Negotiating remediation agreements in building safety disputes
Fire safety and cladding remain a key focus for Government. In December, the UK Government outlined its Remediation Acceleration Plan with timelines for remediation of buildings with unsafe cladding. The response in Scotland has been more muted with the Housing Minister confirming that the Scottish Government will not be setting out target timelines at this time. However, on 6 January 2025, all provisions of the Housing (Cladding Remediation) (Scotland) Act 2024, not already in force, came into force which is likely itself to be a driver for progress.
With a renewed focus on getting buildings remediated, increasing attention is being given by building owners and developers to require those responsible for the original build to put problems right. Where a settlement can be reached with these parties, it may take the form of a lump sum payment or a remediation agreement under which the original parties will arrange for the problems to be rectified. A number of questions arise as to how these remediation agreements will work in practice, particularly with the overlay of the Building Safety Act (the “BSA”) and its implications. In this Law-Now, we take a closer look at these issues.
The regulatory framework
Part 4 of the BSA introduced a new regulatory framework for higher-risk buildings which, for the purpose of points addressed in this article, refers to buildings in England which are at least 18m in height or with at least 7 storeys and which contain at least 2 residential units. This definition would include student accommodation.
That framework includes two new approval stages: “Gateway 2” and “Gateway 3”, with “Gateway 1” being the planning approval process. The purpose of this is said to be to provide rigorous inspection of Building Regulation requirements and ensure that building safety (in particular fire safety) is considered at each stage of design and construction.
It is important to consider these gateways in the context of entering into any agreements to carry out remedial schemes. In very brief summary, Gateway 2 is a critical “stop / go” point before commencement of building work or any “major changes” to planned work requiring the Building Safety Regulator (the “BSR”) to be satisfied that design and construction proposals satisfy the requirements of the Building Regulations and the BSA. The BSR’s target response time for Gateway 2 applications is 12 weeks for commencement applications and 6 weeks for “major changes”.
Gateway 3 requires the BSR to be satisfied that the completed works comply with the Building Regulations and that the building is safe to occupy. Full as-built drawings require to be submitted with the application. BSR approval must be obtained before registering and occupying a higher-risk building. Gateway 3 carries an 8 week approval period.
For a much more detailed review of the new gateway and approvals process, please see our earlier Law-Now here.
It is early days but while the BSR builds up its capacity and develops its operational functions, there have been many reported delays in processing of applications. The BSR itself has recently confirmed that the average period for Gateway 2 is 22 weeks, almost double the intended target. Some of the delay has been driven by the volume of applications, but much also by a large number of applications being incomplete or failing to demonstrate full compliance with building regulations leading to these being rejected. However, meantime, this leaves a real risk for projects of delays associated with the gateway process.
Practical Considerations in Agreements
Programme and Risk Allocation: Remedial work agreements should reflect the gateways in the programme and include provision for which party is to bear the time and cost risk of BSR delay. This would include provisions for extending target completion dates or longstop provisions due to BSR delay (which, as noted above, is likely) and reaching agreement on costs incurred as a result. There is not yet a market position on the risk allocation so each case will be negotiated on a bespoke basis.
Variations and Delays: If there is a variation which triggers a further Gateway 2 process, parties will need to include a mechanism related to any delay and cost arising as a result.
Access windows: Consideration is required for how delays will impact access windows, especially when, as is likely, the work is to an operational or occupied building. This includes restrictions on working hours or days, the use of decant facilities to facilitate access or where access is being taken in a holiday period.
Practical Completion Requirements: These should be set out, including whether the Gateway 3 regime is a prerequisite for completion or if it is to be treated separately. At the least, the provision of as built information is likely to feature as a requirement. The BSA and its secondary legislation introduced the concept of the golden thread of information: information describing the building and how it complies with building regulations. Whilst this information is required to satisfy the BSR, even where remedial works are on buildings not described as “high risk”, it would be prudent to adopt the same concept providing an audit trail of the remedial works undertaken as the direction of travel is towards more stringent requirement and evidence of compliance will be valuable.
Occupancy and Financial Implications: Building owners need to consider the potential for at least a 12 week period after work is completed before the building can be occupied. This has implications for occupiers being allowed to use the building and on financial claims such as loss of profit, loss of income during the period of the works or compensation payments to occupiers.
Contractual Guidance
For pre-existing agreements, if they are silent on the position of BSR delay, there is some guidance in the standard form contracts if these have been used as a basis for work being undertaken.
In JCT contracts, variations are Relevant Events and Relevant Matters so if a variation is instructed which triggers a re-run of the Gateway 2 process then relief for delay to the completion date and loss and expense is a possibility although that would not necessarily flow through to extension of any bespoke longstop provision.
If the BSR was considered to be a Statutory Undertaker (executing work in pursuance of its statutory obligations) then there may be other routes. Impediment, prevention or default by an Employer’s Person (which includes a Statutory Undertaker) is also both a Relevant Event and Relevant Matter. There is a further Relevant Event (but not Matter) for a Statutory Undertaker carrying out, or failure to carry out, work in pursuance of its statutory obligations in relation to the Works.
In NEC4 contracts, it is a compensation event triggering entitlement to a change to the Prices and a change to the Completion Date if the Project Manager gives an instruction changing the Scope. There is the same relief for “Others” not working within times shown on the Accepted Programme. Others are people or organisations who are not the Client, Project Manager, Supervisor, Adjudicator or member of Dispute Board, Contractor (or employees), Subcontractor or supplier so could include the BSR. Relief on this ground would require the Accepted Programme to include activities or milestones related to BSR approvals.
NEC4 also allows for events which are Client’s liability to be compensation events. That would require the definition of what is Client’s liability to be extended to include BSR related delay.
Remedial scope and standards
Decisions need to be made regarding the scope of remedial work. Ordinarily, the remedy for breach of contract would be for the party in breach to put the other party in the position it would have been in had it not been for the breach. When carrying out remedial work, that would often be regarded as undertaking work so that it complies with the contract.
However, with latent defect cases, including many of the fire safety claims, the issue is arising many years after completion.
Property owners increasingly have fire rating of buildings high on their checklists when considering both safety of occupants and value of the property now and into the future. Looking forward, the direction of travel is towards stringent standards being applied and potentially to a wider range of properties.
The above may lead building owners to decide to remediate to a higher (or updated) standard than that mandated in the original contract which is likely to lead to discussions around what cost is to be borne by the original contractor and design team and whether any contribution towards the “betterment” is to be made by the owner, especially if the only way to remediate is to do so to modern standards.
A further difficult issue is that under the BSA, there are a number of parties who could potentially have a claim against a project team. Difficulties can arise where contractors reach agreement over the scope of remedial works with a developer but not with leaseholders or funders who may take a different view and raise their own separate claims under the DPA or via a Remedial Contribution Order. In order to address this risk, contractors are seeking indemnities from developers in order to protect themselves from further claims.
Future considerations
The Grenfell Phase 2 Inquiry report included recommendations which, if implemented, could impact the Gateway regime and the categories of buildings this applies to. For a detailed review of the report and its implications, please see our earlier Law-Now here.
The report includes a recommendation that a fire safety strategy produced by a registered fire engineer be submitted with applications at Gateway 2 for the construction or refurbishment of any higher-risk building and for it to be reviewed and re-submitted at completion (Gateway 3). The strategy should take into account the needs of vulnerable people, including the additional time they may require to leave the building or reach a place of safety within it and any additional facilities necessary to ensure their safety.
The Inquiry also considered that defining a building as “higher risk” by reference only to its height is not satisfactory. It was suggested that it is more relevant to consider how the building is used and, in particular, the likely presence of vulnerable people, for whom evacuation in the event of a fire or other emergency would be likely to present difficulty. The Inquiry recommended that the definition of a higher-risk building for the purposes of the Building Safety Act be reviewed urgently with this in mind. That clearly points to the potential for a much broader category of buildings falling within the higher risk regime.
Whilst parties will be keen to make progress on remediating buildings, it is important to consider the above points and identify how these issues should be addressed.
