The Building Safety Bill: Charges to leaseholders

Although the Government is providing funding to landlords to reimburse costs for replacement cladding works, charging for other fire safety works (particularly waking watch) has raised a number of questions and challenges for landlords.

In this latest e-briefing on our series about the Building Safety Bill (the “Bill”), we outline the proposed provisions regarding charging residents for building safety costs.

The Bill will introduce new provisions, Sections 17A to 17X, into the Landlord and Tenant Act 1985 (the “1985 Act”). Readers will probably be familiar with Sections 18 to 30 of the 1985 Act which set out the legal framework for variable service charges. The Bill sets out detailed provisions, but also provides for the Secretary of State to introduce Regulations which will set out additional obligations and detail in the future.

The key features of Sections 17A to 17X are:

• The charges will be referred to as “building safety charges” and will cover the accountable person’s building safety costs. “Building safety costs” are defined as the costs or estimated costs incurred or to be incurred by, or on behalf of, an accountable person for a higher-risk building in connection with the person carrying out prescribed building safety measures that will be required under the Act.
• They apply to:
  • “higher risk buildings” (as set out in the previous e-briefing in this series - ‘The Building Safety Bill: Duty holders’), this term is yet to be defined but is expected to include residential buildings of 18m or more in height, or over six storeys, or student accommodation. The previous ebriefing also explains who the accountable person will be.
  • “long leases” over 21 years, including shared ownership leases.
• If leases do not include provisions that impose an obligation on the landlord to carry out the necessary works, a right of access for those works and/or an obligation on the leaseholder to pay for those works, these provisions will be implied into the lease. Landlords can make demands every 3 months and leaseholders will have an obligation to pay within 28 days of the landlord’s demand for payment. The provisions in the lease regarding apportionment of service charge costs will also apply to the building safety charges: if none, an application can be made to the First-tier Tribunal (Property Chamber) for determination.
• Building safety charges will operate separately from variable service charges and are excluded from the definition of variable service charges. However, many elements of that regime are repeated within these new Sections:
  • The charges, the costs, and the works undertaken must be reasonable.
  • The accountable person will have to undertake consultation (inevitably to be called “Section 17K consultation") when entering a qualifying long-term agreement or undertaking qualifying works. The Bill provides for Regulations to be passed here: these will no doubt mirror the Section 20 consultation process, but perhaps provide an opportunity to review the threshold amounts in both cases (which has been discussed for Section 20 for a number of years), and hopefully better reflect modern procurement practices. The accountable person can apply for dispensation from the requirements.
  • The 18-month rule: costs must be charged to leaseholders within 18 months of been incurred, except in cases where they have been served with notice about the amount to be charged.
  • Service of a summary of tenants' rights and obligations with demands for payment.
• The two regimes will differ in the following ways:
  • The Section 17K consultation requirements will not apply in urgent cases: this is an exemption and will not require an application and order for dispensation in such circumstances. However, landlords (or the accountable person if different) will have to provide an exemption notice: there will be a prescribed form of notice published in due course.
  • Landlords (or the accountable person) must provide budget and accounting period information to leaseholders. Failure to do so gives leaseholders a right to withhold payments.
  • There must be a reconciliation of actual versus estimated amounts within 28 days of the end of the accounting period. This is a much tighter timeframe than the 6-month period landlords operate generally operate for service charges.
  • The charges must be held in a designated account (or accounts) and on trust for the building safety works. Leaseholders have a right of inspection of the account information. The Bill does not exclude registered providers from the need to operate designated accounts in the same way it does for service charges.
• Landlords will have to take reasonable steps to take any available financial support available for these works and not be able to charge residents for costs covered by such financial support. Although the principle of no double-recovery of costs (i.e. by not charging leaseholders where grant funding has been received) has been established in service charge case law, the provisions impose a new mandatory obligation on landlords to apply for any funding support available.
• There is also a new obligation of co-operation where there are multiple parties involved in the building and delivering these services: this helpfully recognises more complicated developments that can involve intermediate leases and/or managing agents.
• The First-tier Tribunal (Property Chamber) will have jurisdiction to determine applications about who has to pay building safety charges, the amounts, the date of payment and the manner in which it is payable. The County Court will have jurisdiction about the new implied obligations.

Although these proposals are likely to be tweaked and supplemented by the detail in the Regulations that will follow, landlords should start to consider how they set up their systems and processes ready for this new type of charge that will sit alongside service charges.

For more information

Our fire safety experts are experienced in advising social housing providers on building safety issues. We also provide training for social housing providers regarding building safety issues. If you have any questions in relation to this series of e-briefings, or would like to find out more about our bespoke training programme, please contact Kieran Binnie. For housing management or leasehold charging queries please contact Emma Hardman.

This is the third in a series of ebriefings on this topic. The full list can be found below:

• Prioritising building safety: The Building Safety Bill
• The Building Safety Bill: Duty holders
• The Building Safety Bill: Charges to leaseholders
• Prioritising building safety: The Fire Safety Bill
• The Building Safety Bill: The golden thread of information
• The Building Safety Bill: The golden thread of information - part 2
• Fire safety changes to the building regulations now in force