In November 2022 the Government launched a new consultation on its proposed Building Safety Levy ("the Levy"), following its initial opening of a 12-week consultation in July 2021. The Levy seeks to raise funds which can be used for the remediation of defective buildings thereby reducing the burden on leaseholders and the taxpayer .
The original consultation sought views on the proposal that the Levy would only be imposed in respect of 'higher risk' buildings (essentially those at least 7 storeys or 18 metres in height, although this is now subject to further Government clarification). The latest consultation proposes that the Levy will apply to developments of all residential buildings (subject to some limited exceptions) regardless of the building's height provided the works need building control approval.
The Building Safety Levy proposals:
Which developments will trigger payment?:
Residential developments in England which require building control approval will trigger payment irrespective of the building's height but subject to certain specific exemptions. The Government currently plans to exclude for example affordable units, NHS facilities and possibly small developments of less than 10 units although comments are invited in the Consultation. The Consultation also states that the Government has not yet determined an approach for the Build to Rent, purpose-built student accommodation and older peoples housing sectors. The Consultation addresses these and those involved in those sectors may well wish to respond.
How much will the Levy be?:
One suggestion is that the Levy is based on a per unit basis or alternatively per square metre. Either way, the Consultation seeks views on a proposal to apply different rates depending on average house prices in local authority areas and alternatively based on brownfield versus greenfield developments.
How will the Levy been paid and What Could a Sanctions System look like?:
It is proposed that Developers will pay the Levy in two stages in line with the Building Safety Act gateway regime; 60% would be payable before work commences (gateway two) and 40% before final certification (gateway three). Notably however, the gateway regime only applies to those 'higher risk' buildings, yet the Levy is likely to apply to all residential developments irrespective of height, subject to certain exemptions.
The Government proposes that sanctions for failure to pay will include fines, as well as giving power to the local authority to issue a 'stop notice' which would halt further construction until payment is made. The Government has requested industry suggestions for a suitable sanctioning system to deter Developers from attempting to avoid payment of the Levy.
How Does the Levy impact on the Residential Property Developer Tax (RPDT)?:
The Government proposes that the Levy will operate in addition to its RPDT which was introduced in April 2022 and is paid by developers on the profits made from the development of residential land.
What is the Levy to be used for?
The Levy is to be applied on all new residential building developments in England, subject to those exemptions above, and the funds will contribute towards funding remediation of buildings over 11m in height.
The Consultation closes on 07 February 2023 and those in the industry who wish to respond to the enquiry can do so here.
It will be interesting to see the response of those in the industry to key questions being raised, particularly in relation to possible exemptions and the sanctions to be put in place in the event a developer fails to pay.
This blog is part of a series published by Howard Kennedy LLP on the Building Safety Act. For more information, please contact a member of Howard Kennedy's Building Safety Group here.
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