Summary of McPartland-Smith amendments to the Building Safety Bill

This is a guide to the McPartland-Smith amendments to the Building Safety Bill, as at 12 November 2021. We recommend that you read it together with the amendments. Many thanks to Liam Spender for providing this helpful summary.

1. The Building Safety Bill is a wide-ranging reform of the rules around planning, construction and occupation of “higher-risk buildings”.  A higher-risk building is to be defined as any building containing 2 or more residential units and which is taller than 18 metres or has more than 7 storeys.
   
2. The Building Safety Bill is currently at Report and Third Reading stage in the House of Commons.  Michael Gove has said that he expects the Commons to pass the bill before Christmas.  The Bill will then go to the House of Lords to complete its passage through Parliament.
   
3. The Bill is currently expected to become an Act of Parliament (a law) early in 2022.  The new law will then be brought into effect over a period between roughly 2022 and 2025.  The new law will apply to both current and future higher-risk buildings.
   
4. Stephen McPartland MP and Royston Smith MP offer amendments to the Building Safety Bill to protect current and future leaseholders.  The amendments as at 12 November 2021 are here:  https://publications.parliament.uk/pa/bills/cbill/58-02/0177/amend/building_rm_rep_1112.pdf
   
5. This summary explains the McPartland-Smith amendments as at 12 November 2021.  The McPartland-Smith amendments apply to buildings of all heights.  Some apply to current buildings.  All of the amendments apply to future buildings.
   
6. Value Added Tax (VAT) Amendments:  Amendment NC4 makes future cladding and fire safety remediation works taxed at 0% instead of 20%.  This includes things like waking watch costs and replacement fire alarms.  Amendment 2 allows people who have paid VAT on works and waking watches between 17 June 2017 and 31 July 2022 to apply for a refund of that VAT.  Amendment 2 also provides that if landlords receive a refund of VAT then they must repay all of that refund to leaseholders in accordance with the terms of their leases.
   
7. Better protection for current and future leaseholders:  Housing Act 1985 amendments.  Amendment NC5 changes Part 16 of the Housing Act 1985.  This law, originally passed as the Housing Defects Act 1984, allows the government and local authorities to provide money to pay to fix buildings they think are in need of fixing. 
   
8. The powers in Part 16 of the Housing Act 1985 apply to both public and private housing.  These powers were created and used in relation to Pre-cast Reinforced Concrete (“PRC”) houses built in the 1950’s and 1960’s.  The external walls of around 140,000 PRC houses had to be rebuilt as a result of defects in the concrete reinforcement.  Many of the affected PRC houses were sold as part of the early Right To Buy initiative. The new owners found PRC houses, even if unaffected, were impossible to mortgage or to sell due to the issues with the walls. 
   
9. Recognising the injustice of the PRC housing situation, the Thatcher government stepped in with public money to make repairs to the PRC houses.  Homeowners received grants of up to 90% of the cost of the remediation works.  In some cases the affected properties could be bought back at a price that did not take into account any issues with the walls.
   
10. Amendment NC5 gives the government and local authorities the necessary powers to deal with issues related to cladding and fire safety.  That then allows the government and local authorities to provide grants to leaseholders of up to 90% of the cost of remedial works, or else to buy back the properties.
    
11. Amendment NC6 is a trigger.  It requires the government to consult with the Treasury and the Prudential Regulation Authority on the effects of the MHCLG’s Advice Notes on the housing market and on leaseholders and to report to Parliament on its findings.  This must be done within 6 months of the Bill being approved by Parliament. 
    
12. Amendment NC6 requires that, if the government concludes that using its new powers under Part 16 of the Housing Act 1985 (as amended by NC5) would help leaseholders and the market, then it must use those powers and provide the money itself or via local authorities to fund grants for repair work. 
    
13. The House of Commons must approve the government’s report.  If it does not, the government cannot bring into legal effect the new regulatory regime set out in Part 4 of the Bill.  The government must then make a further report to Parliament within 90 days.  The process will continue until the Commons approves the report.
    
14. Better protection for current and future leaseholders: Building Safety Indemnity Scheme.  Amendment NC7 requires the government to create a fund (the “Scheme”) into which anyone seeking building control approval, anyone supplying building products regulated by the Building Safety Act, residential mortgage lenders and residential building insurers must make contributions.  No-one will be able to obtain building control approval to construct any building unless it becomes a member of the Scheme and pays its dues. 
    
15. The money raised by the Scheme will be used to pay for cladding and fire safety remedial works.  These  payments could be made through the amended Housing Act 1985 (see above), or could be made through the Scheme itself.  The proposed Scheme works in a similar way to the Motor Insurers’ Bureau (“MIB”).  The MIB pays for damage caused by uninsured drivers.  All car insurers are required by law to be members of the MIB.  The costs of the MIB are paid for by a charge on all car insurance policies.
    
    
16. Another example of a similar scheme is FloodRe (for house insurance) and PoolRe (for terrorism insurance).  In both cases, a risk that would otherwise not be covered by insurance is spread around many payers so that it becomes insurable.  The principle underpinning the proposed Scheme is the same.
    
17. The proposed Scheme could raise substantial amounts of money through relatively modest levies on the targeted bodies, by way of example only:
    
    • According to Financial Conduct Authority data between Q3 2020 and Q2 2021 net new mortgage lending amounted to £82.2 billion.  A 0.25% levy on new mortgages would therefore raise £411 million a year;
      
    • According to Association of British Insurers’ data to the end of 2018 (the most recent available) commission on residential buildings insurance totalled £1.98 billion in the year ending 31 December 2018.  Levels of commission are likely to have increased as a result of huge increase in the costs of insuring buildings with cladding.  A 10% tax on insurance commission would therefore generate £198 million a year.
      
    • In terms of building products, according to its most recent accounts the UK arm of Saint-Gobain (owners of Celotex, who supplied the cladding on Grenfell) in the year ending 31 December 2020 had a turnover of £684 million and profits before tax of £118 million.  A 10% turnover tax would raise £68.4 million a year from Saint-Gobain.
      
    • A similar picture emerges in relation to Kingspan, which supplied insulation used on Grenfell.  In the year ending 31 December 2020 it reported a turnover of £318 million and a profit before tax of £38 million.  A 10% turnover tax would raise £31.8 million a year from Kingspan.
      
      
18. It has not been possible to identify how much another major cladding supplier – Trespa – sells in the UK.  Trespa’s UK subsidiary only reports commission on sales.  The holding company for Trespa – the HAL Trust – reported construction product sales of €3.65 billion in the year ended 31 December 2020.  There may be further revenue available by taxing Trespa’s cladding and building products sales in the UK.
    
19. Adding together the amounts identified in paragraph 17(a) to 17(d) would bring in £709 million a year.  Combined with the £200 million a year expected from the Residential Property Developer Tax, that would generate £909 million a year.  That would be enough to cover the current estimated £10 billion shortfall in around 11 years. 
    
20. One option would be for the government to advance the money to do the works up front and then to recover it by the types of taxes suggested above.  The choice of who to tax is ultimately a matter for the government.
    
21. Better protection for current and future leaseholders and home buyers: limitation period reforms.  Amendment 4 extends the time allowed (known as limitation periods) for making claims under the Defective Premises Act 1972 and section 38 of the Building Act 1984.  The limitation periods are extended to 25 years, instead of the 15 years proposed by the government. 
    
22. The change to the Defective Premises Act 1972 limitation period applies retrospectively, meaning it will capture all buildings built between early 1997 and early 2022, depending on when the Bill is passed by Parliament.  This change will also mean all future home owners and leaseholders will have 25 years to make claims, instead of the 15 years proposed by the government.
    
23. The amendments offer an alternative for the government to consider on limitation.  That is by changing the basis on which time limits apply to building defect claims.  Currently time starts to run from when a building is completed.  That is so whether anyone is actually aware of an issue or not. 
    
24. Amendments 5, 6 and 7 change the basis of time limits for claims under the Defective Premises Act 1972 so that they run only from the date of actual knowledge of an issue, rather than completion of the building in question.  These changes are suggested for both newly constructed buildings and building renovations.  There would be a longstop date of 25 years, meaning that no claim could be brought 25 years after the building or renovation was completed.
    
25. Amendment NC11 also improves the claim under section 38 of the Building Act 1984.  That gives a right to claim damages for injury or death resulting from negligent building control work.  Amendment NC11 expands this to cover “economic loss”  which is money losses as a result of negligent building control work. 
    
26. Again, the suggested basis for limitation is actual knowledge of breach of duty leading to economic loss, subject to a limit of 25 years from the date the work is completed.  The amendment would leave the rules on limitation regarding personal injury the same as under the current Limitation Act.
    
27. Clause NC12 also proposed further protection for flat owner and home owners by abolishing the rule against recovery of economic loss in negligence claims, or in claims under the Defective Premises Act 1972. 
    
28. Amendment 10 protects current leaseholders and homeowners where the 25 year limitation period runs out within 1 year of the Bill being approved by Parliament.  It allows those homeowners and leaseholders up to 2 years to prepare a claim under the Defective Premises Act 1972.  The current draft of the Bill only allows 90 days to prepare such claims, which is unlikely to be enough time even where claims are possible.
    
29. Clause 128(5) of the current Bill gives builders who may be subject to retrospective claims under the new law a potential “get out of jail free card” based on human rights arguments.  Amendments 8 and 9 remove this potential issue.  The courts will then be left to decide human rights issues, if any, arising from the extra time allowed to make claims in the ordinary way, as would happen in any other case.
    
30. Better protection for future leaseholders: implied terms in building and renovation contracts and compulsory insurance for builders.  Amendments NC8, NC9 and NC10 protect future leaseholders and home buyers.  These amendments would change the law to make contracts for house and flat building and renovation subject to automatic rules (called implied terms).  Similar automatic rules already apply to things like toasters and cars.  The new automatic rules are to be backed with insurance policies or warranty schemes.
    
31. Amendment NC8 provides for implied terms in every residential building contract.  These implied terms are promises that the flat or house is of an adequate design, is fit for residential occupation, complies with Building Regulations and uses materials that are of satisfactory quality.  Similar rules will apply to residential renovation work.
    
32. Future buyers of flats and houses will have the benefit of protection in the form of a direct claim against the builder for breaking these promises, as they do now in relation to their toasters and cars.  This claim will be backed by insurance.  Any owner of the flat or house in question, not just the original owner, will be able to bring a claim.  It will be for the builder to prove that the building complied with the implied terms.  The same rules will apply to residential renovation works. 
    
33. Amendment NC9 gives a 25 year limitation period for bringing claims in relation to breach of the implied terms.  The 25 years is to run from the date the property is completed.  The current law allows a 6 year period for making this type of claim.
    
34. Amendment NC10 requires any builder who is a member of the New Homes Ombudsman offering to sell, or selling, a house or flat to take out an insurance policy that is at least as good as the basic policy terms to be set down by the government.  The government can also identify warranty schemes it thinks meet the same standards as the basic insurance policy.  The aim of this amendment is to ensure that there will always be an insurer or warranty provider standing behind the implied terms created by amendment NC8 for at least 25 years.  The same rules will apply to residential renovation works.