Consultant solicitor, Zahrah Aullybocus, outlines the protections offered by the new Building Safety Act 2022.
She also explains a key flaw in the Building Safety Act 2022 (BSA 2022) which could cause problems for a number of shared owners.
The Building Safety Act 2022 (BSA 2022) is extremely complex. Consequently, this article simply outlines a few key issues for shared owners. If you are undertaking a transaction please seek advice relating to your own individual circumstances from your own solicitor.
What is the Building Safety Act 2022, and what do shared owners need to know?
The Building Safety Act 2022 (BSA 2022) came about as a response to the consequences of the Grenfell Tower fire on 14 June 2017 which, tragically, killed 72 people. The fire focused public and government attention on building safety. But many leaseholders subsequently found themselves facing huge bills for the costs of making their homes safe.
Shared owners often purchased their homes on the understanding that shared ownership is ‘affordable’ housing. However, prior to the BSA 2022, shared owners in affected buildings discovered that they were legally liable for 100% of the costs of building remediation (and related costs including waking watch and massively hiked insurance bills) regardless of the size of their equity share (perhaps as low as 25%). In many cases, such costs were decidedly unaffordable.
The intention of the BSA 2022 is to offer new financial protections to leaseholders in respect of remediation works required to make the building safe. This only applies in England; properties in Wales still await legislation from the Welsh Parliament.
“The government is committed to protecting innocent leaseholders from the unfair burden of remediation costs to make their home safe, and Parliament has passed a law to give this effect.”Guidance – Building safety leaseholder protections: guidance for leaseholders
Unfortunately, the Act contains lots of flaws which could cause problems for the people it is intended to help, including shared owners.
What financial protections does the Building Safety Act 2022 provide?
Since 2017, it has become evident that cladding is not the only factor that could make a building unsafe. Consequently, there are two different aspects to the BSA 2022 protections:
- they protect qualifying leaseholders from all cladding system remediation costs
- they cap costs of non-cladding work and interim measures (including waking watch, but not buildings insurance), and spread those costs over 10 years
These protections apply to all leasehold flats, not just shared ownership. But, for shared owners, the cap is proportionate to their equity stake in the property.
The cap in most cases is £10,000 outside of London and £15,000 in London. But, say, a shared owner had a 50% share in a flat in London, their costs would be capped at £7,500.
Does everyone benefit from the new protections?
Unfortunately, it’s not that simple. Leaseholders, including shared owners, have to meet two criteria:
- relevant building
- qualifying leaseholder
Your flat is in a ‘relevant building’ if it forms a self-contained building, or self-contained part of a building, in England that contains at least two dwellings AND:
- is at least 11 metres high, or
- has at least 5 storeys
‘Relevant building’ does NOT include buildings where:
- the tenants have exercised their rights to acquire the freehold of the building
- the leaseholder also owns part of the freehold (including through a company where there is no separate freeholder);
- a ‘commonhold’ legal structure has been set up
But these three exclusions are unlikely to apply to shared ownership leases. So – assuming the first set of criteria are met – a shared ownership lease would qualify under the qualifying building criteria.
To show you are a qualifying leaseholder your solicitor will need to establish that:
- your lease is a long lease (i.e. more than 21 years in the number of years originally granted) for a single dwelling within a ‘relevant building’ (see above).
- you pay a service charge
- the lease was granted before the 14 February 2022, AND
- on 14 February 2022, the dwelling was your only or main home (meaning it was the home where you spent most of your time, or you did not own more than 3 dwellings in the United Kingdom in total)
So, what is the flaw in the BSA 2022 which could cause problems for shared owners?
Due to the way the Act has been drafted – if you carry out a lease extension now you could lose the ‘leaseholder protections’ provided under the BSA 2022.
As mentioned above, in order to qualify for protection from costs, your lease must have been granted BEFORE 14 February 2022. However, the way a lease extension works is that the existing lease is ‘surrendered’ and a new lease is ‘granted’. Although the document may refer to the older lease, in technical terms your new lease would not have existed on 14 February 2022 thereby automatically disqualifying you from the leaseholder protections.
This flaw is more likely to be relevant to shared owners, who frequently have short 99-year or 125-year leases.
To extend or not to extend?
Shared owners who extend their lease could find themselves liable for significant building safety costs as a result of losing protections under the BSA 2022.
But the longer you leave a lease extension, the more expensive it gets. Particularly if the number of years remaining on the lease drop below 80-years. If you leave it too long, you may not be able to afford lease extension at all.
In short, shared owners in a flat with building safety issues and a short lease find themselves between a rock and hard place at the present time.
Can’t I just sell my flat?
Annoyingly, the problems created by the BSA 2022 may make it more difficult for you to sell.
Sale of a flat in a building 11m/5 storeys or above now requires a Leaseholder’s Deed of Certificate and a Landlord’s Deed of Certificate. This new process will establish if your flat qualifies for the protections, and the extent of protections, available under the Building Safety Act 2022. (NB. this process is separate from EWS1. Even if you have an EWS1 the landlord still has to complete a Landlord’s Deed of Certificate).
If you extend your lease on or after 14 February 2022, and consequently lose your protections under the BSA 2022, a buyer may not be willing to pay the asking price if there is a possibility of building safety remediation costs down the line.
The BSA 2022 and mortgage lenders
If the incoming buyer needs a mortgage, their lender might require the lease to be extended in order to protect their own investment in the property. On the other hand, by undertaking lease extension prior to sale (or starting the lease extension process in order to give the buyer the right to extend) the leaseholder (current owner) will inadvertently remove the leaseholder protections.
Some lenders may be hesitant to lend where there is no leaseholder protection available, as this could result in uncapped building safety charges and a risk of the property being repossessed by the landlord if the incoming buyer is unable to pay these charges (plus the costs of lease extension, if applicable).
Whilst the government recently announced ‘guidance’ that leaseholder protections should be included as part of a lease extension, unfortunately it has not been incorporated into law. There is therefore nothing to ‘compel’ a landlord to agree to include the protections with the lease extension.
‘Leaseholders should seek legal advice to make sure explicitly in their agreements that their protections are extended as part of their lease. It was intended to work like this and freeholders should make sure that lease extensions reflect this position.‘Guidance – Qualifying date, qualifying lease and extent (GOV.UK)
Any wording included in the document is not a guarantee that the protections will be applied in the future by the landlord. We are not going to know if any such agreement(s) between the parties will be upheld by a court of law in the absence of specific provisions within the legislation that the leaseholder protections should not be lost on lease extension.
Your only option may be a cash buyer willing to take risks to buy the property, but at a lower sales price.
The BSA 2022 and solicitors
The BSA 2022 is causing havoc in the home buying and selling market. You may have your flat on the market and have a willing buyer. But professional indemnity insurers are telling many solicitors not to act until the ‘loopholes’ in the legislation have been formally resolved.
Many solicitors would not feel comfortable providing advice until the kinks in the legislation have been ironed out.
“52% of respondents said they were not currently acting on sales or purchases of leasehold properties affected by the BSA. A further 15% said they were only acting in transactions with certain lenders.”Today’s Conveyancer, 3 April 2023
Consequently, you may encounter increasing/higher fees for legal work where you are trying to buy or sell your home.
What about shared owners who would have been eligible for protections but have already extended their lease since 14 April 2022?
The Government would need to fix this issue via further legislation.
How long will it take to fix the lease extension flaw in the BSA 2022?
I don’t have an answer to this yet. I know a lot of lawyers have been contacting the Department for Levelling Up, Housing and Communities (DLUHC) as this affects ALL leaseholds, not just shared ownership.
Anyone affected by these issues may want to contact their MP to ask them to lobby for a swift resolution.
Will shared owners who suffer financial loss as a result of the lease extension flaw in the BSA 2022 be eligible for compensation and, if not, why not?
I’m not sure anyone could answer that question right now. There are a great many unanswered questions due to the legislation being so new and so complex. We may not have answers until more cases start going to court. Although. as shared owners do not often have money to litigate, it may well be a while until we see anything specific in relation to shared ownership. Do check with the solicitor who you have instructed if you have a transaction going through at the moment.
Again, people may want to contact their MP to explain the problems they are experiencing.
If shared owners have questions about whether it’s more beneficial to extend their lease or not, who can they approach for advice?
In the first instance, shared owners should discuss the issues with their own solicitor. If they haven’t appointed a solicitor yet, they could contact LEASE (The Leasehold Advisory Service) who offer free, summary legal advice.
Additional sources of information
Zahrah Aullybocus is a Consultant Solicitor with Nexa (and Shared Ownership Resources sponsor).
Mobile: 07740 775 345 | firstname.lastname@example.org
This article is the personal opinion of the author and without any liability to Nexa. Please check any concerns with the solicitor that is acting for you.
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