The developer remediation contract is full of confusion | Boodle Hatfield

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01 Jun 2023

The developer remediation contract is full of confusion

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Almost 50 developers have committed to fire safety remediation works under this government scheme, but clarity is severely lacking.

Cladding and fire safety remediation cases have taken one step forward and potentially two steps back with the developer remediation contract (DRC). It held great potential to clarify obligations involved in addressing the building safety crisis, but has instead fallen short, bringing further confusion and uncertainty to an already cloudy situation.

Forty-nine developers pledged last year to commit to remediate life-critical fire safety works in buildings over 11m high on which they had played a role in developing or refurbishing over the last 30 years in England. Last summer the government produced a draft DRC for the developers to sign, committing themselves to the government scheme. This DRC has now been heavily negotiated and as of 2 May 2023 47 developers have signed up to it.

Within reason?

The negotiated form of the DRC which was published in January 2023 contains an arguably unreasonably excessive use of the term “reasonable”. For example, what are to be considered “reasonable endeavours”, within a “reasonable time” or “as soon as reasonably practicable” are now interpreted very broadly to allow for an expanded list of potentially delay-inducing factors such as the availability of suitable experienced, qualified, independent and competent fire risk assessors and the worryingly undefined level of life-critical fire safety risk.

Many buildings, having initially been assessed under the Consolidated Advice Note and issued with unsatisfactory EWS1 forms, have now been reassessed under the more proportionate PAS9980 system. In many cases this has produced differing results: for some buildings considered to require remediation under the first set of tests, the second set of tests has questioned this outcome.

Many managing agents and landlords are understandably confused by which fire risk assessment result applies, and whether in fact their building requires remediation at all. The DRC does little to alleviate this confusion and instead opens the door for the developers to reassess the buildings once again, but only “as early as reasonably practicable”. Many leaseholders, who have already had their lives put on hold, now potentially face a further wait as developers seek under-resourced fire engineers to carry out a further and supposedly definitive test.

The negotiations on the DRC significantly lessened the obligations on developers in scenarios where buildings are in the grey area and landlords and managing agents are unclear as to whether remediation is required or not. The DRC does not guarantee that all works initially identified as required will be carried out voluntarily, swiftly or even at all. In addition, while buildings await clarification as to whether remediation is required, insurance premiums continue to increase.

Are freeholders’ hands tied?

Under the previous Building Safety Fund scheme, the freeholder and the government entered into a contract, with the government promising to provide funding and the freeholder promised to use the funds to repair the defects. The freeholder is not a party to the DRC – that is made between the government and the developer. What loss the government would suffer should a developer not correct defects in one of its buildings is yet to be seen.

So, what right does the freeholder have to enforce against the developer? Under the DRC certain freeholders and leaseholders affected have no right of recourse against the developers and remain stuck in potentially dangerous buildings with little chance of forcing the developers’ hand should they drag their feet. Lengthy and costly litigation under the revisions to the Defective Premises Act is a possibility but not a terribly palatable one.

Where does the buck stop?

The DRC contains provision for developers to enter into written works contracts with the “responsible entity” for the building. The responsible entity is defined as the owner of a superior leasehold or a freehold interest and can also include a management company or the person appointed to manage the building for and on behalf of such owner. In reality, confusion is rife as to who is responsible for pinning down the developer – the hot potato being thrown from freeholder to managing agent to board of directors is often adding yet further delay and increased frustration for affected leaseholders.

Once the responsible entity is identified and takes the reins, the DRC allows for a list of provisions for incorporation into the works contract to be entered into with the developer. These allow for elements such as dispute resolution, right of access to carry out the works and provision of third-party rights in favour of the government. However, once again, the developers are only under a reasonable endeavours obligation to enter into such works contracts – or indeed to agree the elements listed out as far as reasonably practicable.

The DRC was an opportunity to make a leap forward in the industry and provide the government, developers and leaseholders with greater certainty around everyone’s obligations regarding the carrying-out of life-critical fire-safety works in dangerous buildings. However, it lacks the teeth to have a significant impact for all affected leaseholders, and consequently buildings with potentially life-threatening problems continue to remain unclearly classified and unrectified.

This article was first published by Building in May 2023.

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