Member Article

To help the industry prepare, Shoosmiths’ construction specialists have outlined what legal developments may be in store for 2024.

After a testing few years for the construction industry, 2024 is likely to be no breeze, with continued economic uncertainty and major regulatory reform on the way. To help the industry prepare, Shoosmiths’ construction specialists have outlined what legal developments may be in store for 2024.

Building Safety Act – gateway and dutyholder regime

The transitional period for the new building control regime for higher-risk buildings will end on 6 April 2024. Compliance with the new gateway regime may cause project delays - contracts must, therefore, clearly allocate the potential time and cost consequences of these delays.

The gateway regime will apply to buildings that are at least 18 metres in height or that have at least seven storeys and either contain at least two residential units or are care homes or hospitals.

Higher-risk building projects will need to obtain building control approval from the Building Safety Regulator (BSR) before building work can commence. Residential units in higher-risk buildings cannot be occupied until the BSR has issued a completion certificate at Gateway 3 and the building is registered with the BSR. Those involved in construction projects will need to ensure contracts allocate the responsibility for complying with the new regime appropriately between the parties.

The transitional provisions for the new dutyholder regime are also set to end on 6 April 2024.

The dutyholder regime will impact a wide range of projects and those involved in the design and construction of projects to which the Building Regulations 2010 apply - i.e. not just to higher-risk buildings - will need to be aware of their duties and ensure those that they appoint are competent.

Dutyholders involved in the design and construction of higher-risk building projects will need to be aware of their enhanced duties. Demonstrating competence will be key to the new dutyholder regime and so, in 2024, more guidance is expected as to how competence can be demonstrated, together with accreditation by third parties. Many organisations in the industry will be on a fast-track mission to upskilling and training their teams to comply with the requirements.

What is less clear is the appetite for the industry to take on these roles and the associated risks. This is particularly the case with the role of Principal Designer and it is unclear at this stage whether insurers will seek to manage their risk by setting limits in PII cover offered in respect of this role.

There may also be some confusion when it comes to fit-out works and refurbishments in existing higher-risk buildings, particularly in mixed-use developments. It may not be immediately apparent that fit-out works in an office located within a mixed-use development could be caught by the new gateway regime, but it might, and so these situations will need to be carefully analysed in the context of the proposed works and the configuration of the buildings to ascertain if they are effected.

Further provisions

The Building Safety Act (BSA) is not yet fully implemented and further provisions may come into force in 2024. The industry could face further costs in respect of residential development, with the implementation of the Building Safety Levy provided for under s.58 of the BSA.

The full details of the levy will be set out in secondary legislation that is yet to be published. However, the scope is potentially wide - applying to buildings in England containing one or more residential dwellings and other temporary accommodation, such as hotels or hospitals. This could raise an estimated £3bn over the next 10 years, contributing to the cost of remedying building safety defects.

In addition, s.144 of the BSA provides for new build home warranties to be provided by developers of new homes. Further regulations will contain the details of the warranties, including what defects will need to be remedied and the insurance requirements. When implemented, it will be a statutory obligation to provide a new-build warranty with a policy term of at least 15 years.

Regulations will also set out that failure to provide a warranty will result in a financial penalty. It is unclear whether the insurance industry will have the appetite to offer the products necessary for the requisite level of insurance. Without backing from the insurance industry, implementing a statutory requirement for new build home warranties will be challenging.

S.38 of the Building Act 1984 has remained dormant on the statute books despite the BSA providing that liability will be subject to a 15-year limitation period - applying prospectively when the provision is brought into force. S.38 allows for a claim for compensation for physical damage caused by a breach of the Building Regulations and it was anticipated that this section would be brought into force shortly after the BSA was implemented, but it is not clear if and when this will happen.

Wales is also due to implement its higher-risk building regime which will differ in some respects to the regime implemented in England. The Welsh government recently confirmed that oversight of new higher-risk buildings will be restricted to local authority building control from April 2024.

On 1 January 2024, The Building Safety (Description of Higher-Risk Building) (Design and Construction Phase) (Wales) Regulations 2023 came into force confirming the definition of a higher-risk building in Wales. This differs from the definition in England, for example, a higher-risk building in Wales need only contain one residential unit - as opposed to two in England.

Joint Contracts Tribunal 2024

This year we can expect new editions of the Joint Contracts Tribunal’s contracts to be published. 

Whilst the detail of the updates and the exact publishing dates are yet to be confirmed, Shoosmiths’ experts outlined what to expect from the new suite in a recent article.

Supreme Court appeal

Supreme Court guidance may be given on collateral warranties in 2024.

In December 2022, the Supreme Court granted permission to appeal the Court of Appeal decision in Abbey Healthcare (Mill Hill) Limited v Simply Construct (UK) LLP [2022].

As discussed in Shoosmiths' analysis of the decision, in a majority judgment, the Court of Appeal reversed the first instance decision and held that the collateral warranty in question was a construction contract within the meaning of s.104(1) of the Housing Grants, Construction & Regeneration Act 1996.

This decision confirmed that even where a collateral warranty is executed sometime after the works have been completed, this is irrelevant when deciding whether it was a construction contract under the Construction Act. What matters is the wording of the collateral warranty and specifically whether this includes future performance. In this case, the warranty made a promise as to the standard of work carried out in the future and these “future-facing” obligations had retrospective effect.

Further consideration and guidance from the Supreme Court will be of significant interest to the industry, where collateral warranties remain an important way of creating a contractual link between, for example, future owners, occupiers or funders who are not party to a building contract, but who have an interest in a project, and those responsible for constructing the building.

Despite the availability of third-party rights, the use of collateral warranties remains commonplace and these are frequently executed after the work to which they relate has been completed.

Net zero

The government has set legally binding targets of reaching net zero greenhouse gas emissions by 2050. The construction industry has a key role to play in achieving this target by making buildings more energy efficient and reducing embodied carbon emissions during a building’s lifecycle.

In December 2023, the government launched the Future Homes and Buildings Standards: 2023 consultation. It sets out technical proposals for changes to Part L (conservation of fuel and power), Part F (ventilation) and Part 6 of the Building Regulations 2010. Whilst the issue of embodied carbon is not dealt with in the consultation, the government states that it intends to consult on its approach to measuring and reducing embodied carbon in new buildings “in due course”.

The consultation states that the government recognises “that embodied carbon is a significant contributor to the whole life carbon of a building and that it is therefore crucial that we take steps to address it”. However, the government withdrew its support for a Private Members’ Bill introduced into Parliament in February 2022 with the aim of monitoring and limiting embodied carbon emissions in construction projects.

The Carbon Emissions (Buildings) Bill sought to set limits on embodied carbon emissions in the construction of buildings and to require that the whole life carbon emissions of buildings be reported. Setting clear targets for embodied carbon emissions, how these will be calculated and monitored, as well as allocating the risk and consequences of these targets not being achieved presents challenges.

Outside of these government targets, there is also a wider growing trend being set by many clients, investors, funds and even lending banks that projects must have wider environmental, social and governance requirements, and so there will surely be more to come in 2024.

Retention reporting

The use of retentions is a divisive issue in the industry and there have been several attempts at reform in the form of a number of Private Members Bills that have failed to progress through Parliament.

Whilst an outright ban on retentions seems unlikely in the short term, the government has published the Payment and Cashflow Review Report, which confirms its commitment to introduce reporting on retention payments for businesses in the construction sector. The report recognises the issues that can be caused by retention payments “it creates cash flow problems for smaller businesses within the construction supply chain, is open to non-payment and other forms of abuse, and creates a risk that retentions are never paid due to insolvency”.

The impact assessment states retention reporting will come into effect in 2025 for qualifying construction contracts. The impact assessment states: “For construction businesses, the proposed further reporting of various details relating to retention payments is also likely to increase costs.”

Second staircases

The industry will also be looking for the government to provide further clarity regarding second staircases in high-rise buildings.

This proposal was subject to a government consultation published in January 2023. It caused much industry uncertainty and reportedly delayed schemes, while government clarity was awaited.

In October 2023, the government confirmed the transitional arrangements that will accompany the change to Approved Document B - requiring a second staircase in new residential buildings in England above 18m. It was confirmed in a ministerial statement, from the date the changes to Approved Document B are published, developers will have a 30 month transitional period during which new building regulations applications can conform to either existing guidance or to the updated guidance that will require a second staircase.

However, details of the changes to Approved Document B and confirmation of when the transitional period is commenced is still awaited. Further clarity in this respect would be welcomed in 2024.

 

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