Our team are heading up to Leeds for UKREiiF, and are hosting an industry leading panel on building safety – not one to miss if you’re at the conference!
A multi-lens view on the development of higher-risk buildings and building safety issues
Join these industry experts as they delve into the impact of the Grenfell Inquiry and recent building safety legislation on higher-risk buildings. Explore how these changes align with the economic growth agenda, addressing safety, innovation, and resilience in construction. A key discussion shaping the future of building safety.
Tuesday 20 May, 3:00-4:00pm, Pearl Suite (Conference ticket holders only)
Speaking on the panel are:
Andrew Parker, Partner and Head of Construction Disputes and Building Safety Thérèse Marie Rodgers, Partner in Construction Disputes Matthew Evans, Partner in Planning Professor Jose Torero Cullen, Fire Engineering Expert Witness in the Grenfell Inquiry and Head of UCL Department of Civil, Environmental & Geomatic Engineering Myriam Stacey KC, Barrister at Landmark Chambers Dominic Glanz, Head of Development at Knight Dragon
UKREiiF is a leading conference, “bringing 16,000+ professionals from national and local government, investors, developers, end-users and the wider built environment industry together – it’s the place where conversations start to drive investment and regeneration in our regions.”
Forsters acted on the sale of One Chapel Place in London’s West End
11 April 2025
News
We acted for our client Solent Ventures on the sale of Cypress Dynasty Limited, which owns the freehold interest in One Chapel Place in London’s West End. The fully let five storey office block is located just off Oxford Street and was sold to Great Portland Estates for £56 million.
This deal was led by Corporate Partner Christine Dubignon and Commercial Real Estate Partner Ben Brayford, with close assistance from Tax Partner Elizabeth Small, Senior Associate Alexandra Ringrose and Associates Natalie Colclough, Dragomir Zyumbyulski, Adrian Palladino, Lauren Hepburn and Zain Rahim.
Andrew Parker speaks to The Times on Building Safety Gateway Delays
7 January 2025
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Post Grenfell and the subsequent Building Safety Act, a new rigorous gateway regime has been established to ensure the safety of residential high-rise buildings. However, numerous building and construction projects up and down the country are being held in an everlasting bottleneck, halting construction progress. Red tape, confusion around the completion of forms, and understaffing of the BSR has led to decision waiting times being more than twice the legal limit of 12 weeks. Further complicating the process, less than 15% of applications made to the BSR are approved, with 31% being returned as “invalid”.
Speaking to The Times, Andrew Parker, Head of Building Safety and Construction Disputes, gives his insight on these delays:
“[The new regime] is the result of a fairly damning critique of the construction industry in terms of how they procured, designed, tested, built and actually managed high-risk buildings. Nobody is under any illusion now that it’s a tick-box exercise. It needs to be handled properly. Maybe I’m naïve but it would be great to think that people realise that this is a problem that now affects everybody – contractors and developers, investors. It may well be that it just gives the construction industry the shot in the arm it needed for collaboration.”
Construction insolvencies are up – what can developers do?
19 March 2024
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Thérèse Marie Rodgers, Counsel in the Construction team, has written a piece for React News discussing how the strict application of contractual rights is not always the best way forward.
The latest monthly figures from the government’s Insolvency Service, out last week, show that 4,370 construction firms failed in the UK in the year to the end of November 2023 – around 7% up on the previous year.
While we wait to see whether an upward trend in construction sector insolvencies continues to the end of the year, the figures still make grim reading for the construction industry, and have ramifications for the property and development sectors.
The rate of inflation has been impacting the already slim margins of contractors, many of whom were still recovering from the financial pressures resulting from pandemic-related delays. With the majority of the Building Safety Act 2022 now in force, this financial stress will increase on contractors.
Where difficulties start to arise on some projects as a result, employers and developers should consider whether strict application of their contractual rights is the best option for the project as a whole.
For example, levying liquidated damages as soon as a party is entitled to may initially appear attractive – but it could be the difference between a contractor completing a project or becoming insolvent.
The collapse of a sub-contractor causes delays, but a main contractor’s failure can have a far more serious effect, halting projects for months. Buckingham’s collapse in August left its clients with unfinished projects and the unenviable challenge of finding a replacement contractor.
New challenges
While the focus of the Building Safety Act has been on higher-risk buildings (namely those that are 18m or taller, or seven storeys high), parts of the act will have implications for all buildings. This means that all contractors will need to expend time and money ensuring they are adhering to the evolving applicable laws and regulations for each specific project.
The significant increase to the limitation periods for claims under the Defective Premises Act 1972 – 30 years for works completed before 28 June 2022, and 15 years for claims for works completed after 28 June 2022 – is likely to affect all players in the construction cycle, with claims arising in relation to projects long since completed.
In respect of higher risk buildings, the act brings multiple challenges. The new gateway process introduces the requirement for building control approval before building work can commence, and once it is complete, prior to occupation of the building.
These stages are likely to cause delay, and the risk of submitting the relevant applications and incorporating the period for any such applications into the programme will need to be considered at the outset of a project. There is also more onerous competency and golden thread requirements, which are likely to cause increased costs or put a further squeeze on profit margins.
Warning signs
What are the signs that a contractor may be nearing insolvency? On site, you’d expect to see work stalling, contractual milestones being missed and fewer people on site, as well as equipment, plant and materials disappearing.
Problems with cash flow may lead to the contractor requesting early payments, and potentially submitting over-inflated claims. Further down the chain, sub-contractors might complain of lack of payment – and may even request direct payment.
There are some practical actions developers or employers can take in these circumstances, such as ensuring it has a complete set of contractual documents – all guarantees and warranties, including any sub-contractor collateral warranties – and to check the insurance required under the building contract is still in place and all premiums paid.
It is prudent to increase monitoring of the progress of the works to ensure the information on the contractor and status of the project is understood. It would also be beneficial to understand the contractual position in the event of a contractor insolvency. Are protections in place, such as a performance bond, parent company guarantee, step-in rights and termination rights?
A new agreement
Notwithstanding the above, in the vast majority of scenarios, it’s in everyone’s interest to reach a commercial solution that gets the project completed with the contractor continuing in business. That’s likely to need open and frequent communication – initially to understand whether the contractor is willing and able to complete the project, and whether realistically that can be achieved by a commercial agreement.
Such agreements could restructure payment arrangements, speeding up payments, making them more frequent and perhaps providing that the employer pay subcontractors directly. It’s key that safeguards are put in place to ensure any such funds are only being used to complete the project at issue, and not propping up other projects.
A moratorium on liquidated damages may also assist, with the incentive of waiving them altogether if a new agreed programme to complete the project is met.
If completion by the contractor isn’t possible, the discussion should focus on an orderly handover of works. To what stage of the project is the contractor able to complete? When will an alternative contractor need to be engaged to complete the works? Relieving some pressure on the contractor in this way could lead to improved performance.
Whichever option you take, you must protect your interests. Don’t just agree a new programme without maintaining an incentive for performance, and ensure you have a remedy should the project deteriorate.
Worst-case scenario
If the worst happens, it’s not impossible to continue with an insolvent contactor, dependent on the type of insolvency proceedings and whether the contractor considers it’s able to complete the works. It might be the best option if the project is very near completion.
There is also the option of stepping in to engage subcontractors directly to complete the project or, following termination for insolvency, engaging directly with the subcontractors. This is the approach Liverpool FC has taken (at least in part) to complete its stadium following Buckingham’s insolvency.
Engaging a new contractor is not always a silver bullet, and can come with significant downsides. It could delay completion and is likely to be more expensive. The new contractor may not assume responsibility for the insolvent contractor’s works, or will charge a premium for doing so.
Should your project encounter contractor insolvency, careful consideration of all the options available is needed to get work back on track, with the minimum amount of disruption.
Originally published on 22 January 2024, the article can be accessed here behind the paywall.
Building liability orders lift the corporate veil on developers – Andrew Parker writes for Property Week
11 October 2023
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Construction Partner and Head of Building Safety, Andrew Parker, has written for Property Week on how, a year on from the passing of the Building Safety Act 2022 (BSA), we are now starting to see the cumulative effect of all the new devices for holding the residential development industry to account for the building safety crisis.
However, Parker adds that: “What we have not yet seen is any clue as to how the High Court will decide what is ‘just and equitable’ in the granting of a building liability order (BLO). The phrase ‘just and equitable’ appears to give the court discretion and introduces huge uncertainty.”
BLOs allow those pursuing litigation to “lift the corporate veil” on special-purpose vehicles being used for developments. In other words, where a company is liable for a building safety risk, a BCO also then enables the associated company to become liable itself.
“This sounds well intentioned”, writes Parker, who holds the same view of the BSA’s retrospective extension of limitation period by 30 years, as well as the Residential Property Developer Tax, the Building Safety Levy and the “contracts requiring developers to fix what they built.”
Looking beyond the impact of developers on this crisis, who may arguably now carry a disproportionate burden in solving the crisis, the government also wants other parts of the supply chain to contribute. Namely, they are focusing on the investors in the manufactures implicated in the Grenfell Tower fire. “The government probably assumes that developers will recover costs through litigation, but it has identified developers as a soft target with deep pockets.”
There is concern, then, that BLOs have gone too far. They pose the risk of “undermining the financial stability of development groups, boosting insurance premiums to cover uncertainty and affecting the feasibility of schemes.
“The complex corporate structures under attack are how property developments are commonly procured; and so to retrospectively create liabilities for companies that would otherwise not have had them is dramatic. It may hit share prices for companies, with knock-on effects for funding and future developments.”
Corporate liabilities
Parker considers whether it was wise to lift the corporate veil in this instance; a mechanism that has been in place for some time and successfully resisted numerous previous arguments against it. Those developers who made corporate acquisitions to enter the residential development market now hold considerable liabilities thanks to these changes in legislation.
SMEs, which the government “has been straining to advantage in the market”, will face real challenges in this new landscape of extended and uncertain liability.
Parker predicts legal challenges, and so expensive litigation, before the rules are fully understood. Any increased reliance on insurers will not help a market that has already hardened and indeed insurers may not even pay out where policies did not consider such liabilities across the group.
A potential workaround Parker raises is via the ownership by individuals rather than companies, since BLOs only apply to corporate bodies. This may however have significant tax consequences.
Parker concludes by writing that: “All of this could give rise to further insolvencies within construction given the market has seen contractors struggle to cope with price increases. Now, they will have to face unforeseen claims.
“The position could have been improved if the meaning of ‘just and equitable’ had been addressed in the explanatory notes. We may find that BLOs are ordered very rarely; but until the courts hear some cases, we will not know and the damage to the industry will have been done.”
This article was originally published in Property Week on 13 September 2023 and can be read here in full (behind their paywall).
Webinar – Developing and delivering UK Life Science and Innovation projects now and in the future
11 October 2023
News
On Friday 6 October 2023, Construction News in partnership with Property Week hosted a webinar with some of the industry-leading experts in the field, who are currently working on developments across London, Cambridge and Oxford.
The key message is that demand is outstripping supply and providing space that is adaptable for tenants is crucial. The main takeaways were as follows:
Buzzwords
“Golden Triangle” – the world leading life sciences cluster of London, Cambridge and Oxford and the greater southeast of England.
“Green Fields” – an area of undeveloped land that has never been built on before, that will require relevant planning permissions for proposed development.
“Wet labs” – a type of laboratory whereby biological or chemical experiments take place, differentiated from dry labs which focus on computers, physics and engineering.
Demand for the Sector
The world’s aging population with an increasing number of cancers, dementia, diabetes etc diagnoses means there is a greater demand for treatments, vaccines and cures. The COVID-19 pandemic shone a light on the sector that historically was behind closed doors, attracting both private investors and governments. There is a what you could call a triple helix of industry, government and academia coming together, all focused on this subject.
Risk of oversupply?
It is forecasted that there will be tens of millions of sq ft across the UK required. Currently there is an estimated 75% of recruitment coming from the Golden Triangle area. Though in the past 6 months opportunities in Glasgow, Nottingham and Manchester are emerging. Despite this, the industry is playing catch up and isn’t helped by the current economic climate. Projected demand is so great that there’s unlikely to be an oversupply in the next 10-15 years because the current supply is so low.
Emergence of Urban Centres
In recent years, there has been a move from traditional Green Fields sites towards space in urban areas and city centre-based labs. As this is where the talent i.e. researchers and academics are based. There is a drive to ensure that the local community is put at the forefront of these developments, making outdoor space accessible and welcoming so that people want to take their children out or walk their dogs. As well as ensuring that the public benefit from employment and career opportunities such as apprenticeships or entry level science jobs. If councils utilise these developments effectively, they can aide other issues such as housing. The drawbacks of using urban areas includes a lack of land, safety issues such as the handling of chemicals or gases and the negative public perception. Most people think of Wet labs and are concerned over the risks of contamination.
Re-fitting existing space – a hindrance or help?
Instead of rebuilding or using traditional Green Fields sites there has been a shift to utilising existing space. Particularly the use of retail buildings, former owner-occupied buildings, and high specification offices. This is especially useful as it tends to be quicker than starting from scratch and reduces carbon emissions. It does depend on the height of the building and power e.g. typically buildings have to be over 4 meters with dual power. However, issues tend to arise over how the property was previously serviced and existing buildings are more constrained by matters around them, for instance it could be in or close to a residential area. These aren’t problems for Green Fields sites. It also ultimately depends on what type of lab the client requires i.e for full laboratory use or a lab enabled building with office use and whether the developer can adapt the building accordingly.
Main challenges for the sector
Opaque market – As the market is at such an infant stage it’s difficult to understand how much rents will be and so it is harder to compete for land, particularly in city centres or talk to investors. There isn’t the certainty that the office and retail market offers.
Flexibility v sustainability – Looking for a building that offers future adaptability for tenants is key. However, there is sometimes a trade-off between ensuring flexibility and how sustainably it can be achieved. Measures need to be taken so that only the necessary amount of carbon is used.
Funding – There is a need for projects quickly however, venture capital funding in the UK is lagging behind the US. Smaller outfits have the ideas but lack the funding for fitouts. There is a delay between completion of the building and fitouts. Larger companies are looking to their smaller counterparts before making any moves.
Alignment of “life sciences” specification – There is no consistency across consultants regarding this type of fit out/specification. The re-purposing of existing buildings requires a heavier fit-out with a different skill set to the traditional fit out market.
The New Dutyholder Regime under the Building Safety Act 2022
2 October 2023
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One of the common misconceptions surrounding the Building Safety Act 2022 (“BSA”) and associated secondary legislation is that its provisions only apply to higher-risk buildings (in very simple terms, certain residential buildings above 18 metres or seven storeys in height). However, parts of the new regulatory regime impose legal responsibilities on anyone who commissions a construction project or is involved with its design and construction.
One part of the legislation which applies to all building work is the new building safety “dutyholder” regime, which was brought into force pursuant to the Building Regulations etc. (Amendment) (England) Regulations 2023, which amends the Building Regulations 2010.
Those familiar with the Construction (Design and Management) Regulations 2015 (“the CDM Regulations”) will recognise many similarities between the new building safety dutyholder regime and the position adopted by the CDM Regulations, which should allow industry professionals to get to grips with the new regime quickly.
When does the new dutyholder regime apply?
The new regime applies when “building work” is being carried out in England (save where the work is “minor work”). “Building work” and “minor work” are defined in the Building Regulations 2010 and building work includes the erection or extension of a building and the material alteration of a building.
When does the new dutyholder regime come into effect?
The new regime came into force on 1 October 2023 with transitional arrangements which confirm that the new regime is not applicable where:
building work commenced before 1 October 2023
plans were deposited with the local authority before 1 October 2023, unless the plans are rejected or building work has not commenced on site by6 April 2024.
If “building work” has not commenced before 6 April 2024, the new regime will apply.
What does the new dutyholder regime do?
The new regime has been implemented to promote the co-ordination of design work and building work by all key dutyholders in a construction project, including the client, all contractors and all designers. The regulations set out the duties imposed on each party, with enhanced duties applicable to higher-risk buildings.
Who are the key dutyholders under the new regime?
The Client Like the CDM Regulations, one of the main dutyholders is the “client”, who is “the person for whom the project is carried out”. Clients’ duties include:
making suitable arrangements to plan, manage and monitor a project
providing building information to every designer and contractor on a project
checking the competence of the entities it proposes to appoint on a project, including the principal contractor and the principal designer.
For higher-risk buildings there are enhanced obligations around checking competence and a duty to make sure everyone involved on a project is aware that the work is higher-risk building work. In these circumstances the client must keep written records of the checks it makes.
The duties applicable to commercial clients differ from those applicable to a domestic client. Please see further below.
Can there be more than one client on a project?
Yes. There may be more than one “client” on a project and in these circumstances (similar to the CDM Regulations), the new regime allows parties to agree between themselves who will act as the client for the purposes of the Building Regulations. Agreements should be made in writing. In practice we are likely to see these agreements being made in documents such as agreements for lease, forward funding agreements and other development documents where there are two or more parties who could be considered to be clients.
It is important to note that even if parties A and B agree in writing that party A is to be the client for the purposes of the new regime, party B retains certain duties, including:
a duty to provide building information to each designer and contractor involved in a project, as soon as practicable
a duty to co-operate with any other person working on or in relation to a project to allow persons with duties or functions under the Building Regulations to fulfil those duties or functions
where the work is higher-risk building work:
to ensure that information is provided to designers and contractors to make them aware that the project includes higher-risk building work and the nature of such work; and
to periodically review the building work and the design work included or to be included in the project so as to identify whether it is higher-risk building work and to ensure information is provided where it becomes higher-risk building work.
The Principal Contractor and the Principal Designer
Again, these terms will be familiar to those who are familiar with the CDM Regulations. Under the new building safety regime, a principal contractor and a principal designer must be appointed by the client wherever there is more than one contractor working on a project. This mirrors the obligation under the CDM Regulations.
The key duties of the principal designer and the principal contractor include: Principal designer
to plan, manage and monitor design work during the design phase to ensure that the work is in compliance with relevant requirements
to co-ordinate the work of all designers so that if the building work is built in accordance with the design, it would comply with all relevant requirements
to liaise with the principal contractor and share information with them.
Principal contractor
to plan, manage and monitor building work during the construction phase and co-ordinate the building work to ensure it complies with all relevant requirements
to share information with the principal designer on the planning, management and monitoring of design work and co-ordinating design and building work to ensure compliance with all relevant requirements.
Where the principal designer or principal contractor is a company, an individual must be appointed to manage the functions of the relevant role.
When does the appointment have to be made?
The principal contractor and the principal designer should be appointed before the construction phase begins, unless the project is for higher risk building work in which case the appointment must be made before the building control approval application is submitted to the regulator.
What happens if there is only one contractor working on a project?
In these circumstances:
the contractor is required to fulfil the role of principal contractor
if there is more than one designer, the designers must agree who will fulfil the duties of principal designer and give a copy of the agreement to the client. Where there is only one designer that designer must act as the principal designer.
What if the client doesn’t appoint a principal designer or a principal contractor?
A commercial client must fulfil the duties of the principal designer and the principal contractor until they make an appointment.
The rules differ for domestic clients. Default provisions apply where the client has not made the necessary appointments: the designer in control of the design phase is appointed as principal designer and the contractor in control of the construction phase is appointed as principal contractor.
Contractors and Designers
The Building Regulations also recognise the roles of all contractors and designers who are involved in a project. They may not be the principal contractor or the principal designer, but they are still subject to various duties designed to ensure compliance with Building Regulations.
What are the requirements around who can be appointed as a dutyholder?
The Building Regulations contain detailed provisions requiring each prospective dutyholder to be “competent” to carry out building work or design work (as appropriate). In practice, we expect consultants and contractors will be expected to make declarations of their competence within professional appointments and building contracts, but clients should also be aware of their duties to check competence.
The test of competence differs depending on the duties the appointee is to perform, whether the appointee is an individual or a company and whether the building is a higher-risk building or not, but the main requirement for a company on a non-higher risk building is to ensure that they have the “organisational capability” to fulfil the relevant role.
What happens on completion of the building work?
Within five days after the completion of building work, the person carrying out building work is required to give notice confirming that the work is complete. The notice must include (amongst other information) a signed statement from the client confirming that to the best of the client’s knowledge, the work complies with all applicable requirements of the Building Regulations and a statement by each principal contractor and principal designer confirming that they have fulfilled their duties.
This requirement does not apply to higher-risk building work, where the gateway regime applies.
Frequently asked questions
Will the principal contractor and the principal designer for the purposes of the CDM Regulations be the same entities as the principal contractor and the principal designer for the purposes of the Building Regulations?
The Act does not require the parties appointed as principal contractor and principal designer for the CDM Regulations to perform the relevant roles under the building safety regime, although in practice, this may be the case. Whoever is appointed, must be appointed in writing.
A client will be treated as having complied with the requirement to appoint a principal designer and a principal contractor if they certify in writing that the person who is the CDM principal designer or the CDM principal contractor, is treated as appointed as the principal designer or the principal contractor for the purposes of the Building Regulations.
Can the principal designer or another consultant assist the client with the discharge of the client duties?
Under the CDM Regulations, it is common for a consultant to assist the client in the discharge of the client’s duties under the CDM Regulations. Sometimes this role is undertaken by the principal designer or it may be that the client appoints a CDM advisor.
One of the questions the new regime raises is whether we might see a similar position being adopted for the client duties under the Building Regulations. It is too early to say whether a similar approach will be adopted by the industry but we suspect this is likely to happen given that many clients will doubtless want assistance from professionals to help establish competence. Where clients do appoint others to assist with the discharge of client duties, clients should be aware that this not absolve the client from its liability.
What is “organisational capability” for the purposes of the competence requirements?
“Organisational capability” is defined as “appropriate management policies, procedures, systems and resources to ensure:
individuals under the control of the organisation who carry out building work or design work comply with the relevant competence requirements
individuals under the control of the organisation who are in training to develop the necessary skills, knowledge, experience and behaviours, are appropriately supervised.”
In practice, we expect clients to adopt similar practices to those they have in place to establish competence under the CDM Regulations. Although not strictly required for non-higher risk buildings it would be good practice for clients to keep records of competence assessments and to monitor competence throughout the project.
It is expected that evidence of competence is likely to include details of previous experience on similar projects/types of building and membership of industry bodies or particular qualifications.
What happens if a party does not comply with its duties?
Non-compliance with the new regime is a criminal offence, with sanctions including imprisonment and fines.
What do clients need to do now?
Step 1: ascertain whether the new regime applies
If the client intends to carry out building work in England, the position will be as follows:
if the building work started before 1 October 2023, the new regime will not apply.
if plans are lodged with the local authority before 1 October 2023 or a building notice has been given to the local authority before 1 October 2023, the new regime will not apply, unless:
the plans are rejected
building work has not commenced on site by 6 April 2024.
from 6 April 2024 the new regime will apply to all building work.
Step 2: understand the client duties
If the new regime applies, clients should familiarise themselves with the client duties and establish the competence of those it intends to appoint in relation to the project. If a principal contractor and a principal designer have already been appointed for CDM purposes, clients may choose to appoint the CDM principal contractor and the CDM principal designer as principal contractor and principal designer under the building safety regime, provided they are satisfied as to the competence of the appointees.
Forsters responds to UK government’s consultation on reforms to the Construction Industry Scheme
19 July 2023
News
Tax Partner, Heather Corben and Tax Associate, Oliver Claridge, responded this week to the UK government’s consultation on reforms to the Construction Industry Scheme (“CIS”), which was published on 27 April 2023 (the “Consultation”). The Consultation closes at 11:45pm on 20 July 2023.
What is the CIS?
The CIS was originally put in place in the early 1970s to protect taxation revenue in the construction industry, which then, as it does now, regularly employs a large number of mobile workers who are paid in cash.
Contractors have to determine the CIS status of their subcontractors and make deductions from payments to them accordingly:
30% deduction if the subcontractor is not HMRC-registered
20% deduction if the subcontractor is HMRC-registered
0% deduction if the subcontractor holds Gross Payment Status (“GPS”)
The withholding tax is then paid by the contractor to HMRC.
There is no exemption for contractors from registering for the CIS and any business which does not fall squarely within the construction sector but which spends over £3 million on construction operations annually also has to register.
In order to qualify for GPS, a subcontractor must satisfy three tests, namely, the compliance test (all direct taxes must be up-to-date with returns and payments made correctly and on time), the business test (the operating business carries out construction work and has a UK bank account) and the turnover test (the net 12-month turnover must exceed £30,000 per director or partner or £100,000 for the entire company or partnership).
If at any time, the subcontractor fails to satisfy any of the tests, its GPS can be cancelled by HMRC.
What is the Consultation about?
Strengthening GPS tests
Currently, only direct tax compliance is considered for the purposes of the GPS compliance test. The Consultation is therefore seeking views as to whether VAT should also be included to prevent businesses which have committed VAT (and potentially wider compliance) abuse from achieving GPS.
Annual checks of a business’s continuing compliance are undertaken by HMRC once the subcontractor has been registered for GPS. The Consultation covers whether the first check by HMRC should be brought forward to six months post-registration in order to detect businesses which become non-compliant soon after GPS registration.
The Consultation is also asking for opinions as to whether HMRC should be able to determine the medium by which an application for GPS is made, with the intention that this will become digitalised in the future. At present, applications can be made by telephone and the government is of the view that this may be “a less challenging route” and as such, is preferred by fraudulent entities.
Simplifying the treatment of landlord to tenant payments
Payments made by landlords to tenants (perhaps to encourage a tenant to enter into a lease) are classified in two different ways for the purposes of the CIS:
Category A payments, being payments for works that are the landlord’s responsibility (for example, structural work) – these fall within the CIS
Category B payments, being payments for works that benefit the tenant’s business (for example, internal cosmetic work) – these fall outside of the CIS
It is the landlord’s responsibility to determine which category a payment falls into and, simply put, this is causing a number of issues.
The Consultation is asking for views on the extent of these issues and on the government’s proposals to remove both categories from the CIS.
Reducing the administrative impact of operating the CIS
The CIS requires monthly reporting obligations with the ability to notify HMRC if monthly payments to subcontractors will not be made for up to six months. However, large groups of companies may not make such regular subcontractor payments and as a result, use a lot of resources to determine which companies within the group have made such a payment (which requires a return to be made) and which have not. “Nil returns” are often completed for those companies which have not made a payment to ensure that late filing penalties are not incurred, although strictly speaking a “nil return” is not actually required.
The Consultation is seeking views on whether the implementation of a “CIS grouping arrangement” would be beneficial, in a similar vein to corporation tax and VAT. This would allow one company within the group to submit a single monthly return on behalf of all the companies within the group.
Forsters’ response to the Consultation
Forsters welcomes the inclusion of VAT in the GPS compliance test, if this allows entities which may not have been in existence for long enough to file a corporation tax return to apply for GPS. However, we have also raised the concern that minor VAT errors are commonplace and should not prevent usually compliant entities from achieving GPS status. We have suggested that a minimum non-compliance threshold be put in place to counteract this potential problem.
We are not of the view that any landlord to tenant payments should fall within the CIS. In these cases, it is usual for the tenant to then pay a subcontractor, and so the arrangement will fall within the CIS regime anyway as the exemption does not continue to apply further along any contractual chain. Even in those cases where a tenant itself carries out the work, HMRC will have security in the form of the actual property asset.
Finally, we consider that a “CIS grouping arrangement” would be beneficial, provided that landlords as contractors or deemed contractors are able to benefit from such an arrangement and that the definition of “group” is clearly delineated.
Disclaimer
This note reflects our opinion and views as of 19 July 2023 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.
Bisnow UK Life Sciences Real Estate Annual Conference – 6 Key Takeaways
6 March 2023
News
On Thursday 2 March 2023 Construction Partner, Emily Holdstock, and Commercial Real Estate Partner, Anthony Goodmaker, attended the Bisnow UK Life Sciences Real Estate Annual Conference at the White City Innovation District.
The overwhelming message from the many industry-leading speakers was one of optimism and growth – here are their 6 takeaways from the event:
1. Exponential Growth
Whilst some predicted the boom of this sector a decade ago, the pandemic has no doubt accelerated the growth of Life Sciences as a key real estate asset class. 5 years ago there was next to no lab space in London. Now it is really starting to rival Oxford and Cambridge for dominance in the market. In truth, all three will prevail together as ageing populations and increased Government investment in healthcare drive the continued demand for Life Sciences real estate in the UK. And the shortage of current space remains chronic in spite of a significantly increased development pipeline for the coming years.
2. Know Your Occupiers
Whilst most startups and university research spin-offs just require a simple lab and small adjacent office space as a starter for 10, their needs can quickly change as investment funds pour in. The need for a more specialised and bespoke workspace can arise overnight and so being nimble and being in a position to provide a variety of facilities for a variety of tenants on the same campus is key to building long term relationships with occupiers.
3. Co-Location is Key
The life sciences ecosystem is crucial for companies in sharing infrastructure, facilities and knowledge. A single life sciences building without a surrounding cluster of chemists, biologists, biochemists, engineers, researchers, universities and hospitals may be less attractive to smaller start-ups who rely on the collaborative benefits that clustering brings. Innovation districts are not just a buzzword, but an operational need.
4. ESG Concerns
Life sciences buildings are intensive users of energy – up to 5 times more than a standard office. But unsurprisingly for a sector whose users lead the way in innovation and technology, things are starting to change as the push for increased digitisation and reduced reliance on gas will help keep the sector on track to meet Government sustainability requirements.
5. Live Work Play
The development of new Life Sciences clusters in the UK, particularly new facilities in the outskirts of Oxford and Cambridge, must be accompanied by sufficient provision of adequate housing, transport, healthcare, schools and nurseries. Young people are the main workforce for this sector and suitable 24/7 infrastructure is needed to ensure that key Life Sciences locations are attractive to them as a place to live, work and play.
6. Institutionalisation
Real estate must not become the blocker that restricts the output of this fast-paced sector. All the new space required to meet the growing demand must be high tech and complex, and the real estate sector needs to get its head round it quickly. Site and sector specific knowledge for owning and operating such highly complex assets means that while institutional capital wants to be in the sector, there are still real barriers to entry. Unlocking the full potential of institutional investment will be key to ensuring that that demand can be met sooner rather than later.
Sharing the Load – Andrew Parker speaks to Construction News
1 March 2023
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Construction Partner, Andrew Parker, has been quoted heavily in Construction News‘ James Wilmore’s latest piece on the role of collaborative risk-sharing in preserving the resilience and capacity of the construction industry in times to come.
Risk-sharing, in the Construction Leadership Council’s (CLC) words, is vital due to a “sustained, high level of construction firm insolvencies, particularly among SME builders and specialist contractors.” Among the culprits for these collapses are “economic uncertainty and the difficulty of reconciling fixed-priced contracts with price inflation and reduced cashflow.”
This, along with expectations of recession and poor demand conditions, as well as inflationary pressures, means confidence in the sector is contracting.
In this context, then, risk-sharing could perhaps be under threat, and so Wilmore’s article explores the kinds of risk-sharing that are already happening and if they are sustainable.
Parker is consistently quoted throughout the piece on factors such as “fluctuation clauses” (enabling clients to take a “pragmatic approach” to their supply chain), a need for “more collaboration” in the face of inflationary and pricing issues, and how despite the various pressures, “if you’re a big strong contractor, you’re becoming bigger and stronger in this market.”
The Building Safety Act 2022 (the Act) received royal assent in April 2022, with its provisions coming into force in tranches over the following 18 month period. The extension of the limitation periods and leaseholder protections, both of which are explained in more detail below, are already in force. Following the recent launch of a government consultation on implementing the new regulatory regime for higher risk buildings, which is another key element of the legislation, we thought we would take the opportunity to look at what the Act changes in practice.
1. Potential Claims
Extension of Limitation Periods
Claims under the Defective Premises Act:
The Defective Premises Act enables claims to be made for defective work relating to the construction of dwellings where the work renders the dwelling unfit for habitation. The limitation period (deadline) for claims brought under the Defective Premises Act is extended from 6 years to 15 years for new claims.
Where the claim relates to construction rather than the refurbishment of dwellings, there will be a retrospective 30-year limitation period.
Section 38 of the Building Act:
This section provides a statutory right of action for breach of a duty imposed by the building regulations, so far as it causes physical damage (either injury or property damage). The limitation period for breaches is extended to 15 years.
Claims against construction product manufacturers:
Where the use of defective construction products leads to the building being uninhabitable the limitation period will be 15 years. If the claim relates to a cladding product however, there will be a 30-year retrospective limitation period.
Other claims
There will be a new right for those with an interest in a dwelling to claim against construction product manufacturers where the product fails to comply with a relevant requirement, has been mis-sold or is inherently defective and the use of that product causes or contributes to the dwelling being unfit for habitation.
The High Court is able to make building liability orders against developers who have failed to meet a relevant liability under the Defective Premises Act 1972, or s38 of the Building Act 1984 as a result of a risk from fire spread or of structural collapse.
New build home warranties to provide cover for 15 years.
2. Remediation Costs
Part 5 of the Act deals with liability for costs of relevant defects, i.e. anything arising out of things done or used in connection with relevant works in the last 30 years or after that period to remedy a relevant defect which causes a risk to safety from fire or building collapse.
A ‘waterfall’ approach is taken to liability – developers pay first, then manufacturers, then freeholders and then leaseholders last.
The Act introduces various leaseholder protections which are intended to mean that leaseholders pay for fire safety related remedial works only as a last resort.
Leaseholder owned buildings are current excluded from these protections but, otherwise, they apply to any qualifying lease of a dwelling, i.e. one for more than 21 years granted before 14 February 2022 where as at that date the dwelling was the leaseholder at that time’s only or principal home and he/she did not own more than 2 other UK dwellings.
Cladding defect costs
Building owners are liable to for paying for all remediation costs and any associated interim measures (waking watch etc) if they are, or are associated with, the developer of the building.
Even if they are not, they cannot pass on any of these types of costs to qualifying leaseholders.
Government funding may be available for this type of remediation and building owners are obliged to investigate this, or if there are any viable third party claims, to ensure that any costs passed on are not deemed to be unreasonable service charge costs.
Non cladding defect costs
Building owners are liable to pay for all of these types of costs (including associated interim measures) if they are, or are associated with, the developer.
If they meet a contribution condition (i.e. have a net worth of at least £2 million per relevant building) then they cannot charge qualifying leaseholders for these types of costs.
3. New Regulatory Regime
Applies to ‘higher risk’ buildings, i.e. those of at least 18 metres or 7 storeys high. Provided the height threshold is met then draft regulations confirm that buildings in scope must contain at least two residential units (dwellings or other unit of temporary accommodation), or be hospitals and care homes during the constructions phase.
The Building Safety Regulator (“the Regulator”) will be the building control authority.
Building safety is to be considered at each stage of design and construction, with a ‘golden thread’ of information about each stage being maintained to ensure that building safety risks are managed throughout the building’s life.
An Accountable Person will be the duty holder and must register the building before it is occupied, apply for a Building Assessment Certificate, and proactively manage safety risks by way of a Safety Case Report which must be kept up to date and be submitted to the Regulator. Once registered the Regulator will manage the assessment process by ‘calling in’ higher-risk buildings. For new buildings, this is likely to be within six months of occupation, with existing buildings being called in in tranches from April 2024.
An amendment to the Regulatory Reform (Fire Safety) Order 2005 will require all Responsible Persons to record their fire risk assessments and only instruct competent persons to undertake these assessments. Closer collaboration with other Responsible Persons in the same building is also expected and in the case of residential higher risk buildings, Responsible Persons will need to co-operate with the Accountable Person.
Government sends a clear signal to get on with cladding repairs – Andrew Parker writes for Property Week
20 October 2022
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Construction Partner, Andrew Parker, has spoken to Property Week on the newly redeclared urgency from the government to act on building safety. The new Housing Secretary, Simon Clarke, declaring that it was his “duty” to fix an “ineffective” building safety regime.
While there have been delays in the process, the view is commonly held that the government’s making use of the Building Safety Act (which gained royal assent in April 2022) is a step in the right direction.
Parker commented: “The action being taken is a positive step from the government to make good on its promise to ‘pursue firms that have failed to do the right thing’ as [former housing secretary] Michael Gove put it.
“It shows that the provisions of the Building Safety Act have teeth, such as section 123, which introduces the remediation orders that require landlords to remedy specified defeats within a specified period.
“This government action suggests that the net is closing in on those responsible for fire safety defects… and who are unreasonably delaying carrying out necessary remedial works.”
This article was first published in Property Week on 19 October 2022 and is available to read in full here, behind their paywall.
Construction Focus: A solution to a problem or a problem in itself? – Polly Streather writes for the PLJ
6 October 2022
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Construction Associate, Polly Streather, recently wrote for the Property Law Journal on the use and benefit of pre-contract tools, such as letters of intent, in trying to alleviate the strain of increasing construction prices and highlighting the risks that should be considered by employers before entering into such arrangements.
Polly writes: “Once the letter of intent is in place, there is sometimes a temptation for contractors to work outside of the authorised scope or beyond the expiry date so as to keep the project on target. However, this raises problems if the final contract is never entered into and a dispute arises as to payment or such other matter.
“Although it is always advisable to enter into a building contract rather than commence work under a letter of intent or other pre-contract tool, there may be times where this is not possible for the reasons highlighted above. It is important to be aware of the risks of entering into letters of intent and undertaking (and other forms of pre-contract tool), and to weigh these against the benefits. While such letters can often seem like a straightforward solution to the pressures arising from increasing construction prices and long lead times, they may cause unintended issues further down the line if due consideration is not given to their terms.”
When a collateral warranty is a construction contract – Daniel Burr and Sophie Togwell write for the Property Law Journal
6 September 2022
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Construction Senior Associate, Daniel Burr, and Associate, Sophie Togwell, have written for the Property Law Journal, on necessary criteria for defining a collateral warranty as a construction contract.
“It was held that, for a warranty to be a construction contract, it must be an agreement for the carrying out of construction operations, meaning it must relate to the performance of works rather than just the quality of work.”
Their article references the outcome of a recent Court of Appeal decision, which states that a collateral warranty can be a construction contract under s104 of the Housing Grants, Construction and Regeneration Act 1996.
The pair go on to discuss the case, its issues, and the wider practical implications of the ruling.
This article was first published in Property Law Journal 400 (September 2022) and is also available on lawjournals.co.uk.
Revisiting termination: When to stick or twist? – Richard Spring writes for the Property Law Journal
3 August 2022
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Construction Senior Associate, Richard Spring, has written for the Property Law Journal, about the options available to those who are not happy with the performance of their contractor.
This article was first published in Property Law Journal 399 (July/August 2022) and is also available on lawjournals.co.uk.
“What of a contractor who, put simply, is just not performing? What options are available to an employer who believes its contractor is not holding up its end of the bargain?”
The article gives consideration to the intricacies of terminating a contract’s engagement and providing practical advice on how to safely exercise this inherently risky enterprise.
Spring describes how “a thorough, detailed analysis of the events surrounding the contractor’s non-performance, possibly with expert opinion, should be undertaken to ascertain whether the contractor has indeed failed to proceed regularly and diligently with the works before any decision to terminate is taken.”
He concludes by offering 10 key considerations to note when considering terminating a contractor’s engagement.
Has Grenfell changed the face of Construction? Andrew Parker speaks to Raconteur Magazine
16 June 2022
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Construction Partner, Andrew Parker, recently spoke to Raconteur magazine on the impact that the Grenfell fire has had on both the Construction industry and the resultant legal developments in relation to regulations and safety standards. Andrew said:
“In the five years since the tragedy at Grenfell there have been two significant pieces of legislation. The first is the Fire Safety Act, which received Royal Assent on the 29th April 2021 and the second is the Building Safety Act, which received Royal Assent on the 28th April 2022.
“The Fire Safety Act, which came into force in May 2022, amends the 2005 Fire Safety Order to require updated fire risk assessments for buildings with two or more domestic premises to take account of the structure and external walls of a building and all the doors between the domestic premises and the common parts.
“This is a huge undertaking, essentially requiring updated fire risk assessments for all communal residential buildings and puts significant demand on specialists in the sector to carry out the assessments. To help manage the demand the Government has introduced a ‘fire risk assessment prioritisation tool’ so those buildings with heightened risk are tiered accordingly and can access competent professionals as a priority. The Fire Safety Act also makes it easier to identify the ‘responsible person’ to ensure greater accountability for a buildings fire safety.
“The Fire Safety Act, which came into force in May 2022, amends the 2005 Fire Safety Order to require updated fire risk assessments for buildings with two or more domestic premises to take account of the structure and external walls of a building and all the doors between the domestic premises and the common parts.
“This is a huge undertaking essentially requiring updated fire risk assessments for all communal residential buildings and puts significant demand on specialists in the sector to carry out the assessments. To help manage the demand the Government has introduced a ‘fire risk assessment prioritisation tool’ so those buildings with heightened risk are tiered accordingly and can access competent professionals as a priority. The Fire Safety Act also makes it easier to identify the ‘responsible person’ to ensure greater accountability for a buildings fire safety.
“The Building Safety Act has introduced several new rules and regulations, including a new Building Safety Regulator, Homes Ombudsman Scheme, and a ‘Gateway’ system, which will see greater scrutiny on buildings as they progress through design and construction, but a majority of the provisions in the Act won’t come into effect for another 12-18 months.
“One of the first parts of the Building Safety Act that will be brought in is an extension to the limitation period which will see the limitation period extended from six years to 30 years for retrospective claims, essentially meaning that a whole swathe of buildings constructed since 1992 may now be the subject of new claims from residents against building owners and developers.
“It could be a challenging time with increased demand for suitably qualified and experienced engineers to carry out assessments and remedial work.”
Construction focus: Oral contracts – Emma Swan writes for Property Law Journal
17 May 2022
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In the latest Forsters contribution to the Property Law Journal, Construction Associate, Emma Swan, warns against the use of oral contracts in order to avoid uncertainty.
This article was first published in Property Law Journal 397 (May 2022) and is also available on lawjournals.co.uk.
In her article, titled ‘Construction Focus: The unwritten rule’, Emma discusses how numerous contractors, developers and consultants rely on oral contracts due to either time constraints regarding the completion of paperwork, (occasionally misplaced) trust between parties, or the instance that subsequent variations of written contracts are agreed orally.
A key difficulty with oral contracts and oral variations is that it is difficult to prove what has actually been agreed between parties if there is a disagreement about the terms of the agreement. To highlight this point, Emma goes on to reference the key provisions of the Construction Act 1996 and highlight the risks involved when parties rely solely on an oral contract.
She concludes that clearly setting out the terms at the beginning of a contractual relationship, parties to a construction contract can effectively protect themselves as far as possible against the headache of having to retrospectively attempt to persuade a court of what was originally agreed between parties.
Oral contracts, more often than not, cause ambiguity and can lead to expensive and time-consuming disputes that could have easily been avoided by the existence of a clear written contract.
Construction Focus – Insolvency in construction: Dan Cudlipp writes for the Property Law Journal
7 April 2022
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Construction Associate, Dan Cudlipp, has written for Property Law Journal, assessing the increasing risk and legal consequences surrounding construction-related insolvencies.
This article was first published in Property Law Journal 396 (April 2022) and is also available on lawjournals.co.uk.
The article, entitled “Construction Focus: Insolvency in Construction” outlines the specific challenges faced by construction companies, the contractual consequences when a main contractor enters insolvency, and the practical next steps for dealing with such issues.
Cudlipp says “there are a number of separate but closely connected factors that are combining to make life tough for construction companies, but all are underpinned by the Covid-19 pandemic, which had an immediate yet lingering impact on a construction industry already seeking to navigate the vagaries of Brexit.”
The challenges faced by the industry show little sign of letting up.
