Building Safety Levy: Key issues

What you need to know

• The Government recently confirmed that it is aiming to bring the Building Safety Levy into force in Autumn 2025.
• The effect of the Building Safety Levy is far-reaching. It applies to most new buildings in England containing ten or more residential dwellings

What you need to do

• Despite the lack of clarity around details of the levy, developers need to get ready for the levy now.
• Developments that have begun the building control process (i.e. submitted a full plans application, an initial notice or a Gateway 2 application ) before launch will not be subject to the levy charge.
• However, there is no grace period proposed after the levy launch date - all eligible developments where applications for building control approval are made or initial notices served on or after the levy launch date will be subject to the charge:

Introduction

The Government recently confirmed that it is aiming to bring the Building Safety Levy into force in Autumn 2025. The levy has been a long time coming – it was first announced by the previous Government in February 2021 and consultations took place on it in November 2022 and January 2024.

The levy is intended to raise approximately £3 billion over 10 years to fund the remediation of historic building safety defects. It will be charged on most residential developments in England that require building control approval.

Unlike some other building safety legislation the levy applies to all residential developments above a de minimis threshold – i.e. not just Higher Risk Buildings – and it affects mixed-use buildings as well as wholly-residential schemes.

No rates have been published yet, and many of the details are still awaited. However, based on the number of private dwellings completed last year and the average target receipts of £300 m per year, an average levy of roughly £2,500 per dwelling would be logical (although, as this briefing sets out, the rates will vary according to the size and location of each dwelling).

Despite the lack of clarity around details of the levy, developers need to get ready for the levy now.

Scope

The effect of the Building Safety Levy is far-reaching. It applies to most new buildings in England containing ten or more residential dwellings. It will catch mixed use developments and low-rise developments. The Government has also confirmed that Build to Rent (BTR), private older people's housing and Purpose-Built Student Accommodation (PBSA) will all be in scope.

Conversions/ change of use of buildings to residential use will also be caught. We expect that extensions of existing blocks will also be covered although the consultations previously issued do not refer to these expressly.

However improvements to owner occupied homes and refurbishments are excluded to avoid disincentivising improvements to existing housing stock.

Exemptions

There are several proposed exemptions to the levy including:

• small developments: developments of 10 units or less or PBSA with fewer than 30 bedspaces.
• affordable housing social rented, affordable rented and intermediate housing provided to eligible households whose needs are not met by the market. Unhelpfully the proposed exception for affordable housing seems to be narrower than the definition included in the National Planning Policy Framework, and excludes starter homes, discounted market sale housing and other affordable routes to home ownership.
• community facilities: e.g. NHS hospitals, supported housing (save for private tenure supported housing), children's homes, domestic abuse facilities, criminal justice accommodation, armed forces accommodation, care homes and nursing homes. In addition the most recent consultation proposed extending the community facilities exemptions to include non- NHS hospitals, hotels, hospices and temporary accommodation for the homeless

The exact details of how to qualify for these exemptions and what documentary evidence will be required is going to be set out in regulations and guidance.

Levy calculation

The Government intends to set different rates of Building Safety levy for different local authorities to reflect local land values and house prices. However, at the moment it is not clear what methodology will be used for calculating the levy rates.

There will be a 50% discount for development of brownfield sites to take account of the greater risk that these projects become unviable. The implementing regulations will reflect the commonly understood terms "previously developed land" as it is referred to in the National Planning Policy Framework.

The levy rate will be charged on the floor space of the residential element of chargeable developments rather than per unit. This seems like a sensible approach as otherwise a 5-bedroom house would be charged the same levy as a 1-bedroom flat in the same area. It is anticipated that chargeable floorspace (including communal floorspace) will be measured by reference to the gross internal area

Where a development contains both chargeable and exempt accommodation the levy will be reduced in line with the proportion of floor area that is exempt accommodation.

Communal amenity areas for residents will be also be subject to the levy – e.g. resident/working or leisure facilities. There are some obvious grey areas here that will need to be clarified in regulations and guidance – will amenity areas that are available to residents of both affordable and private units be subject to the levy? Equally, mixed use developments have facilities that can be used by residential and commercial occupiers, such as bookable meeting spaces – we do not know if these will be subject to the levy.

Further guidance will be needed on measurement and classification of spaces, particularly for mixed use developments, so that it is clear what chargeable space must be included in the calculation.

The Government plans that the levy target of £3 billion will be reviewed every three years by central government so that the levy can be adjusted in light of data on revenues raised, anticipated revenue based on updated forecasts and greater certainty on the costs of remediation.

Collection and Enforcement

Local authorities will calculate the levy charge for a development, and are responsible for collecting the levy.

Local authorities are responsible for calculating and collecting the levy even where they are not responsible for building control on a development - registered Building Control Approvers and the Building Safety Regulator will not have responsibility for collecting levy payments, but they will have a role in passing on information to local authorities to ensure the levy collection can run smoothly.

If the levy has not been paid, final certification of the development will be withheld or rejected. Developers will therefore be keen to ensure that there is no delay in certification as a result of the local authority not confirming the levy charge for a development promptly, or not confirming payment to the relevant approver for the development.

We expect further detail on this to be set out in secondary legislation.

Transitional Arrangements

Developments that have begun the building control process (i.e. submitted a full plans application, an initial notice or a Gateway 2 application ) before launch will not be subject to the levy charge.

However, there is no grace period proposed after the levy launch date - all eligible developments where applications for building control approval are made or initial notices served on or after the levy launch date will be subject to the charge:

Comment

The Government is aware of the potential burden of the Building Safety Levy on developers. However, beyond the proposed exemptions there appears little relief. The levy is here to stay at least until the £3 bn target reached.

It is frustrating that the Government has not yet provided indicative levy rates, or more detail on how the levy will be calculated in practice.

This is particularly concerning for developers given the cliff edge that arises depending on whether or not a development has reached the building control stage before the levy launch date. There is likely to be a scramble for developments which have been granted planning permission to get to the building control stage before the levy launch date. Developers that miss this date will be hit with the extra cost of the levy at a very late stage of pre-development preparations.

In the short term, this may lead to schemes being delayed or even abandoned where they are close to the viability threshold. In the longer term, developers may look to improve viability by:

• negotiating lower section 106 contributions, leading to a reduction in the pipeline of affordable housing,
• seeking to reduce their CIL charge to take account of the cost of the levy, potentially leading to less funding for infrastructure, and
• increasing the density of developments.

Build to Rent developments may be particularly affected given that the levy is due on completion of a development, whereas BTR developments typically make a profit over a longer time period after completion. BTR developments will also be hit by the inclusion of communal space in the levy calculations. Amenity areas are particularly valued in rental developments and the cost of the levy may lead to a reduction in the provision of communal space which is surely not the intended outcome.

Local authorities will need to ensure that they can resource the collection and enforcement of the levy so that building control certificates are not delayed. This will be particularly important in cases where a registered Building Control Approver or the Building Safety Regulator is responsible for sign off of building control - it is easy to see scope for delay in the communication between the different bodies. This will be a concern for developers of higher-risk buildings in England given that the Building Safety Regulator is now the Building Control Authority for all higher-risk buildings in England.