Clause 124 does not actually do anything to stop that. It takes the contractual position—that the leaseholder pays—and says, “We are going to ameliorate that in a relatively limited way.” First off, it only applies to a particular type of work, which is going to be specified by the Secretary of State in regulations. We do not actually know what kind of work it will apply to yet. I know it is not just cladding we are talking about here, but for simplicity’s sake let us say the Secretary of State passes an SI that says it applies to cladding replacement. In those circumstances, the Bill puts the freeholder under an obligation to look at alternative sources of funding. He has to go and look at granting funding—building safety fund money would be an obvious example. He has to look at insurance funding that might be available. He has to look at any other third parties that might have to pay because the developer could sue them, and he has to look at anything else the Secretary of State specifies, which is why it would be useful to know what the Secretary of State intends to specify. But it is only a duty to take reasonable steps to see whether any of those parties can pay up. What will reasonable steps mean in these circumstances? Once the building safety fund is exhausted, there is no publicly announced plan for any further grant funding. You know the building safety fund will get exhausted, because the Select Committee has done the work on that.

On insurance, it is good to have it enshrined in law that you should be looking to your insurers to pay up—frankly, case law has got there already, so it is not much of a development but it is always useful to have it confirmed in one place. The one that troubles me is the idea that the freeholder has to take reasonable steps possibly to sue third parties. What will reasonable steps mean here? Presumably, the freeholder will go and get legal advice from someone, and lawyers being what they are, they will say the prospects of success are somewhere between x and y. If he says there is a 51% chance of success, does the freeholder have to do it? Bear in mind that the legal costs of a failed claim will almost be certainly be a service chargeable cost. If he says it is 70%, does the freeholder have to do it?

If he does have to bring litigation, in the meantime, what will you do about the actual work on the building, because suing someone does not get a building made safe? In the meantime, all the leaseholders—your constituents who write to you about waking watches and higher insurance premiums—will keep paying that while the freeholder and the developers have a fight about who should pay the ultimate work.

I understand what it is trying to do: it is trying to give freeholders a meaningful kick to make sure they exhaust other sources of funding before they go to leaseholders. I just see this generating a lot of litigation to achieve very little.

Giles Peaker: To follow that through, clause 124 appears to make it an obligation for the accountable person to actually carry out works in the meantime while searching for the other sources of funding. Where is that money coming from? It is not going to happen. There will be no money, unless they charge the leaseholders in the meantime and then refund them, but they cannot do that.

If you are looking at potential litigation by the freeholder, I do that kind of work—you are looking at two or three years before there is an outcome, whether successful or not. Costs of failed litigation could be immense and will go through the service charge—that is entirely right under this Bill. But if the accountable person does not bring litigation, you are looking at the leaseholders prospectively bringing a challenge in the tribunal that they do not have to pay the remedial costs, whatever they are, as specified in the statutory instrument, because the accountable person has not complied with the relevant section of 20D. You are then asking the first-tier tribunal to reach a finding on what the landlord’s reasonable prospects of success would have been had they pursued a claim against the developer, as a condition of whether the charge has to be paid. That is a huge stretch for the FTT. How do you evidence that? The leaseholders bring along someone like me who says, “I put it at 70%.” The freeholder brings along their solicitor who advised them and said, “It’s a 40% chance.” What is the FTT to do? I cannot see that working. It is years and years of litigation one way or another.