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24 Aug 2021

The Building Safety Bill and liability for defects

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On 5 July 2021, the Government published the draft Building Safety Bill, following much consultation. The draft bill contains three changes that will have a significant impact upon liability for defects of those involved in the construction and maintenance of residential buildings including:

  1. Extension of the limitation period applicable to claims brought under Section 1 of the Defective Premises Act 1972 (the "DPA") from 6 to 15 years;
  2. Giving the extended liability period noted above retrospective effect; and
  3. Extending the scope of application of the DPA from new buildings to existing buildings.

Whilst most developers and contractors will have heard of the DPA, its wide-ranging implications are not always appreciated. The proposed amendments to the DPA contained in the Building Safety Bill will make the ambit of the DPA even wider and all of those involved in developing and building residential properties need to be aware of the scope of the changes. 

The government has indicated that the passage through Parliament is not expected to take less than 9 months.

The current scope of application of the DPA

The DPA imposes duties in connection with the building of residential "dwellings" in England and Wales, particularly in relation to liability for injury or damage caused through defects in the premises. The provisions cannot be contracted out of.

The DPA currently applies to new dwellings, although it can include the conversion (but not repair) of existing properties where the work is so extensive that it has in fact created a new dwelling.

Section 1 of the DPA imposes a duty on all persons taking on work "in connection with the provision of a dwelling" to carry out the work in a workmanlike or professional manner, with proper materials and so that the dwelling "will be fit for habitation when completed". The DPA does not therefore cover all defects and all failures to carry out work properly, only those that render the property unfit for habitation. The standard of design and workmanship will be judged by the standards prevailing at the time the work was done.

The duty can therefore be owed by contractors, subcontractors and professionals as persons taking on work in connection with building the new dwelling. There is an important exception at section 1(2) for those that take on work in accordance with instructions given by another "on terms that he is to do it in accordance with [those] instructions", provided that the work is done properly in accordance with those instructions and save in circumstances where there is a duty to warn of any defects in the instructions and that duty is not discharged. 

The duty also be owed by developers under section 1(4)(a) as persons who in the course of business arrange for another to take on work in connection with the provision of a dwelling.

The duty is owed both to the person who instructs the works as well as to every person who acquires an interest (legal or equitable) in the dwelling, meaning that those who owe the duty can be liable to purchasers, subsequent purchasers and leaseholders with whom they have no contractual relationship. 

While the DPA does not define the meaning of what is or is not fit for habitation, the test applied by the courts is whether a dwelling is capable of occupation for a reasonable time without risk to the health or safety of and without undue inconvenience or discomfort to the occupants (see Rendlesham Estates plc v Barr Limited [2014] EWHC 3968 (TCC)). In this case the judge also held that, if a building did not comply with building regulations at the time it was built and a local authority with knowledge of its condition would therefore not have approved it as fit for occupation, then it is probably unfit for habitation. Examples of where the court has ruled that a dwelling is not fit for habitation include where a dwelling was built on an inherently unstable hillside, without some essential attribute e.g. a roof or a damp course, or without adequate foundations, where there was significant damp and where the work was not in accordance with regulations or applicable standards. It is likely that significant fire safety failings will render dwellings 'unfit for habitation'.

Claimants are usually entitled to reinstatement costs, meaning the cost of putting the defects right. It is important to note that even a defect that will not cost much to rectify can render a dwelling unfit for habitation. Claimants may also be entitled to damages for loss of enjoyment whilst the dwelling is uninhabitable. 

Proposed extension to limitation period

The current limitation period for claims under Section 1 of the DPA is 6 years from completion of the dwelling (although, if remedial work is carried out, then there is a further 6 year limitation period from completion of that work).

Due to the impact of the Grenfell Tower tragedy in June 2017 and the fact that some parties that would otherwise be liable for fire safety related defects are not liable due to the passage of time and having a limitation defence, the Building Safety Bill proposes a change to the limitation period appliable to Section 1 of the DPA, extending it from 6 to 15 years from completion of the dwelling (or completion of the remediation work, as the case may be).

This means claimants will have a significantly longer period in which to make claims. The ability to do so is not limited to any particular category of defect such as fire-safety, but to all defects provided the relevant test of being unfit for habitation is met.

Proposed retrospective application

In addition to extending the limitation period, the draft Building Safety Bill proposes that such extension applies retrospectively (as well as prospectively) to claims under Section 1 of the DPA. This means that, where a dwelling has been completed for more than 6 years but less than 15 years at the time the draft Bill becomes law, a claimant will gain the right to sue in respect of breaches of the DPA.

This is a very significant proposal, potentially giving rise to a large number of claims that would otherwise have been time barred. 

This may also present practical difficulties for contractors and developers defending such claims. For example, if such claims were previously considered out of time, a potential defendant may already have lost important personnel or documents that they may otherwise have retained. It may also make it more difficult for a defendant to pass on claims or seek contribution from other parties, for example because of the risk of insolvency after a longer period.

Further, developers and contractors may need to consider their position with regard to professional indemnity insurance, which may not cover the newly extended duration for which they may become liable for claims.

It is important to note that, where a claim is made retrospectively, the extended limitation period will not apply to claims that have already been settled or finally determined. Further, the draft Bill provides that the courts must dismiss a claim if it breaches a defendant’s human rights. The latter means that arguments based on the Human Rights Act 1998 and the European Convention on Human Rights may be raised, potentially resulting in cases being taken to the European Court of Human Rights for determination where it is alleged that a defendant's human rights have been beached.

Proposed application to work on existing buildings

Lastly, the draft Building Safety Bill proposes to extend the application of the DPA from the provision of new dwellings only to any works to any part of a building which contains one or more dwellings (although this change will be prospective).

This means that the scope of who may become liable under the DPA will extend significantly, so that it will not just include those developers and contractors who undertake work on new dwellings, but also those who work on existing dwellings such as extension, renovation or repair works.

However, the exclusions regarding a person that takes on work for another in accordance with instructions and those regarding duty to warn remain the same.

Section 38 of the Building Act 1984

It should also be noted that the explanatory notes to the Building Safety Bill propose to commence Section 38 of the Building Act 1984, which is not yet in force and imposes liability for a breach of the Building Regulations that causes damage. This will also be subject to a 15 year limitation period (applicable prospectively).

Conclusions

The draft Bill proposes to make substantial changes to the law in relation to liability for residential building defects, with very significant extensions to the relevant applicable limitation period and the fact that this change will be given retrospective effect. All those involved in works to buildings that will have reached practical completion less than 15 years prior to the Bill coming into force must be aware of such changes and take steps to understand any potential liabilities and to retain documents where applicable. It will also likely change how liabilities are managed going forwards.

Clearly the driver for the changes has been concerns regarding cladding and fire safety. Whilst the amendments will inevitably provide homeowners with enhanced protection and the possibility to pursue claims that they would not have previously been able to, claimants will still have to prove that the dwelling is unfit for habitation and the works were not carried out to the relevant standard.

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