The Building Safety Act of 2022 (the Act), which came into force from the 1st April 2023, marks a significant milestone in the construction and real estate industries, aiming to enhance the safety and quality of higher-risk buildings in the wake of the Grenfell Tower tragedy in 2017. Following the Building a Safer Future report by Dame Judith Hackitt - which emphasises the importance of ensuring that buildings are designed, constructed and maintained with safety as a top priority – the Act was put into action. The Act intends to improve the safety measures throughout the construction process, a development positively received by the insurance industry. However, it has nonetheless also led to the emergence of subsequent insurance-related challenges.
A prominent aspect of the transformation the Act introduces involves duty holders being tasked with the responsibility of ensuring specific criteria are met at three ‘gateway’ stages, during the construction process. They are also required to guarantee that the work conforms to building regulations.
The Consumer Perspective: Pros of the Building Safety Act:
The primary objective of the Building Safety Act is to ensure that buildings are constructed, renovated and maintained with the highest standards of safety in mind. The Grenfell United campaign helped to bring the Act into force as it highlighted the need for more scrutiny in the construction of high-rise buildings and demonstrates the consumer-centred creation of the Act. As a result, consumers can have greater confidence in the structural integrity of their home, offices and public spaces. Through the introduction of rigorous inspections, certification processes and regular maintenance requirements set out by the Act, consumers can be assured that the risk of accidents, such as collapses or fires, are significantly reduced.
Moreover, the Act promotes more transparency since one of the main criticisms of the former regime was a lack of information, which in turn meant that refurbishments of a building had a tendency to take place without considerations of the original design. The Act introduces the idea of a “Golden Thread” consisting of specified information that must be maintained throughout the entire lifecycle of a higher-risk building. As a result, transparency and accountability for the construction and maintenance of a building is improved by the implementation of this Act and consumers are positively benefitting from the access of this information. If there is a failure to maintain the Golden Thread, lenders will become vulnerable and face ramifications regarding the sale of a higher-risk building, taking on the obligation of complying with the Act after a sale. Thus, any lenders funding the development of a higher-risk building will seek completion of the Golden Thread from the beginning of becoming involved with a higher-risk building.
Thus, this Act is highly beneficial from a consumer’s perspective as it holds the lenders, property owners and builders of higher-risk buildings to accountability in regards to the maintenance and safety of higher-risk buildings. This means that consumers have a stronger legal recourse if they should encounter any issues related to the safety of the building.
The Business Perspective: Negative Impact on Firms:
The enforcement of the Act has required an increased use of biometric testing through the three ‘gateways’ that need the BSR’s approval. The BSR is the building safety regulator and their role is to oversee the safety and standards of all buildings, ensuring that the construction industry improves their competence. These three gateways introduce additional layers of bureaucracy, which can be burdensome for firms and navigating the regulatory landscape becomes more complex, consuming time and resources.
Gateway One, which came into effect in August 2021, is in regards the planning aspect of higher-risk buildings and stresses the requirement for a fire statement to be sent in for approval to the planning authority; Gateway Two and Gateway Three aim to come into force by October 2023 and these require the BSR to confirm the planning of higher-risk buildings, in regards to the design and construction, and also requires the developer to submit as-built information to the BSR.
These three gateways are not only time consuming, but they also create potential liability for everyone in the manufacturing process. Significantly, under the new Act, anyone with a stake in a residential building could initiate a claim. This rule applies regardless of whether a direct contractual connection exists with the party in breach. Moreover, property covers not only claims related to personal injury or damage but also includes economic losses, such as the expenses incurred for securing alternative accommodations. This may potentially open up a fresh domain of risk exposure for insurers, involving parties who were previously thought ineligible to make claims.
The introduction of Building Liability Orders under the Act present additional challenges for firms as it makes associated or parent firms of dissolved entities equally liable. As a result, insurers may use their subrogation rights against third parties more frequently, impacting negatively on those firms' claim records. Furthermore, the increased scrutiny surrounding cladding and construction materials will inevitably impact construction professionals and their insurers.
As a result of all these stipulations, smaller firms may struggle to keep up with the compliance demands of the Act, potentially giving larger corporations a competitive advantage. In addition to this, the uncertainties surrounding the Act's implementation can make it difficult for firms to plan long-term investments, creating an uncertainty in the market and the shifting regulatory environment may lead to hesitancy in the industry. For example, Marsh, a leading insurance broker, has commented on the increased scrutiny in the Act that will, in turn, have implications for both professionals in the construction industry and their insurers.
It can therefore be demonstrated that this Act represents just the initial phase of a planned series of future changes. Subsequent to its implementation, more specialised regulatory bodies will be established, leading to the development of new regulations governing the precise obligations that duty holders must fulfil. Furthermore, the impact of the Act on the documentary and structural requirements is yet to be observed and as a result, there will be a period of change and unpredictability until an equilibrium is reached. As the industry adapts to these changes, it will be crucial to strike a balance between consumer safety and business sustainability.