Building Safety Levy: a step closer

A second consultation on the design of the proposed Building Safety Levy has been launched seeking views on its design and implementation.

The proposed Building Safety Levy is now intended to cover all new residential developments in England that require building control approval (regardless of height) so is no longer limited in scope to ‘higher risk’ buildings. The expanded scope reflects Government's policy to secure financial commitment from industry for remediation of medium-rise residential buildings (11 – 18 m). This follows the pledge by residential developers to remedy buildings over 11 metres that they have played a part in developing (both 11 -18 m and 18 m+ buildings) over the last 30 years, and the introduction of the leaseholder protection provisions in the Building Safety Act 2022.

The Building Safety Levy is expected to raise £3bn and it will be used to help fund the remediation of unsafe 11 – 18 m residential buildings where developers cannot be traced or identified.

The key proposals for the Building Safety Levy are:

• The Levy will apply to all new residential buildings in England that require building control approval (regardless of height)
• There will be a number of exclusions from the Levy, including the development of affordable homes and community buildings (including NHS facilities, children’s homes and refuges) with protections for smaller developments
• It remains unclear whether Build-to-rent, purpose-built student accommodation and accommodation for older people will be excluded from the Levy – the Government will determine this post Consultation
• The rate of the Levy will be calculated on either a “per unit” of residential dwelling or a “per square metre” basis
• The Levy will vary depending on the geographic location of the building to reflect land value and house prices, and will either be based on local authority boundaries, or on a regional basis. Differential rates may also apply for brownfield and greenfield developments
• The Levy will be paid by the client and local authorities are expected to act as the collection agent
• The Levy will be reviewed regularly, possibly every three years.

What developments will be caught by the Building Safety Levy?

The power to create the Building Safety Levy is set out in the Building Safety Act and is described as a “levy on applications for building control approval etc”. 

The proposed Building Safety Levy will apply to all new "relevant buildings" in England which require building control approval, regardless of height.  Relevant buildings are buildings consisting or containing:

• one or more dwellings, or
• other accommodation (including temporary accommodation, such as hotels and hospitals).

A number of exclusions are proposed although the Government has still not decided whether Build to Rent, purpose-built student accommodation, or the older persons sector should be excluded from the scope of the Levy. This will be determined post consultation.

The proposed exclusions are:

• Affordable housing - so as to support the development of affordable housing and to contribute to the Levelling Up Agenda. Additionally for developments that include a specific amount of affordable housing, the remainder of the development could benefit from a significantly discounted rate.
• Hospitals, Medical centres and GP practices in the NHS – so as not to penalise or prevent the development of important community facilities
• Supported Housing, Residential Care Homes and Children’s Homes
• Conversion, improvements to owner-occupied homes and refurbishments
• Refuges and residential domestic abuse facilities
• Criminal Justice Accommodation
• Military Barracks and other Military establishments, and
• Small developments of under 10 units or the square metre equivalent to protect smaller developers.

When will the Levy be charged?

The intention is that the Levy will be paid in two tranches which would allow for a re-calculation should the project change during construction:

• 60% at the giving of the "notice to commence" works stage, and  
• 40% prior to the stage of final completion from building control.

The local authority will collect the Levy which reflects the fact that they are central to the building control regime.

The local authority would be able to issue stop notices if works were to be commenced without payment of the first tranche of the Levy, and non-payment of the second tranche of the Levy could result in completion or final certificates being withheld.

How will Levy be calculated?

The Consultation suggests two alternatives:

• a fee per residential unit
• a charge per square metre of the development.

which would be adjusted depending on the geographic location of the building to reflect disparities in property values. The adjustments would be based either on the average house prices in local authority areas or average house prices in regions.

It is also likely that there will be differential rates based on whether a site is brownfield or greenfield land to reflect the higher viability risk assumed with development of brownfield land. 

The actual rate will be set out in further secondary legislation and may be varied over time.

Reviews of the rate are expected to take place every 3 years.

Who will pay the levy?

It is intended that the client – the person or organisation for whom a construction project is carried out - will be responsible for payment of the Levy; or be responsible for ensuring that the Levy is paid. This reflects the Government's view that as the client holds responsibility for the construction project and so should also pay the levy.

As the Levy is tied into the building control process for buildings in England, this means that he Levy will need to be paid regardless of where the developer itself is based.

What sanctions are there if the Levy is not paid?

Although the principal sanction would be the halting of the progress of works until the Levy is paid, punitive fines are also being considered.

When will the Levy come into force?

The Consultation closes on 7 February 2023.

There is as yet, no confirmation when the Levy would come into force although generally thought to be sometime in 2023.

Once the Levy is in force, there are proposed transitional provisions so that:

• for the first year, projects already at the commencement stage when the Levy comes into operation would be excluded, and
• there would be a grace period for any project that has entered the building control process on the date the Levy comes into operation

Comment

The Building Safety Levy represents an additional cost to the residential development sector which will be on top of the already significant commitments made by developers under the Building Safety Pledge and the introduction of the Residential Property Developer Tax.

Government is aware that the Building Safety Levy may impact on the viability of some more marginal projects and will consider the potential cumulative impacts of these charges on the supply of housing when determining the Levy rate.

However, given the Government's recent announcement of the launch of the Medium-Rise Remediation Fund which is to be funded by the Building Safety Levy, it is clear that implementation of the Building Safety Levy is just around the corner.