Residential property developers: Government intent for “anti-avoidance provisions” for “non-compliant Developers”
08 February 2022 08 February 2022
UK & Europe
Against the background of the hearings in the Grenfell Tower Inquiry Phase 2 , the Government has written a further open letter to “Residential Property Developers” that makes for interesting reading.
In our report here, we reviewed Michael Gove’s letter of 10 January 2022. The letter of 3 February 2022, sent from Richard Goodman, the Director-General of Safer and Greener Buildings, part of the Department for Levelling Up, Housing & Communities (the DLUHC) re-iterates the request for data relating to 11 metre + buildings; and sets out the “commitments expected from developers” which are in summary:
- remediating those buildings which they themselves played a role in developing or refurbishing; and
- providing financial contributions towards a fund which will cover the costs of all other 11-18m buildings with critical life cladding safety defects.
Developers who do not agree
The DLUHC’s letter states clearly that it is intended that the finally agreed commitments will be legal binding and sets out the following direct statement on its approach going forward:
“Those who agree to fulfil the commitments set out will continue to enjoy the benefits of the Government’s services and support on financing, procurement, planning, building control, housing investment, and industry development and leadership. Those who are unwilling to meet these criteria will not, and the Secretary of State has made clear he is willing to explore taking further steps to ensure the only participants in this market are those who have committed to resolving this crisis”.
Expected commitments from developers
The DLUHC’s letter appends a “Key Features Document” setting out the commitments expected from developers. Highlights in summary include the following.
- The current “negotiations” between the DLUHC and developers are intended to produce legally binding “Developer Conditions” that may have developer-specific annexures.
- The relevant developers will be determined on profits (or expected profits) from the development of residential land who can then choose to “elect” to join the scheme.
- “Appropriate anti-avoidance provisions will be included in the Developer Conditions” [emphasis added].
- “Remediation Work” is expected to cover those buildings a developer played a role in developing or refurbishing (for “self-remediation work”) and in relation to the Remediation Fund, “all cladding defects on residential and mixed-used Buildings 11-18 metres in height”.
- It is intended that the buildings in scope will comprise all buildings that require the defined “Remedial Work” over 11 metres in height and built or refurbished within the 30 years prior to the commencement of this Scheme.
- There are obligations to investigate the Remedial Works without delay and to “bear the cost of the works and all costs arising therefrom, so the leaseholders do not have to contribute”.
- A consultative committee will be established to be available to be consulted on the operation of the scheme.
- The “Remediation Fund” that developers will be expected to contribute to will cover the Remediation Work, reimbursement of HMG expenditure and operating costs of the Fund and the Scheme.
- The sizing of annual contributions will be based on “historical profits or other market metric….and… the amount each Developer is to contribute will be a forward-looking amount, specified by DLUHC each year (or intra-year, as applicable)”.
- There is a definition of “Non-compliant Developers” including those who may be “ejected by DLUHC on account of “material or persistent non-compliance with the Developer Conditions” or “breach of anti-avoidance provisions” with reference to restrictions that may flow from a “failure to meet their commitments”.
The DLUHC has proposed bilateral engagement on this proposition but intends to make a public statement in mid February 2022 regarding commitments by developers (and product manufacturers).
It is of course some 4.5 years since the Grenfell tragedy – the Government has stated its clear intention to have these matters resolved in principle this year, through measures including the legislation of the Building Safety Bill and the proposed agreement with developers.
The ramifications will clearly be wide-ranging.