Building Safety Act ' Building Liability Orders

• Published date: 06 January 2023
• Subject Matter: Corporate/Commercial Law, Real Estate and Construction, Corporate and Company Law, Construction & Planning
• Law Firm: Gowling WLG
• Author: Ms Sue Ryan, Sean Garbutt and Emma Knight

As is now well documented, the Building Safety Act 2022 (BSA) received Royal Assent on 28 April 2022, implementing widespread amendments that have been described as the biggest change to building safety regulation in a generation. A number of its provisions came into force two months thereafter, on 28 June 2022. Amongst these was one of the more controversial measures introduced by the BSA, the Building Liability Order.

In this article, we consider Building Liability Orders in more detail, including the rationale for their introduction, the potential subjects of a Building Liability Order, the test that the court will apply in deciding whether to make a Building Liability Order, and their impact on the historic legal doctrines of privity of contract and separate legal personality.

What are Building Liability Orders and why are they needed?

Historically, it has been relatively common practice in property development for developers to set up subsidiary 'shell' companies, or special purpose vehicles (SPV), with very few assets, to carry out particular projects. Once the developments are completed, the subsidiary companies are then typically wound up and any assets transferred elsewhere in the business. The prospect of enforcing any claims against the SPV, and recovering any money, is near impossible - with the result being that the corporate developer group has no long-term liability for the developments in question.

The rationale behind the introduction of Building Liability Orders is to address this issue and prevent developers from escaping liability for safety defects by hiding behind complicated legal structures.

Accordingly, section 130 of the BSA confers a power on the High Court to grant a Building Liability Order if they consider it "just and equitable" to do so. This is an order which will extend a "relevant liability" of a body corporate (Party A) so that it will also be a liability of an "associated" body corporate (Party B). Parties A and B may then become jointly and severally liable for the relevant liability.

This will overcome the issue described above: a party with a claim arising from a "relevant liability" will effectively be able to make that claim against both A and B, and if successful, may recover damages from either A or B.

What is a "relevant liability"?

The BSA defines a "relevant liability" as a liability incurred either:

• Under the Defective Premises Act 1972 (DPA 1972);
• Under section 38 of the Building Act 1984; or
• As a result...