Building Safety Act litigation redefines investor risk

The Building Safety Act 2022 (BSA) came into force in April 2022 in response to widespread market failures in the construction industry. 

The BSA made a number of major changes to what had been considered settled rights of investors in the UK real estate market. Retrospective and retroactive changes were made that affected parties’ existing legal and contractual rights, created new forms of liability and introduced major new exceptions to the principle of separate legal personality.

The BSA was regarded as being an exceptional intervention, strictly targeted to address the unique circumstances surrounding the building safety crisis. However, as litigation shows the new legal regime being applied in practice, it shows liabilities being imposed on investors into the UK real estate market that were entirely unforeseeable, and must now be understood. 

Separate legal personality and association

Developers will commonly set up a special purpose vehicle (SPV) for specific projects that will be disposed of on completion of the development. This then limits the risk to the capital invested in the SPV, save to the extent that any party voluntarily assumed liabilities, for example, by providing guarantees or warranties. Developers could build, sell and move onto the next project. Or at least this was the accepted position before the BSA. 

When introducing the BSA, Parliament recognised that SPVs were commonly thinly capitalised and that this would prevent meaningful enforcement of claims against them. The BSA therefore relied on the concept of ‘Association’ to extend liability to other entities in certain circumstances. 

In its narrower formulation under s.131 BSA, ‘association’ applies to body corporates that are ‘associates.’ This is based on whether one entity controls the other or a third company controls them both. On its wider formulation under s.121 BSA, partnerships (including traditional partnerships) and body corporates have ‘Associated persons.’ 

This is not only satisfied where there is control, but also applies to persons who were partners or body corporates with common directors during relevant periods. 

This means that the BSA erodes and elides corporate identity, and deprives it of some of its main advantages. As a prospective change, this is understandable. Developers can now decide how to structure their projects, and business models, knowing that SPVs now provide reduced protection. However, the BSA went much further than this. 

Retrospective and retroactive

The BSA introduced a number of retrospective and retroactive changes that affected existing legal rights. 

Limitation periods for claims under the Defective Premises Act 1972 (the DPA) were retrospectively extended to 30 years. Claims that previously had limitation defences could therefore now be pursued, and defendants would be deprived of the defences they previously had.

The BSA also interfered with existing property rights. New terms were implied into certain types of qualifying leases. These prevented the recovery of service charges from leaseholders for relevant measures relating to relevant defects, or cladding remediation, amongst other protections. Landlords could also have a ‘Remediation Order’ made against them (under section 123 BSA) that required them to remedy relevant defects that cause a building safety risk by a specific deadline. This changed the relationship that landlords had with their leaseholders, and placed additional burdens upon them.

This creates issues of fairness and legal certainty. Parties had made decisions on the basis of the law, and the legal rights they were acquiring, at the relevant time. However, the BSA went even wider than this, and introduced entirely new types of claims that could be pursued, and so created liabilities that did not previously exist. 

Some of these new claims appear in keeping with the ‘polluter pays’ principle underpinning the BSA. Additional rights were introduced to pursue claims for damages against, and obtain costs contributions from, the suppliers and manufacturers of certain defective construction products (sections 149 to 154 BSA 2022). However, the tests of association under the BSA goes far wider than those responsible for defects, and includes parties whom were not involved in the original development at all.

Under sections 130 to 132 BSA, the High Court was given the power to make a Building Liability Order (BLO). BLOs extend certain liabilities of one body corporate to another body corporate that is one of its ‘associates’ (on the narrow definition). This applies to claims under the DPA or resulting from a ‘building safety risk’ to people in or about the building arising from the spread of fire or structural failure. This therefore has a potentially wide application that extends beyond the residential buildings above 11 and 18 metres that were the focus of the BSA. 

In addition, section 124 BSA gave the First-tier Tribunal (Property Chamber) (FTT) the power to make a Remediation Contribution Order (RCO). This provides that any ‘Associated person’ (on the wide definition) can be ordered to pay for costs connected with remedying defects to a relevant building. 

BLOs and RCOs therefore create a much wider scope of potential liability. This is subject to the discretion of the High Court / FTT based on whether it considers the making of a BLO / RCO just and equitable. However, based on the decisions to date, this does not appear a particularly stringent test to overcome. 

Unanticipated risks 

In Triathlon Homes LLP v Stratford Village Development Partnership & Ors [2025] EWCA Civ 846, the Court of Appeal upheld a decision of the FTT that it was “just and equitable” to grant an RCO, and provided some guidance as to what considerations may be relevant. This is also likely to be relevant in the context of BLOs given the approach of the High Court in 381 Southwark Park Road RTM Company Ltd & Ors v Click Andrews Ltd (in liquidation) & Anor [2024] EWHC 3569 (TCC).

Given the approach of the FTT and the court in Triathlon, parties advising on, and investing in, UK real estate and corporate transactions should have serious concerns about the risks arising under the BSA. Although the UK government was ultimately responsible for regulating the construction market, the use of public funding for the costs of remedial works is a last resort. Instead, the BSA imposes a hierarchy of potential funders for works based on their connection to the building. The original developer stands at the top, with this cascading down through the test of’ ‘association.’

In cases involving thinly capitalised SPVs, there are cases where the unfairness of retrospective and retroactive changes might be considered limited. Although the parties involved in the original development acted in a permissible and common way, in some cases the BSA might be seen as permitting the recovery of windfalls obtained by developing an unsafe building. 

This rationale does not apply however where there have been changes in ownership. In Triathlon it was not considered relevant if the ultimate beneficial owners of the companies that met the test of ‘association’ changed. The court instead took the view that “if you invest in a company, you take the risk of unforeseen liabilities attaching to that company.” Of greater concern, neither did it assist if a company that met the test of ‘association’ itself had no involvement with the development. The court took the view that purchasers had the choice between acquiring the land and acquiring the development vehicle, and having done the latter they took the risk of liabilities attaching to the development vehicle.

This included:

• the unknown risk that the development vehicle “might be made liable to contribute to the costs of remedying defects in the development;” and

• the quite unforeseeable risk “that there would develop such a serious building safety crisis that Parliament thought it right to enact very far-reaching legislation under which the well-resourced parent of a poorly-resourced developer could also be made to contribute without being at fault in any way.”

This has resulted in an extraordinary position. In Triathlon the simple act of one company acquiring the development vehicle of a residential development led to a position where the UK government asked “…whether there was any clear and convincing reason why the best part of £20m should remain” in the bank account of the wealthy parent, rather than be used to remediate buildings, and then deciding that there was not. 

Lessons to learn

The effect of the BSA is that parties have acquired what they believed were assets but which are actually liabilities. This creates considerable unfairness, uncertainty and risk. Even with this risk now being foreseeable on future transactions, it is still difficult to manage. As an example of the scale of the issues, in Grey GR Limited Partnership v Edgewater (Stevenage) Limited and Ors (CAM/26UH/HYI/2023/0003) RCOs were sought against 96 “associated persons” of a developer and granted against 75 of them, creating a new joint and several liability in the region of £13.2m. 

To date there have been limited indications of constraints on the BSA, or challenges to the BSA on the basis of the UK’s obligations under international law. In Adriatic Land 5 Limited v Long Leaseholders At Hippersley Point [2025] EWCA Civ 856 the Court of Appeal considered the retrospective changes to qualifying leases that restricted service charge recovery. These were considered to fall within a permitted control of the use of property that did not breach Article 1 of Protocol 1 on the European Convention on Human Rights (A1P1). There are however circumstances where the BSA appears to amount, in effect, to an expropriatory regime. Parties are therefore likely to continue raising arguments under A1P1, and also potentially investor-state dispute settlement procedures. 

In the meantime, uncertainty is pervading the industry more widely as parties try to mitigate the effect, or take advantage, of the opportunities and risks that arise. As an example, the BSA has provided insurers with arguments to try and escape their liabilities to leaseholders under new build warranties. More generally, the BSA provides a challenging climate for developers, many of whom are reconsidering their business models. This therefore starkly contrasts with the desire to get Britain building,

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