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The BSA – Faulty Workmanship?

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22nd June 2023

Piers Harrison looks at the BSA: some things that definitely don’t work, some that seem not to work and others which have odd consequences

The BSA 2022 and associated legislation has been drafted at speed; and it shows. This article examines mistakes in the drafting, including those which have already been fixed and those which have not. Why go over old mistakes? It is illuminating to highlight mistakes which have already been fixed because it reveals deficiencies in the drafting, which suggest that one should be cautious in taking the legislation at face value and assuming it does that which the explanatory notes suggest that it does.

In particular the Building Safety (Leaseholder Protections) (England) Regulations 2022/711 (“2022/711 Regs”) contain a host of errors, some of which have been recognised and corrected and others which have not.

Landlord Certificate mismatch between Regulations and Prescribed Form

Regulation 6 sets out the information (including details of the landlord’s net worth) which should be included in a certificate provided to the tenants known as the Landlord’s certificate. This is in the context of Part 5 of the Act and protection of leaseholders in relation to the costs of remediating relevant defects. This certificate will also have details of the group structure of all the landlords at the relevant building, dates of when the building was built, converted or had works carried out on it, the cost of any remediation works, how much the tenant has already contributed to those works, and the maximum amount for which the tenant might still be liable.

Regulation 6(2)(a) provides that the landlord’s certificate must be in the form set out in Schedule 1 to the 2022/711 Regs. In several ways the information required by the certificate differs from that required by the Regulations. and there are a variety of transposition errors. For example:

• The prescribed form refers to documents which are “required under Regulation 6”. It refers to an “organogram or other form of information showing the landlord group companies and related details (para (5)(a)”. There is no such paragraph in Regulation 6, nor is there reference to an organogram. Rather there is a requirement at Reg.6(3) where the landlord is part of a landlord group to give “details of the corporate structure of the group, setting out—
  • (i) the companies which make up the landlord group,
  • (ii) the beneficial owner of each company in the group, and
  • (iii) if the beneficial owner of the group or any company comprised in the group is, or includes, a trust foundation or arrangement of a similar character, details of the trust and the trustees.
• The worry here is not only that the prescribed form gives the wrong cross-reference and refers to an organogram not required by the Regulations, but that the provision of an organogram alone, would not comply with Reg.6(3) and nowhere else does the prescribed form require this information to be set out. So that a person who diligently fills out the form may not actually discharge their obligations under the Regulations.
• 6 itself seems internally inconsistent. For example, Reg.6(2) provides that the certificate must contain “the information referred to in paragraph (3)” and “be accompanied by the evidence set out in paragraph (4)”, but paragraph (3) (which does deal with information) starts “The evidence is . . .” (rather than “the information required is . . .”).
• There is a wealth of other information required by Reg.6(2) which is not explicitly referred to in the prescribed form. For example, Reg.6(3) requires that the landlord’s certificate should include “details of the type of trust if any, the law to which it is subject and where it is tax resident”, but there is no relevant box for this information in the form. In fact, the form seems only concerned with the evidence required by Reg.6(4) (provision of evidence) and not at all concerned with ensuring compliance with Reg.6(3) (provision of information). The impression given is that an earlier draft of the Regulations required only provision of evidence, a later draft then required the provision of information in addition to evidence, and the prescribed form was not updated to refer to the provision of information. Certainly, the prescribed form seems to respond to an earlier draft of the Regulations, hence the litany of cross-reference errors.
• By way of another example Reg.6(3)(b) requires the certificate to state: “the names of all the directors of each company in that group and directors of each corporate trustee, including in each case nominee and shadow directors or any person occupying the position of director by whatever name called”, but there is no similar requirement in the prescribed form.
• Regulation 5(3)(b) provides that a copy of the accounts (required to ascertain total assets”, “total liabilities” and “intangible assets” of the relevant landlord and landlord group) must be provided to the leaseholder “under regulation 6(5)(b)” – but there is no such regulation. The intended reference is presumably Reg.6(4)(a), which does require the provision of such accounts.
• This error is repeated in the prescribed form which refers to “company accounts for each company in the landlord group (para (5)(b))”.
• All of the other cross-references in the prescribed form are wrong. See below:
  • In relation to the provision of a statement from a chartered accountant or finance director the reference is to para(5)(c), but it ought to be to Reg.6(4)(b).
  • In relation to confirmation of the identity of any person who undertook work to remedy defects the reference is to para 5(d)(i), but it ought to be to Reg.6(4)(d).
  • In relation to evidence of any relevant defects and remedial works the reference is to para 5(e), but it ought to be to Reg.6(4)(e).
  • In relation to evidence of any costs paid in relation to remedial works the reference is to para 5(f), but it ought to be to Reg.6(4)(f).
  • In relation to superior landlords the reference is to Reg. 7 para 1 and para 2, but there are no such paragraphs and the reference is probably intended to be to Reg. 7(a) and (b).

There is no box in the prescribed form to provide additional information required by the Regulations but not mentioned in the form and the form gives the impression that simply answering the questions it poses will suffice. There is a heading: “IMPORTANT NOTE”. After that heading the form states: “Answers to the questions below are needed to confirm whether or not any of the relevant landlords under the lease are responsible for historic safety defects under the Building Safety Act 2022”. It goes on to warn that failure to complete the certificate will result in the landlord “being held responsible for all historical safety defects under the lease”.

The Regulation giving effect to the sanction in that warning is Reg.6(7) which starts as follows:

“(7) If any person who is a relevant landlord under paragraph 2(4) of Schedule 8 to the Act does not provide a certificate which complies with this regulation in the form outlined in Schedule 2 to the leaseholder . . .”

Two things are worth noting about this provision. First, it is non-compliance with Reg.6 “in the form outlined in Schedule 2” which triggers the sanction. So it may be that compliance with the prescribed form is sufficient, even if Reg.6 is not fully complied with. The second thing to note is that the prescribed form is in Schedule 1, not Schedule 2 (which concerns uprating values for the purposes of determination of the value of a qualifying lease pursuant to Reg.9 and is irrelevant to the certificate). So this provision contains a yet further error.

If it was intended that compliance with the form would be sufficient, it raises the question why Reg.6 requires further information not referenced in the form and whether there is any consequence in failing to provide that information.

All the above is compounded by the fact that the prescribed form contains a warning that “failing to disclose information required may be a criminal offence under section 2 or 3 of the Fraud Act 2006. Presumably, a person would not be prosecuted for providing the information required by the form but failing to provide the information required by Reg.6(3). It is unsatisfactory that a person who fills out the prescribed form may inadvertently fail to comply with the Regulations, since the evident purpose of a prescribed form is to ensure compliance with the underlying obligations.

Parent and Sister Companies

This error should be under the category of things that definitely didn’t work because it has been fixed. Schedule 8 introduces limits to the recovery of service charges for relevant defects. Under paragraph 3 of Schedule 8, no service charge will be payable under a qualifying lease in respect of a relevant measure relating to a relevant defect where the landlord meets a defined “contribution condition”, based on a calculation of the landlord group’s net worth. “Landlord group” was defined in paragraph 3(4)(a) as “the relevant landlord and any person associated with the relevant landlord”. As originally drafted it unintentionally excluded associated companies.

The primary legislation (s.121) defined associated persons but for the purposes of Schedule 8 this primary definition was amended by the 2022/711 Regs. Regulation 3 modified the reference in paragraph 3(4)(a) of Schedule 8 to the Act to a person associated with the relevant landlord by carving out from the associated person definition someone who would only be associated by virtue of the following:

• section 121(4) (which provides that a body corporate is associated with any person who was a director of the body corporate at any time in the relevant period);
• 121(5) (which provides that a body corporate is associated with another body corporate if (a) at any time in the relevant period a person was a director of both of them, or (b) at the qualifying time, one of them controlled the other or a third body corporate controlled by both of them); or
• section 121(6)(a) (which provides that a body corporate (X) controls a company (Y) if X possesses or is entitled to acquire at least half of the issued share capital of Y).

Regulation 2 Building Safety (Leaseholder Protections) (England) (Amendment) Regulations 2023/126 amended regulation 3 of the 2022/711 Regs by removing two of the modifications so that a person would be associated with the relevant landlord for the purposes of paragraph 3 in the circumstances set out in section 121(5)(b) and section 121(6)(a).

The 2022/711 Regs as amended retain the exclusion for directors and companies merely associated by reason of having a common director. They will not comprise part of the “landlord group” for the net worth calculation. On the other hand, it is now clear that the landlord group will include parent and sister companies. One presumes that this was always the intention and that the exclusion of parent and sister companies resulted from a mistaken cross-reference in paragraph 3 of the 2022/711 Regs.

This mistake was the subject of a motion to regret laid by Baroness Pinnock in the House of Lords on 21^st March 2023, in which she stated that the Department for Levelling Up “was made aware—and only made aware—when a leaseholder contacted the department”. Well done to that leaseholder!

This was not the only mistake in the 2022/711 Regs. Regulation 5 which deals with the determination of the net worth of the landlord group as originally drafted referred back to paragraph 4, which was inapt. This was corrected by the use of a correction slip so that the reference should be read as a reference to paragraph 5. Correction slips are used to correct small scale errors which do not affect the substantive meaning.

Relevant Building – Leaseholder Owned

Section 117 has the primary definition of “relevant building”. It includes a self-contained building, or self-contained part of a building, in England that contains at least two dwellings and (a) is at least 11 metres high, or (b) has at least 5 storeys. But there is an exception “if the freehold estate in the building or part of the building is leaseholder owned (within the meaning of regulations made by the Secretary of State)” (s.117(3)(c)). The relevant subordinate legislation is Reg.2 of the 2022/711 Regs:

“For the purposes of section 117(3)(c) of the Act the freehold estate in the building or part of the building is leaseholder owned where-

(a)  the freehold estate is solely owned by tenants in the building, whether through a corporate structure or otherwise; and

(b)  paragraphs (a), (b) and (d) of section 117(3) of the Act do not apply in relation to the building.”

So, the building is exempt where “the freehold estate is solely owned by tenants in the building, whether through a corporate structure or otherwise”. This is not a case of a clear mistake in the drafting, but it does produce odd, presumably unintended, results. First, because there is no requirement for ownership to be by a majority of tenants. Take a block where the registered proprietor of the freehold is a company and where the only shareholder is a person, who also holds a long lease of a flat, or leases of several flats, in the block. Most people would regard that as a landlord owned building, but on the basis that “tenants” can be read as “tenant” pursuant to the Interpretation Act 1978 where the landlord retains a single flat, the freehold estate is owned by a tenant through a corporate structure and it is therefore a leaseholder owned building for the purposes of the BSA 2022.

On the other hand an identical mansion block where the freehold is owned by a company in which most of the flat lessees have a share, but where one or more shares are also owned by ex-lessees (a not uncommon oversight) or a management company, the building would not be a leaseholder owned, because it is not solely owned by tenants.

Interaction with the 1993 Act

Part 5 of the Act gives certain protections, such as protection from service charge costs related to the cost of remedying certain defects, to “qualifying tenants”. The definition of the latter requires that “the lease was granted before 14 February 2022”.

As many other commentators have pointed out this this definition will inadvertently exclude leases which have been extended after 14 February 2022, because extension takes place by way of surrender and regrant (see for instance Andrew Butler KC ).

The latest government guidance updated on 21 April 2023 states as follows:

“If you are a qualifying leaseholder and you extend or vary your lease, you may surrender your existing lease and be granted a new lease. As the new lease will not have been granted before 14 February 2022, the statutory leaseholder protections in the Building Safety Act 2022 will not apply. We are looking to legislate to resolve this issue as soon as Parliamentary time allows.”

It is to be hoped that Parliamentary time might also permit the government to look at some other infelicities in the drafting, particularly in relation to landlord’s certificates which are well known to be causing difficulties for practitioners.

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