The proposed amendment to Section 119 of the Building Safety Act 2022
The Building Safety Act 2022 (‘BSA’) brings in sweeping changes and seeks to provide leaseholders with protection against service charge costs relating to remedial work concerning building safety.
In particular, the BSA seeks to provide qualifying leaseholders with protection against service charge costs relating to remedial work concerning building safety for buildings which are over 11m high or that have five or more storeys.
These protections are set out in Schedule 8 to the BSA and the governing section that defines what a qualifying lease will be for the purpose of this protection is Section 119.
So what is The issue with Section 119 and lease renewals?
Unfortunately, there is a known issue with Section 119 and the way that it has been drafted.
The Section defines a qualifying lease as being one that was ‘granted before 14th February 2022.’
This time limited definition means that any renewal of the lease will lose the protections that the leaseholder would otherwise have, as to state the obvious the new lease will be granted after 14thFebruary 2022,
The government knows this is an issue – after ALEP wrote to them pointing this out in April 2023 and they have indicated that the government would seek to fix this problem ‘as soon as parliamentary time allows.’
Where are we on getting a solution?
The government response has been that we will fix this ‘as soon as parliamentary time allows.’
Wind forward to the 18th September 2023 and in the Lords debate on the Levelling-up, Housing and Regeneration Bill an amendment is proposed to the BSA to ‘fix’ Section 119. (Amendments 242 and 243 of Bill 369 2022-23 (Lords Amendments))
This amendment was proposed by Lord Young and voted against by the government, but they lost the vote and so this amendment now returns to the Commons on 17th October 2023 for the third and final reading of the bill.
If accepted this amendment will be passed into law, however, a number of observers have raised concerns about the proposed wording and it is perhaps likely that a further amendment will be proposed and the bill returned to the Lords. If there is a risk of ‘ping pong’ between the Commons and the Lords and if agreement cannot be reached then the possibility of the government using the Parliament Act to overrule the Lords.
It is likely that the government will propose an alternative amendment and it has to be hoped that if so, any such amendment will deal once and for all comprehensively with the issue that has been created by the original drafting of Section 119 of the BSA.
So, what is wrong with the proposed BSA amendment?
The text of the proposed amendment appears below:
Clause 119A
“Qualifying leases under the Building Safety Act 2022
After section 119 of the Building Safety Act 2022 (meaning of “qualifying lease” and “the qualifying time”), insert-
(1) A qualifying lease varied or subject to any surrender and regrant, remains a qualifying lease.
(2) This section has effect in relation to any qualifying lease varied, or subject to any surrender and regrant, before the coming into effect of this section.
(3) Any agreement contrary to this section is void, whether made before or after the coming into force of this section.”
Let’s look at this wording in a bit more detail:
Surrender and regrant
So, here’s the possible problem: ‘a qualifying lease subject to any surrender and regrant.’
Firstly, leases that are granted under the Leasehold Reform Housing and Urban Development Act 1993 (‘the 1993 Act’) are, ‘granted in substitution for the existing lease’– that is not strictly a ‘surrender and a regrant’ of the existing lease, but rather the surrender of the old lease and the grant of a new lease in substitution for the old one in accordance with Section 56(1) (a) of the 1993 Act.
That being the case the wording also does not appear to catch brand new leases – either entirely new leases or leases granted in replacement of other previous leases of the same premises that would have been qualifying leases as at 14.2.2022.
The choice of words ‘’surrender and regrant” has more of the meaning attaching to the deemed surrender and regrant of intermediate leases under section 58A of the 1993 Act.
Other types of lease – eg. Overriding leases
And what about overriding leases? – these are often granted to flat owners (and sometimes to investors), where a collective enfranchisement has taken place, on the basis that they are generally a much more tax efficient way of dealing with a post completion lease extension and a way in which the nominee purchaser can grant lease that can be granted without mortgagee involvement if the leaseholder’s flat has a mortgage on it.
In such a case the building may cease to be a qualifying building – if a collective has bought the freehold. There are still relevant BSA protections that the leaseholder may wish to take advantage of.
So, what happens next?
Whilst the fact that an amendment has been approved is entirely laudable, what is potentially quite concerning is what would happen were an incomplete solution passed into law. That would create further confusion and uncertainty for those affected by this.
The one positive in the drafting is the provision for retrospective effect which surely has to be a part of any eventual solution. Retrospective legislation requires special parliamentary drafting approval but this is likely to be essential to remove uncertainty and resolve many current outstanding cases where parties are arguing for catch all clauses regardless of whether these may be effective or not. There is of course an ongoing question for practitioners seeking to agree clauses as to whether you can in fact ‘draft around’ a statute.
So, whilst this is encouraging further work needs to be done to resolve this issue with the certainty that is needed. ALEP and other interested parties are keen to see that whatever fix is applied to this problem is done quickly and effectively. The ongoing uncertainty is of no advantage at all to either leaseholders or freeholders.
We therefore eagerly await the debate on this on 17th October 2023 to see whether some certainty can finally be brough to bear on this issue.
Mark Chick
10.10.2023