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Building Safety Act 2022 : what are the risks for law firms?

The risks for law firms regarding the Building Safety Act 2022

A law firm client of ours approached us very recently for advice in connection with the Building Safety Act 2022. They had been offered some work by another law firm whose PI insurers were allegedly excluding claims relating to the Act. Our client wanted to make sure that they were indeed covered and to understand their insurer’s position.

The answer to the key question is that that work is covered, in that under the terms of the SRA’s minimum Terms & Conditions for Professional Indemnity Insurance, a qualifying insurer cannot unilaterally exclude a claim simply because it has arisen out of, or in connection with, the Building Safety Act. So, since such work is not excluded, what are the major risks that lawyers should look out for, and how do PI insurers view matters?

What is the Building Safety Act 2022?

In summary, it relates to buildings that are at least 11 metres in height or has five storeys, whichever is the lower, contain at least two dwellings, and isn’t leaseholder-owned, and is designed to puts obligations on the building’s designers and landlords to ensure they are safe. The Act also puts a responsibility on property managers to ensure the competence of people overseeing, managing, and delivering works to higher-risk buildings covered by the Act.

What is the main risk for Law Firms?

Mortgage lenders are using the Act to influence lending decisions, so if a Lender decides that a building doesn’t meet the requirements of the Act and believes their loan is not protected, they could impose certain conditions or withdraw the loan altogether. If the solicitor involved fails to advise their client on the risks of proceeding with a transaction and a problem arises after exchange, that could cause the lender to withdraw, prompting a claim against the lawyer.

What can law firms do to protect themselves?

1. Make sure your client knows what their rights are and, in particular, what a qualifying property is; it’s the client’s responsibility to inform the practice if the Act applies.

2. Advise your client of the risks of acquiring a building that is covered by the Act, such as the lender withdrawing and a potential loss of deposit, and delays elsewhere in the chain causing additional costs (or even the loss of the sale). If there are developers involved, and the lender has withdrawn, the developer could go into administration. Also, the client has no control over building inspectors, causing the problem to escalate.  

3. Advise the client of the need to serve a ‘leaseholders deed of certificate’ on their landlord when selling the property. 4. Firms should have a robust process for receiving the ‘landlord’s certificate’ within 28 days of receipt of the leaseholder’s certificate, otherwise the sale won’t proceed.

Finally, firms should be able to demonstrate that they have robust procedures in place in relation to any work associated with properties covered by the Act.

Conveyancing is already regarded by qualifying insurers as amongst the highest risk work that a law firm can undertake. Arguably, the Building Safety Act 2022 and the attendant risks, are likely to increase the overall risk faced by insurers.

If you have questions about how the Building Safety Act 2022 might affect your practice, do please get in touch.

Article provided by Andrew Kenyon, Director, Cox Mahon

About Cox Mahon

Cox Mahon Ltd is an independent, specialist insurance broker for the legal profession. From offices in London and Shrewsbury, we have more than 20 years of experience placing PI insurance for law firms of all shapes and sizes, from sole practitioners to multi-partner firms, including advising on the PI implications of mergers, acquisitions, and closures. Through long-term relationships with underwriters, we maintain the widest possible market access. If you’d value a fresh look at your firm’s arrangements, please call or email us; we’d be delighted to have a no obligation conversation.