The Government's Building Safety Contract – sign or have your access to market denied.

On 30 January 2023, the Department for Levelling Up and Housing Committees (DLUHC) announced that developers are being given six weeks (until 13 March 2023) to sign a legally binding contract to commit them to: "fix all life-critical fire safety issues in buildings over 11 meters which they had a role in developing or refurbishing in England".

The contract will require developers to:

• "Take responsibility for all necessary work to address life-critical fire-safety defects arising from design and construction of buildings 11 metres and over in height that they developed or refurbished over the last 30 years in England.

• Keep residents in those buildings informed on progress towards meeting this commitment.

• Reimburse taxpayers for funding spent on remediating their buildings"

A copy of the contract published by the DLUHC on 30 January can be found here.

In the letter issued by the DLUHC on the same day, developers are asked to contact the DLUHC by Friday 10 February 2023 with their "timeline for deciding whether to sign the contract" and confirming "to whom execution copies" should be sent.

And if developers don’t voluntarily sign? Then the Government has said they are going to use the new powers under the Building Safety Act, to effectively force them to. This will be done by creating a "Responsible Actors Scheme" which the DLUHC say will allow the Government to block developers who have not signed up: "from commencing developments for which they have planning permission, and from receiving building control approval for construction that is underway". This being an exercise of the powers under the Building Safety Act which came into force last year, which we discussed in our update here.

The idea of a party being given a deadline to enter into a contract, failing which their access to market will be blocked, sits uneasily with the contract law principles we are used to – namely that a party freely enters into the contractual bargain. The rhetoric of Mr Gove, does little to avail this concern:

“There will be nowhere to hide for those who fail to step up to their responsibilities – I will not hesitate to act and they will face significant consequences

There is also the wider practical impact to consider for the industry in terms of who will ultimately bear the over £2billion cost? With the chief executive of the Finishes & Interiors Sector highlighting concerns over the costs being set off through the supply chain, "opening the door to conflict".

We will have to wait and see whether the long-term reality is that the ultimate cost is being take from leaseholders and moved to the supply chain and subcontractors. For now, the key questions appear to be:

• who will sign in the next 6 weeks? Early indications are that housebuilders such as Barratt and Persimmon are carrying out a final review of the contract with a view to signing;
• Will there be any scope for developers, including those who didn’t sign up to the pledge, to negotiate the terms of the contract? The terms of the Government's public statements suggest not, but the private reality may be different with the Government's letter directs developers to contact the DLUHC's lawyers; and
• how will the Government's threat of recourse for those who refuse to sign work in practise, and will any developers seek to challenge it? A number of developers have previously threatened legal action against the Government's approach. With it being reported in February 2022, when the Government first suggested blocking access to market and before the relevant sections of the Building Safety Act came into force, that Persimmons had taken legal advice from a leading QC (as they were then) and had "been advised that it would be unlawful for the secretary of state to implement his suggested sanctions of imposing penalties on developers who decline to enter into the proposed agreement….".

We will have to wait and see what answers the next six weeks brings.

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