As the construction industry gears up for the end of the transition period for implementation of the new building control regulatory regime introduced by the Building Safety Act, the government has clarified a number of issues relating to the proposed Building Safety Levy (Levy). This Levy is one of the ways that the government is seeking to pay for the remediation of building safety defects, the policy intent being that the industry that caused the cladding problems should contribute to the remedying of those problems. The Levy sits alongside the Residential Property Developer Tax and the Government's Remediation Contract and those involved in the Residential, Co-Living, BTR and PBSA sectors will need to take its proposed introduction into account in future schemes.

Key points

 The Response to the Consultation on the design of the Levy (which ran from November 2022 to February 2023) confirms that:

• The Levy will apply to all new residential buildings in England that require building control approval (regardless of height).

• The Levy will apply to Build to Rent developments, most purpose-built student accommodation (save where the development has fewer than 30 bed-spaces), private retirement housing and conversions/change of use, where buildings are being converted to residential use, (subject to these not falling within other exemptions, such as developments of fewer than ten units).

• Exclusions from the Levy include affordable homes and non-social homes built by not-for profit registered providers, community facilities such as NHS hospitals and other NHS facilities, care homes, accommodation for the armed forces personnel, criminal justice accommodation, and developments of fewer than ten units.

• Clarification awaited as to whether hotels, private hospitals and hospices will be subject to the Levy. 

• The rate of the Levy will be calculated on a “per square metre” basis (as opposed to a "per unit" of residential building) although further clarification is needed as to how floorspace is to be measured.

• A different geographical levy rate will be applied based on local authority boundaries to reflect local land values.

• A 50% levy rate will be applied for developments on brownfield sites.

• Local authorities will act as the collection agent.

What developments will be caught by the Building Safety Levy?

The power to create the Levy is set out in section 58 of the Building Safety Act (BSA) with the detail to be contained in upcoming secondary legislation. 

The BSA provides that the Levy will apply to all new "relevant buildings" in England which require building control approval, regardless of height.  Relevant buildings are defined as buildings consisting or containing:

• one or more dwellings; or

• other accommodation including, "temporary accommodation, for example in a hotel or hospital" (s58 BSA).

Despite this definition, the question of whether hotels will be excluded from payment of the Levy is still to be determined as the government is mindful that hotels have different characteristics to the broader housing market. So, confirmation is awaited as to whether the following property types will be excluded:

• hotels

• private hospitals

• hospices

• monasteries, nunneries or similar establishments

• seminaries and other religious colleges which include accommodation

• drug and/or alcohol treatment centres

• temporary accommodation for the homeless

• school premises to be used for the sole or primary purpose of housing its students.

Nevertheless, the government is clear that the Levy will apply to Build to Rent developments, PBSA, private retirement housing and conversions/change of use, where buildings are being converted to residential use. However, PBSA developments of fewer than 30 bed-spaces will be exempt – this reflects the difficult of splitting developments into units. 

The inclusion of the BTR and PBSA sectors is new and reflects the government's view that while profit models for BTR and PBSA are different to the for sale market, both sectors are profit-making parts of the house-building sector and would secure a competitive advantage over building for sale projects, as both compete for land in the same way.

Exclusions

The proposed exclusions are:

• affordable housing and non-affordable housing built by not-for-profit Registered Providers (there will not be any discounted rates where only a specific amount of affordable housing is included in the development)

• hospitals, medical homes and GP practices in the NHS

• supported housing (save for private tenure supported housing)

• residential care homes, nursing homes, and children’s homes

• domestic abuse shelters

• criminal justice accommodation

• military barracks and other accommodation for the armed forces 

• small developments of under ten units 

• PBSA developments of fewer than 30 bed-spaces

• Improvements to owner occupied homes and refurbishments.

When will the Levy be charged?

The intention is that there will be a single payment point ahead of the issue of the final building control certificate. This is a change to the previous proposal to pay the Levy in two tranches with a significant portion at the commencement of the works. There will be some flexibility as to when developers will need to pay so long as it is before the issue of the final building control certificate.

The local authority will collect the Levy and would then be expected to pass on the funds to the government on a quarterly basis once they have recouped their costs of administering the Levy.

Developments which have begun the building control process, so have submitted an application for building control approval, initial notice or a Gateway 2 application, before the launch date will not be subject to the Levy.

What sanctions are there if the Levy is not paid?

If the Levy is not paid, the building control completion certificate will not be able to be issued by the local authority or the Building Safety Regulator (BSR), or the final certificate cannot be accepted by the local authority.

How will Levy be calculated?

The Levy will be charged per square metre of the development which would be adjusted depending on the geographic location of the local authority.

There will be a 50% reduction of the rate for brownfield site 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.

The current intention is to review the Levy in the second full year of its operation and at three yearly intervals after that. This is to enable the government to adjust the levy in light of data on revenues raised.

When will the Levy come into force?

There is, as yet, no confirmation when the Levy would come into force.

Once the Levy is launched, developments which have entered the building control process prior to the launch of the Levy would not need to pay the Levy.

Comment

Further clarification on aspects of the Levy is expected around the methodology for the calculation of the Levy, the collection process and how disputes would be managed; and on the scope of the exclusions as discussed above. 

Although there are some exemptions for smaller developments, the imposition of the Levy may impact on the viability of some projects, especially when taking into account the cumulative effect of the Levy, in addition to Remediation Contracts and the Residential Property Developer Tax.