The Building Act 1984 sought to reduce the administrative difficulties inherent in building control and provide a less bureaucratic system through independent certification by Approved Inspectors (AIs). This led to the formation of Construction Industry Council in 1988 which now regulates private building control by approving inspectors thus affording the industry the choice between private Approved Inspectors and Local Authority building control.
As AIs do not have the financial strength of Local Authorities; it is a requirement for AIs to provide public liability and professional indemnity insurance. However, following the Grenfell tragedy, AIs are finding it ever more difficult to place the required insurance coverage. Recent changes to insurance regulations have led to stringent new coverage criteria, an increasingly risk-adverse insurance industry has resulted in increased premiums and the potential liability associated with the ongoing cladding crisis is driving insurers to insert specific cladding exclusions in their polices.
Where an AI does not have the required insurances in place it is unable to carry out its formal building control functions and projects across the country are increasingly finding themselves in a position where the appointed AI is being forced to stop work.
In this situation, the AI or the person carrying out the works must cancel the initial notice that was lodged with the Local Authority in order for the building control function to be transferred to the Local Authority. At present, it is still uncommon for these cancellation notices to be issued and so Local Authorities are not legally allowed to take over the work. However, very little work on site seems to have been stopped, meaning that lots of projects are continuing unregulated.
It has been established that a Local Authority has no common law duty to safeguard commercial interests from pure economic loss. As such it is not possible, at this time, to pursue a Local Authority for a breach of building control when signing off on a project. Furthermore, the courts have found, in the two recent cases of Zagora v Zurich and Herons Court v Heronslea, that AIs have no common law duty in tort or liability under the Defective Premises Act 1972.
Therefore, one of the benefits for a developer of engaging an AI is that, generally, an appointment is entered into between the parties, providing the developer with a contractual route to pursue the AI should it breach its contractual obligations under the appointment.
However, as a result of the ensuing insurance crisis within the AI market, where AIs are able to secure the renewal of their insurance policies at all, this is only on the basis that the terms its insurer will agree to accept with a developer are very risk averse and frequently contain significant exclusions and caps on liability.
Developers are therefore increasingly being left with the choice of using a Local Authority, which it cannot pursue in court (and whose performance sometimes leaves something to be desired), or an AI whose terms significantly affect the developer's ability to recover in the event of breach. Given the difficulties in bringing a claim against a Local Authority, it may be that, for developers, the better option may still be to appoint an AI on whatever terms it can best secure, but these developments in the AI market are hardly satisfactory to any of the parties involved.