Leaseholders’ protection under the Building Safety Act 2022 for non-cladding defects
The Building Safety Act (BSA) was introduced in 2022 following the Grenfell Fire in 2017. Aiming to improve fire safety in residential units, it introduced higher fire safety requirements for residential buildings that are at least 11 metres or 5 stories high (Relevant Buildings).
Under the BSA, the concept of ‘qualifying leaseholder’ was created to protect some leaseholders from becoming liable to contribute significant remedial costs if non-cladding defects were found in Relevant Buildings. This applies to leaseholders who, as of 14 February 2022, used the property as their only or main home in Relevant Buildings and owned 3 or fewer residential properties in the UK. They must also have had a lease with a term of 21 years and were obliged to pay service charges under the provisions of the lease.
Additionally, 3 further conditions must be met for those with a qualifying lease to be fully exempt from contributions towards remedial costs regarding non-cladding defects: (1) the landlord is legally responsible for the defects; (2) the average value of the Landlord’s properties is over £2,000,000; and (3) the property has a valuation of less than £325,000 if it is within London or £175,000 if it is located elsewhere in the UK. If any of these criteria is not met, then a partial exemption will apply, whereby one’s contribution will be statutorily limited to £10,000-£15,000 depending on whether the property is located inside or outside Greater London.
Furthermore, one consideration often overlooked by inexperienced buyers is whether a lease is a ‘qualified lease’ as of 14 February 2022. This is because, even if all of the above criteria are met based on the circumstances at the time of the transaction, it is the original Leaseholder’s status and how the property was used before 14 February 2022 that decides whether a lease is a qualifying lease. For instance, borrowing an example from gov.uk, a lease would not be a qualifying lease if it were assigned from a seller who did not use the property as their main home before 14 February 2022 to a leaseholder who does after the assignment.
Overall, buyers must be careful when conducting due diligence on properties affected by the BSA. In such transactions, they should always aim to obtain a Leaseholder deed of certificate from the seller to demonstrate eligibility for protections against building safety costs under the BSA. If they do not qualify for protections under the BSA, tailored indemnity policies should be obtained to cover the risks of any financial liabilities that could arise under the Act if non-cladding defects were found on the property.