Construction Brief: Market insights and latest decisions March 2024

This update takes a look at some of the interesting and important developments that are currently impacting the industry.  We also provide a case summary of Taylor v Jones and another [28.02.24] regarding the extent of a building owner’s liability for remedial works under the Party Wall Act 1996.

The Competition and Markets Authority (CMA) Study of the housebuilding sector

The CMA has concluded its year-long market study of the housebuilding sector (the Study), identifying a series of “fundamental concerns”. These include:

• A “complex and unpredictable” planning system which plays a key role in the under-delivery of new housing 
• Issues surrounding quality of new-build homes and ineffective routes of redress for consumers
• Concerns regarding private estate-management charges.

The Study has concluded with a series of recommendations to the UK, Scottish and Welsh governments. The CMA has, however, also opened a separate investigation into whether eight of the largest housebuilders have behaved anti-competitively in sharing commercially-sensitive information and this is ongoing. The Study made the following recommendations:

To reform the planning system

• to use planning targets more objectively and efficiently, and to streamline the planning system to ensure housing need is met
• Effectively monitoring and enforcing local plans may encourage housebuilders to bring forward successful planning applications and build new houses
• Improving Local Planning Authority (LPA) capacity and resources would also assist
• Clearly defining and rationalising statutory consultees (specified bodies that LPAs must consult in certain circumstances prior to making a decision on an application), and effectively monitoring and enforcing deadlines would reduce delays caused by the statutory consultation system.
• LPAs could also require greater diversity of housing tenure (the mix of home-ownership, private renting and social housing), for larger sites to be granted planning permission.

Quality and routes of redress

To create a single mandatory consumer code for all housebuilders operating in England, Scotland, and Wales. Other suggestions include: activating the New Homes Ombudsman Scheme, prohibiting drip-pricing (where consumers are shown an initial price and then additional fees are revealed later), requiring disclosure of optional extras, developing an independent single consumer satisfaction survey and publishing key quality metrics.

Private estate-management charges

To implement the mandatory adoption of public amenities on new housing estates and common adoptable standards. To also prohibit new embedded management arrangements, and introduce enhanced consumer protection measures alongside a robust enforcement regime. Creating guidance for residents’ management companies may also support and enable them to effectively manage amenities on housing estates.

While no timeframes have been issued, it is advisable to consider the above recommendations for future schemes, particularly those relating to private estate-management charges.

Contact: Francesca Khan, Louis Foscolo

JCT 2024

The JCT has announced that it will be releasing a new edition of standard form contracts in spring starting with the launch of the Design and Build contract on 17 April 2024.

The new JCT 2024 suite is expected to further modernise and streamline projects and also reflect recent updates in case law and legislation affecting the industry.

Some of the key changes include:

• Simplified, gender-neutral language and the option to send notices electronically
• The addition of new relevant events to include epidemics, unexploded ordnance, the exercise of statutory powers, contamination and asbestos
• The time period for employers to review interim extensions of time will also be reduced from 12 weeks to 8 weeks, from receipt of the contractor’s particulars
• The adoption of provisions to better facilitate the resolution of disputes through arbitration or adjudication. The current requirement for direct good faith negotiations between senior executives is likely to become compulsory
• Amendments expected to reflect the Building Safety Act 2022, as well as the Corporate Insolvency and Governance Act 2020

Additionally it is anticipated that the judgment in Triple Point Technology Inc v PTT Public Company Ltd [2021], which clarifies that liquidated damages clauses will be applicable up until termination but not thereafter, will be reflected in the updated provisions.

Given the encouragement of collaborative problem-solving in the JCT 2024 contracts, we expect that this will extend to insurance claims. We anticipate that the JCT 2024 approach will lead to quicker resolution and minimised disruptions to projects, ultimately influencing the timing and nature of any insurance claims that arise.

Contacts: Nikita Singh, Louis Foscolo

Building Safety Act: the protection of homeowners and leaseholders of newly built homes

Secondary legislation under the Building Safety Act 2022 (‘BSA’), which aims to protect homeowners and leaseholders of newly built homes, is expected to be published later this year as follows:

New Build Home Warranties

New build home warranties provide cover against structural defects arising from faulty materials and workmanship in newly built homes. Secondary legislation under the BSA will require developers to provide new build warranties for a period of 15 years, extending them from 10 years.

These changes are in line with the new prospective limitation periods for claims under the Defective Premises Act 1972, which were increased from 6 to 15 years under the BSA.

The warranties must be provided to a freehold buyer or a buyer of a lease of 21 years or over; it should also be noted they apply to both new-builds and building conversions.  A developer who fails to provide this warranty will face financial penalties of £10,000 or 10% of the sale value of the building.

The Secretary of State is set to impose regulations on the following requirements:

• The types of defects which the warranty will cover;
• The minimum insurance cover excess and term;
• The circumstances in which the developer must agree to remedy a defect;
• The solvency of the insurer or underwriter;
• The standard of service provided by developers;
• The ability of a person to transfer the benefits of their warranty (e.g., if they are selling their home).

We would advise that insurers operating in the structural / latent defect market and developers pay close attention to any updates on the above requirements to help ensure future compliance.

New Home Ombudsman

The New Homes Ombudsman Scheme allows owners of new-build homes to escalate their complaints where they have exhausted the claims procedure. The body assesses whether there has been a breach of the New Homes Quality Code (NHQC), addressing areas such as construction standards, inspection processes and snags/defects.

If a breach has occurred, the Ombudsman may order the developer to improve their services and provide compensation to the owner.

Developers of newly built homes should therefore ensure their practices comply with the NHQC in preparation of these upcoming changes.

Contact: Imogen Severs, Louis Foscolo

Extent of building owner’s liability for remedial work under Party Wall etc Act 1996

Taylor v Jones and another [28.02.24]

When considering a case where the Party Wall etc. Act 1996 has been complied with before starting work, but damage to adjoining properties has then occurred, the court will apply five questions:

1. What damage had been caused by the works?
2. How should adjoining owners be compensated?
3. What work was necessary to repair the relevant damage?
4. Should any deduction be made for betterment?
5. What was the actual cost of carrying out the relevant repairs?

In the case of Taylor v Jones and another [28.02.24], Nugee LJ, in his leading judgment, found that it was necessary to distinguish between damage due to a longstanding defect, and damage caused by the building owner’s work.

Here, the latter only served to trigger the defect into causing damage which would now require remedying. The building owner therefore should not have liability to compensate the adjoining owners for damage of this nature, as whilst their work had triggered the damage, it was not the cause.

In this decision, it would appear that the Party Wall etc. Act 1996 does not impose liability for remedying longstanding defects which are brought to light by damage caused by works, but not caused themselves by the works. The Court will therefore apply a test of causation to determine liability for repair.

Contact: Emily Devine, Louis Foscolo

Read other items in Construction Brief – March 2024