Building safety – further details published of the Responsible Actors Scheme and prohibitions

The UK’s Department for Levelling Up, Housing & Communities (the DLUHC) has now published further details of the Responsible Actors Scheme, which will affect major residential developers of projects in England and is anticipated to take effect from summer 2023.

The details released are significant.

Background

On 30 January 2023, Michael Gove and the DLUHC issued the long-awaited final version of the Developers’ Remediation Contract (the DRC). In short, the DRC requires major residential developers of projects in England to:

1. Remediate or fund the remediation of ‘life critical’ fire safety works in buildings over 11 metres which they have developed in England in the last 30 years; and/or
2. Reimburse the Building Safety Fund (BSF) for the cost of life critical fire safety remedial works already funded.

Developers were given until 13 March 2023 to sign the DRC.

On 14 March 2023 the government issued a statement that (by that date) 39 developers had signed and 11 had not (the number changes and the government is continually updating the list) and reported that the signed DRCs will raise at least £2bn for remediation costs. Michael Gove, the Secretary of State for Levelling Up, Housing and Communities, once again threatened serious consequences for those who refuse to comply with the requirement to sign the DRC, saying: “To those developers that have failed to sign the contract without good reason, let me be very clear – we are coming after you. If you do not sign, you will not be able to operate freely in the housing market. Your investors will see that your business model is broken – only responsible developers are welcome here.” 

In the latest substantive development, the DLUHC has published further details of the Responsible Actors Scheme, which will affect major residential developers of projects in England, probably from summer this year.

Responsible Actors Scheme: key features

Guidance – main points

• Draft regulations are awaited – there is a stated intention that the regulations will take effect by early summer 2023.
• Developers that are eligible to join the scheme “will be expected to join”.
• If an eligible developer opts not to join the scheme, the Secretary of State will add them to a published list of entities to which the prohibitions set out in the regulations will be applied.
• Eligibility – developers will meet one or more of the following criteria:
  • their principal business is residential property development; they meet the ‘profits condition’; and have developed or refurbished 11m+ residential buildings in England in the last 30 years (other than solely as a contractor); and/or
  • they are a developer that meets the ‘profits condition’; and have developed or refurbished (other than solely as a contractor) multiple buildings that have been assessed as eligible for a relevant government cladding remediation scheme; and/or
  • they are a developer that developed or refurbished (other than solely as a contractor) at least one 11m+ residential building that qualifies for remediation under the terms set out in the developer remediation contract; and they volunteer to sign the contract and join the scheme.
• ‘Profits condition’ – this is set out as average annual operating profit over a three-year period (financial years ending 2017, 2018, and 2019) of £10m or higher.
• There will be conditions of membership for developers that will include:
  • they must sign the DRC;
  • they must:
    • identify 11m+ residential buildings they developed or refurbished over the past 30 years and any of those buildings known to have life-critical fire safety defects;
    • remediate and/or mitigate or pay for the remediation/mitigation of life-critical fire safety defects in those buildings;
    • reimburse government schemes for taxpayer-funded work to remediate and/or mitigate defects in those buildings;
    • meet all other obligations of the developer remediation contract, including around keeping residents and DLUHC updated on the progress of work.
  • The Secretary of State will invite those eligible to join, and those not invited can apply to have eligibility assessed.
  • Prohibited persons will be prohibited from carrying out major development in England. Major development will include: schemes providing ten or more residential units, residential schemes on a site at least 0.5 hectares in size, commercial development creating at least 1,000 square metres of floorspace, and development on a site over one hectare in size.

Next steps

The construction industry now awaits sight of the draft regulations that will bring these provisions into force. The consequences for those eligible developers that refuse to sign the DRCs cannot be overstated as the details released state that the prohibitions will apply to major commercial as well as residential developments.

For contractors, construction professionals and their insurers, the new regulations will also be of great significance as developers will undoubtedly seek to pass their building safety liabilities down the contractual chain.

Contributed by Bryn Hodges, partner, Alexander Oldershaw, legal director, Cathy Moore, knowledge lawyer, at Clyde & Co LLP