Safety first

The Building Safety Act 2022 (the act) came into force last summer. The act attempts to tackle some of the safety issues in high-rise buildings, following the Grenfell disaster in 2017. Its ambit is wider than simply cladding – it determines who will bear the cost of remedying certain construction defects and sets limits on what costs landlords can recover from leaseholders. 

Qualifying leases

• Protection under the act is determined by whether the lease fulfilled certain criteria on 14 February 2022, which would make it a ‘qualifying lease’. Section 119 sets out the criteria: 
• it is the lease of a dwelling in a building which is at least five storeys or 11 metres tall and which contains at least one other dwelling
• the lease was granted prior to 14 February 2022 and was longer than 21 years when granted
• service charge is payable under the lease
• the building is not tenant-owned, enfranchised, commonhold or the subject of previous compulsory purchase, and
• it is the tenant’s (or one of the tenants’) sole or principal home, or the tenant owns no more than two other dwellings in the United Kingdom.

If the lease is a qualifying lease, it will benefit from significant service charge protections – for instance, if the landlord is part of a wealthy enough group, or if the lease is ‘lower value’ (less than £175,000, or £325,000 in London, as of 14 February 2022), that landlord will not be able to recover the remediation costs for building safety defects.

If a lease was granted before 14 February 2022 and is non-qualifying, the value of the property may be reduced due to the uncertainty of the remedial costs that could be passed on through service charges. In addition, lenders may be less willing to lend on a non-qualifying lease. So far, surveyors have been reluctant to quantify the difference in value, as they have no guidance from the Royal Institution of Chartered Surveyors on how to do so. 

The act was brought in to protect tenants, but it’s clear that the position of fiduciaries has not been properly considered. Personal representatives of estates are now being faced with a whole host of issues.

Can a personal representative sign a leaseholder deed of certificate for a property forming part of an estate?

While the answer to this would logically be yes, there is no mention in the act itself or in the deed of certificate on how personal representatives should complete the deed of certificate following the leaseholder’s death. If the leaseholder died after 14 February 2022, and the property was either the deceased’s sole home or the deceased did not own more than two other dwellings in the United Kingdom on 14 February 2022, the lease should be a qualifying lease. The question is then how the certificate is completed. The statutory form will need to be adapted to show that the leaseholder’s personal representatives are completing the certificate.

If the deceased died before 14 February 2022, the position is less clear. For a start, it is not obvious who the tenant was on that date – the deceased or the personal representatives? Is it the person whose name is on the Land Registry title (presumably the name of the deceased) or the person who the property was vested in at the relevant date?

Where the deceased left a will validly appointing executors, the property vests in the executors from the moment of death. If the deceased died intestate, the property vests in the public trustee (under the amended section 9 of the Administration of Estates Act 1925) until the grant is issued. Who can complete a deed of certificate in that situation? 

Considering this further, for deaths before 14 February 2022, if the personal representatives are the tenants, it is possible that the property will not be the sole or principal home of one of them. Is it then necessary to look at how many other dwellings the personal representatives own to determine whether the lease is qualifying? Logically, that should not be the position, and the Department for Levelling Up, Housing and Communities (DLUHC) have said in the House of Lords that this was not the intention – but, of course, it’s not the DLUHC which will determine whether a lease is qualifying. 

Going further, if the personal representatives are the tenants, do you look at the number of properties they hold in their capacity as personal representatives of this estate, or in any capacity? At least one barrister from an eminent property set says that the legislation is unclear, and they would accept instructions to argue the case either way. This would make the position of a solicitor or a trust corporation appointed as personal representative particularly difficult, and could lead to arbitrary and potentially unfair results in what must be common situations.  

If personal representatives refuse to sign the certificate, there is potentially a significant loss to the estate, as the property would then need to be dealt with as if the lease is non-qualifying. On the other hand, if they sign the certificate and subsequently discover that they completed it incorrectly because they did not take the correct factors into account, what rights of action would a buyer of the property have against them? Personal representatives are left needing to assess carefully, on a case-by-case basis, whether they have the authority to sign the certificate, whether the lease is qualifying, and how to complete the certificate. 

How should personal representatives deal with such issues?

For deaths after 14 February 2022, a personal representative should be checking what evidence can be supplied to show that the deceased was a qualifying leaseholder on 14 February 2022. Bank statements, council tax bills and utility bills covering this date (and showing names and addresses) are all going to be useful evidence. If there is no evidence within the papers of the deceased, personal representatives will need to consider how they can obtain or otherwise evidence the status of the deceased leaseholder. The certificate contains a declaration that its contents are true to the best of the signatory’s knowledge, which implies that reasonable enquiries have been made – so, personal representatives must be comfortable that they have made suitable enquiries before signing the deed of certificate. 

The personal representatives will then need to consider how they should amend the statutory form of the deed of certificate to cover their position, before providing the certificate to the lawyers acting for the purchaser. 

For deaths before 14 February 2022, the position is more complicated, and may depend on whether the personal representatives are executors or administrators. It is possible to obtain a barrister’s opinion on how the personal representatives should complete the deed of certificate, but it will only be their best interpretation of the act, given the uncertainty.

Are there any insurance products or other protections personal representatives could consider?

Issues arising from the act are relatively new and, as a result, are not covered by any standard insurance products for personal representatives. Some insurers are starting to look at the issues on a case-by-case basis but, as it’s difficult to assess the difference in value, policies are hard to come by and potentially very expensive. 

How do personal representatives know whether a building falls within the act?

Much of the relevant information will be available, but the height could cause an issue. The act applies to leasehold properties within buildings over five storeys or 11 metres high. The measurements in the act are from the ground floor to the finished surface of the floor of the top storey of the building (ignoring any storey which is a roof-top machinery or plant area, or consists exclusively of machinery or plant rooms), not to the top of the building itself. Even surveyors have said that this is not a simple measurement, particularly if they don’t have access to that top floor. 

What happens if a certificate is challenged?

There is no mechanism in the act for a landlord to challenge a leaseholder deed of certificate. If the landlord doesn’t agree that the lease is a qualifying lease, they can simply issue a service charge invoice containing a charge for remedying a construction defect. Only then will it be clear that the landlord disagrees with the leaseholder deed of certificate. The tenant is likely to want to assert that it is a qualifying lease, and that would be determined by the courts or the First-tier Tribunal.

If personal representatives sign a certificate confirming that the lease is qualifying but this is later found to be incorrect, there is a risk that the estate could be asked to contribute to the service charge, or perhaps even compensate a purchaser who relied on the certificate for the loss in value to the property. If the estate has already been distributed by the time these issues come to light, this will leave the executors in a very difficult and potentially vulnerable position. 

What about lease extensions?

Lease extensions add an extra level of complexity. A lease needs to be in existence as of 14 February 2022 in order to be a qualifying lease. When a lease is extended, it is treated as a new lease and will therefore not have existed at the relevant date. The government has recognised this as an issue and included provisions in the Levelling-up and Regeneration Act 2023 (which received royal assent on 26 October) for “connected replacement leases” that fulfil certain criteria to be qualifying leases. The provisions are retrospective, so should be read into leases that have already been extended.  

Other issues with estate administration matters

How should the property be valued for inheritance tax? Surveyors could be asked to value a lease on the alternate bases, but it may be many years before the status of a lease is clarified. So, what value should personal representatives use in the inheritance tax return now? Beneficiaries who want to take a property as part of their entitlement to an estate will need to seek independent advice on the risks of this. 

How will this be resolved?

The simplest way for the position to be clarified would be for the legislation to be amended to provide who the tenant is in probate situations, and whether they are signing in their capacity as personal representatives of that particular estate or as a leaseholder, where properties they own in other capacities may be taken into account. However, the government may have other priorities in the next couple of years, particularly with an election on the horizon. In the absence of an amendment, clarification will come more gradually based on how the court and tribunals interpret the existing legislation, but this will only start when there are relevant defects that the landlord seeks to include in the service charge, and when there was a deed of certificate signed by personal representatives.

Other fiduciaries

While the focus of this article has been on personal representatives, other fiduciaries are also going to be making difficult decisions. 

Trustees (of will trusts, bare trusts, co-ownership trusts and others) will be asked to supply certificates on a sale and will be faced with similar issues – there is no provision to look through to the beneficiaries of a trust in providing the information on the certificate. Deputies holding flats may also be affected, depending on how the property is owned, and will need to consider how to complete certificates on a sale. Unlike probate, though, unless there is an urgent need to sell a property, decisions could be postponed until their position under the act is clarified.