Building Safety – Transactions and Due Diligence: Navigating the Building Safety Act 2022

This third article in our Building Safety series explores the key building safety challenges in transactional contexts, focusing on asset classification, documentation, and historic liability.

Building safety is no longer confined to residential development or construction disputes but is a key consideration for:

• Commercial acquisitions and disposals
• Mixed-use and portfolio transactions
• Real estate finance and refinancing
• Corporate mergers and restructurings involving built assets

Lenders, investors, and acquirers are increasingly scrutinising building safety risks. For higher-risk residential buildings, lack of compliance documentation or unresolved safety issues can:

• Trigger valuation downgrades;
• Reduce loan-to-value ratios;
• Delay or derail funding approvals; and
• Introduce contingent liabilities that affect deal pricing.

Building safety must be addressed from heads of terms through to completion and into occupation. Contracts should include representations, warranties, and indemnities tailored to the BSA regime.

Traditional due diligence focused on basic title, planning, and environmental matters is no longer sufficient. A more forensic approach is required to uncover and assess building safety risks. Key areas include:

Understanding how the asset fits within the BSA regime is critical. Questions to ask include:

• Is the building a higher-risk building under the BSA?
• Does the asset form part of a mixed-use development or mixed asset portfolio?
• Are there residential units above 11 metres, triggering leaseholder protections and remediation obligations?

Mixed-use schemes may contain elements subject to enhanced safety obligations, even if the overall development is not classified as higher-risk. This can create fragmented compliance duties and complex liability chains.

It is important to map the asset’s physical characteristics and use classes against the BSA definitions to determine scope and exposure.

Buyers and funders should verify whether the building has:

• Valid fire risk assessments;
• EWS1 forms (where applicable);
• Evidence of compliance with gateway approvals and dutyholder obligations; and
• A maintained or reconstructable golden thread of information.

For higher-risk buildings, the absence of a golden thread may require retrospective collation of design, construction, and maintenance records; a costly and time-consuming process.

A typical due diligence checklist should:

• Request all fire safety documentation and certificates;
• Confirm whether the Building Safety Regulator has issued a Building Assessment Certificate (if required);
• Review any historic remediation works and funding arrangements; and
• Consider whether the wider seller/investor/funder group has any higher-risk assets within its portfolio which could lead to ‘associated entity’ claims under the BSA.

The BSA extends liability for building safety defects retrospectively, up to 30 years in some cases. This creates significant risk for buyers, especially where:

• Cladding or fire safety systems were installed before the Grenfell tragedy;
• Refurbishment works may trigger liability under the Defective Premises Act 1972; and
• Remediation orders or contribution orders may be sought by leaseholders or regulators.

Buyers are increasingly seeking:

• Indemnities for historic defects;
• Price adjustments to reflect remediation costs; and
• Escrow arrangements to ringfence potential liabilities.

Sellers must be prepared to disclose historic works, engage with remediation obligations, and negotiate risk-sharing mechanisms.

Those involved in transactions must:

• Integrate building safety into due diligence scopes and checklists
• Consider valuation, funding, and insurance implications of building safety related issues
• Draft contracts that reflect BSA obligations and allocate risk clearly
• Engage early with technical consultants to assess compliance and exposure

Building safety is now a multi-disciplinary issue, requiring collaboration between legal, technical, and financial advisors to ensure deals are viable and fundable.

The BSA has made building safety a central concern in property transactions. Its wide reach, retrospective liabilities, and regulatory complexity demand a proactive and forensic legal approach.

Whether acting for buyers, sellers, lenders, or investors, RWK Goodman ensures that building safety risks are identified, assessed, and addressed through appropriate due diligence, before they become costly post-completion disputes.