Earlier this month, we reported on the stark ultimatum given to major developers – to sign the Developer Remediation Contract (DRC), or face the consequences (Developer Remediation Contract - Sign on the dotted line… or else)

We now have a little more detail of what those consequences will be.

The government has published guidance on the key features of a Responsible Actors Scheme (RAS) which will have the effect of prohibiting eligible developers from commencing or completing developments in England unless they sign the DRC and comply with both its conditions and those of the RAS. Its aim is to incentivise developers to get on with the remediation or mitigation of life-critical fire safety defects in residential buildings of 11m and above and to reimburse government schemes where work has already been carried out at tax-payers’ expense. 

The full details of how the Scheme will operate will not be known until the regulations are published however the basic structure, the likely eligibility criteria and membership conditions, have now been disclosed. The RAS is expected to come into effect in early Summer.

The guidance confirms that the government is maintaining its line to target “major housebuilders” and “other large developers” in the first instance albeit notes thatover timethe Scheme will be expanded to other developers who have developed or refurbished defective 11m+ buildings. No further details are provided as to when that will be.

Developers will be eligible for the Scheme – and expected to join – if they meet a ‘profits condition’ of having an average annual operating profit over a 3-year period (companies’ financial years ending 2017, 2018, and 2019) of £10 million or above, or have otherwise volunteered to sign the DRC and join the Scheme. Further details as to how the profits condition will be assessed are to be provided in the regulations.

After receipt of an invitation from the Secretary of State, the guidance suggests that an eligible developer will be given areasonable timeto join the Scheme or to make representations (supported by evidence) as to why the eligibility conditions are not met. It seems likely that there will be limited scope to argue against eligibility.

To join the Scheme, the developer will need to enter into the DRC with the DLUHC (if they have not already done so) and committo meet any other conditions of membership.  The guidance states that,as a minimum,a member must:

• Identify 11m+ residential buildings they developed or refurbished over the past 30 years and any of those buildings known to have life-critical fire safety defects.

• Remediate and/or mitigate or pay for the remediation/mitigation of life-critical fire safety defects in those buildings.

• Reimburse government schemes for taxpayer-funded work to remediate and/or mitigate defects in those buildings.

• Meet all other obligations of the DRC, including keeping residents and DLUHC updated on the progress of work.

• Comply with requests for information made by the Secretary of State pursuant to the contract and regulations.

The guidance also makes clear that additional membership conditions may be imposed through the regulations and indicates that these may include the application of a ‘fit and proper person test’ to directors and senior managers of members of the Scheme.

The continued lack of clarity and certainty in relation to the applicability of the Scheme and future membership conditions is a cause for concern.

Despite this, it appears that eligible developers will have little choice but to join the RAS as the consequences of failing to join, or subsequently having membership revoked for failing to comply with the conditions of membership, are harsh. 

Any eligible developer that opts not to join, or is expelled from the RAS, will be added to a list of “prohibited persons”. Prohibited persons will be prohibited from carrying out “major development” in England. The guidance sets out that amajor developmentwill include:

• schemes providing 10 or more residential units; or

• residential schemes on a site at least 0.5 hectares in size (where it is not known if it will provide 10 units or more; or

• commercial development creating at least 1000 square metres of floorspace; or

• developments on a site over 1 hectare in size.

A prohibited person will also be prevented from gaining building control approval in respect of any building work that requires such approval. This includes both future work and sites where work has already commenced. This may therefore result in a notice to terminate or suspend works.

Whether they like it or not, eligible developers will have no real option but to join the RAS and abide by its conditions.  As at 24 March 2023, only six developers had yet to sign the DRC.

The industry now awaits sight of the draft regulations expected in Spring 2023 and developers will need to watch out for the next phase of the Scheme, which may widen the eligibility for membership.

The impact of the Scheme and the obligations under the DRC have far reaching implications for the industry as a whole. Whilst major developers have been targeted in this round; contractors, construction professionals, specialist suppliers and those who insure them should prepare now (if not already) for the recovery actions that will inevitably follow.

To find out more about how the Scheme might affect you, please contact Rebecca Austin, a member of our Building Safety Team, or your usual DAC Beachcroft contact.

To read more on the Building Safety Act click here