Take 5: Acting responsibly but still caught out?

The Government's Responsible Actors Scheme has now started. The Scheme is being introduced to try to fix life-critical fire safety defects in certain residential buildings. The consequences of not complying with the Scheme (or not joining at all) are very serious, as we set out below. Even if you are not required to join the Scheme, you will still need to be aware of the rules, particularly if you are acquiring interests in and/or developing property.

1. Who must join the Scheme?

A residential property developer who was responsible for the development or refurbishment of a “relevant building” who meets the “profits condition”. The test for whether a particular entity developed a property is widely drafted and includes group companies, even if they were not part of the group when the activity occurred.

A “relevant building” is a building that:

• is a residential building in England that is at least 11 metres high; and
• was developed or refurbished between 5 April 1992 and 4 April 2022.

The "profits condition" will broadly apply to any developer whose average annual operating profit over a three-year period (companies’ financial years ending 2017, 2018, and 2019) was £10m or more.

2. What are the consequences of joining?

Members of the Scheme will be required to enter into and comply with the terms of a Self-Remediation Contract, also known as the Developer Remediation Contract which was issued by the Government on 30 January 2023. The Contract requires the developer to remediate any relevant residential buildings at their own expense and reimburse any Government remediation funds they received.

3. What happens if you don't comply or don't sign up?

Those who are caught by the criteria but do not sign up willingly, will be entered onto the "prohibitions list" which has very serious consequences. They will be prohibited from carrying out major development and obtaining building control approvals in England. Major development includes residential schemes with ten or more homes; residential schemes on a site of at least 0.5 hectares; commercial development creating at least 1000 square metres of floorspace and development on a site of more than 1 hectare.

The restriction on development does not apply to planning permissions granted before 4 July 2023, unless a pre-commencement condition discharge needed wasn't granted by then.

Additional due diligence will be required before contracting with a residential developer to check whether they are already a member of the Scheme or eligible to join the Scheme. Development agreements are often conditional on the grant of planning permission. Going forward, counterparties are likely to seek an additional termination right if, once the agreement becomes unconditional, the residential property developer finds itself unable to commence the development works because it has been put on the prohibitions list.

Regulations allow the Secretary of State to make an exception to the restriction on development if the development relates to critical national infrastructure and it is in the public interest to do so.

4. What do you need to look out for if you're buying property?

Carrying out major development when the rules prohibit it, is a planning breach, which means that the local planning authority can take enforcement action against anyone with an interest in the property. This has a knock-on effect on value. Even if the local authority hasn't taken enforcement action yet, funders and purchasers/occupiers may be aware of the risk and make extra demands or in extreme cases, be put off completely.

5. How can we help?

We will be monitoring the Prohibitions List and raising enquiries on this matter in our due diligence to ensure that any red flags regarding breach of the rules or eligibility for the scheme are raised. If you would like to discuss this further with us, please get in touch, our contact details are below.