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Out-Law News 1 min. read

Building Safety Act requires rethink of SPV risk arrangements

Organisations using specially set up companies – special purpose vehicles, or SPVs – to deliver new UK housing schemes have been urged to plan ahead for the increased potential exposure to liability they may face under the Building Safety Act.

Jonathan Vickers of Pinsent Masons, who specialises in residential development, said that the Building Safety Act 2022 (BSA) has altered the risk profile of such arrangements.

Under Section 130 of the BSA, the High Court has the power to issue a ‘building liability order’ (BLO) if it considers it just and equitable to do so. In effect, the court may impose liability for defective building works on companies associated with the company that originally carried out the works. The policy intent of BLOs is in part to limit the scope for construction companies to avoid liability for defective work by carrying out projects through SPVs that may be dissolved after the works are complete.

A BLO might be issued by the High Court in respect of liabilities arising out of a claim made under the Defective Premises Act 1972; a claim for compensation for physical damage caused by a breach of building regulations in accordance with section 38 of the Building Act 1984, which is still yet to come into effect; or any other claim which is incurred as a result of a risk from fire spread or structural failure. Any corporate body associated with a party liable under these types of claims may be at risk of having a BLO issued against them. This includes, but is not limited to, corporate bodies associated with the original SPV developer and contractors who constructed the building.

Further provisions of the BSA prevent building owners from using the voluntary liquidation process to avoid responsibilities to remediate ‘relevant defects’ for which they are liable.

Vickers said: “The effect of the legislation is that developers will not be able to effectively circumvent liability and cut short limitation periods by dissolution or voluntary liquidation. Companies associated with the original developer SPV can still be liable for remediation work.”

For large schemes, parent companies of SPVs should set aside contingency funds to remediate existing defects, which could be substantial depending on the size of the scheme.

Vickers said: “It is vital that this is considered at the outset as the full potential liability may not be able to be passed down through the supply chain in the event a BLO is issued.”

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