Practical issues for signatories of the building safety developer remediation contract

Careful consideration of existing contractual claims will also need to be considered in the context of the new contractual obligations, while thought will also need to be given to compliance with the Building Safety Act’s ‘golden thread’ principles in respect of information about remediation works.

Developers that have signed the developer remediation contract will also want to consider whether they might recoup costs of remediation from suppliers given the significant costs that are likely to be associated with the works.

What is the developer remediation contract?

The developer remediation contract converts an industry pledge to address historic failings in building safety post-Grenfell, which 49 developers committed to in 2022, into a legally binding agreement.

On 30 January this year, the UK government wrote to developers requiring them to sign the contract, committing to remediate unsafe buildings which they developed going back 30 years. The government’s deadline for signature was 13 March – 39 developers signed the contract ahead of that date. 

The contract covers residential and mixed-use buildings with a height of 11 meters and above that were developed or refurbished in the 30 years prior to 5 April 2022. It also covers buildings developed as part of joint venture (JV) arrangements, with proportionate contributions where JV interests are less than 50%. The contract has wide ranging implications for developers and is drafted in favour of the government and, in turn, building owners and leaseholders.

What are developers’ obligations under the developer remediation contract? 

The central obligations on developers for buildings falling within scope of the contract include:

• to undertake investigations to identify life-critical fire-safety defects – this includes defects affecting the external walls/cladding and also internal fire safety issues such as fire stopping/compartmentation;
• developers are expected to obtain PAS 9980 assessments for external walls. The focus of PAS 9980 is risk and safety rather than compliance;
• for internal building assessments, no single standard is identified and developers are expected to undertake fire-safety risk assessments in accordance with all relevant laws and industry standards;
• developers are required undertake, procure or fund the necessary remediation works;
• they are expected to pay for costs associated with arranging access, decanting residents, alternative accommodation and professional advisers appointed by ‘responsible entities’;
• developers will not have to bear the costs of interim safety measures such as waking watch or alarm upgrades, nor increased insurance premiums or leaseholder compensation;
• following completion of remediation works, a further fire-safety risk assessment is required to demonstrate that any risks are now tolerable;
• for buildings in the Building Safety Fund (BSF) or other government funds, developers are required to either transfer buildings out and take control of investigating/remediating them – subject to committing to prescribed timescales – or to reimburse the government for any costs paid out. There is very limited scope to audit or challenge any costs paid out by the government;
• ·on timescales, target dates for investigation and remediation have to be set out in the data reports provided to government. Developers are expected to achieve those timescales save in limited circumstances.
• there are onerous reporting and auditing obligations, with the ability for the government to audit developers’ data reports every six months and to obtain further information on matters including programme overruns exceeding three months, corporate information and details relating to performance of the contract.

Practical issues arising from the developer remediation contract

There are several practical concerns for developers arising from the contract.

How to prioritise

Whilst building owners or leaseholders will understandably want their buildings to be remediated as soon as possible, financial and resource constraints will dictate that all buildings cannot be remediated straight away. For BSF buildings there is limited scope for movement on defined timescales, but for others there may be more scope for developers to agree a process and rationale for prioritisation with the government.

Funding

Developers are required to remediate buildings irrespective of whether they can recover the costs from the supply chain. They will need to find the money to do so because the future of their business depends on it. Additional financing may need to be considered, and this will also need to be factored into the remediation timeline. SME developers are likely to be affected most. 

Resources

Additional resources, with appropriate skills and experience, will be required to deliver the obligations in the contract, particularly for larger developers with a number of buildings in scope. Developers will need to decide on a case-by-case basis, with input from responsible entities, whether to fund remediation works – with less oversight and potentially higher cost – or deliver themselves – increased resources needed for project delivery teams but more scope for cost mitigation. Availability of fire engineers or fire safety assessors with appropriate experience to undertake the necessary fire safety assessments to a consistent standard will likely be an issue.

Infrastructure and management systems

The reporting and audit obligations to the government are onerous and developers will need to ensure they have the resources and systems in place to discharge those obligations. 

Interaction with the Building Safety Act and contractual claims

Developers may already be facing claims from building owners for buildings covered by the pledge, whether under the Defective Premises Act (DPA) or contractual arrangements. There is the potential for different standards of remediation to apply to remedy breaches of contract as would apply to achieve the PAS 9980 standard. This will need considering particularly for projects where proportionate solutions are being considered such as installation of alarms/sprinkler systems.

In relation to waking watch costs, whilst developers are not liable to pay these under the contract, they may be liable to do so under contractual or DPA claims in light of the ruling last year by the High Court in London in the case of Martlet Homes Ltd v Mulalley & Co Limited. Developers will also need to consider compliance with the Building Safety Act more broadly, for example with golden thread principles in respect of information about remediation works.

Recovery

Developers will need to prioritise recovery action against the supply chain in order to recoup costs of undertaking remediation works under the contract. Involvement of original contracting parties in remediation works may help mitigate costs. There is nevertheless likely to be a shortfall between costs and recovery in light of issues around limitation, liability caps, insurance and parties no longer trading. Costs and resources of pursuing recovery action will also be a concern.

Looking beyond the contract

A list of the developers that have not yet signed has been published. The consequences for developers that do not sign look set to include being banned from future developments. The legislative framework for this is not yet in place, but the government has indicated that this will be achieved through a responsible actors scheme that will be brought into law under Sections 126-129 of the Building Safety Act 2022.

The developer remediation contract will have an impact on other parties. There is likely to be an increase in claims against designers, contractors and potentially also manufacturers, as developers look to the supply chain to recover a contribution to the costs that they have committed to under the Contract.

Pinsent Masons is hosting its next webinar on building safety on 22 March 2023. The topic of the event is competence and culture change in the built environment. Registration for the event remains open.