12 March 2025
Building Liability Orders: Unveiling Corporate Responsibility in Building Safety
Building Liability Orders (BLOs) under Section 130 of the Building Safety Act 2022 are statute law designed to address accountability and liability in the context of building safety. These orders can ‘pierce the corporate veil’, meaning they can hold parent companies or associated entities liable for the obligations of their subsidiaries or special purpose vehicles (SPVs).
BLOs enable direct liability to be placed on parent companies for the building safety obligations of their subsidiaries. This means that if a subsidiary or SPV is responsible for building safety defects but is insolvent or unable to meet its liabilities, the parent company may be held accountable.
The court applies a ‘just and equitable’ test to determine whether piercing the corporate veil is appropriate. This involves examining the relationship between the entities, the conduct of the parent company, and whether the parent company has benefited from the subsidiary’s activities.
BLOs were introduced as part of the Building Safety Act 2022, which was enacted in response to the Grenfell Tower tragedy. The Act aims to provide tenants and owners with more rights and powers to make homes safer, including protections from the costs associated with remediating historical defects. Its primary focus is on improving the safety of high-rise residential buildings.
We have previously provided details of the Building Safety Act, including roles and responsibilities in a separate technical paper, which is available upon request.
In summary, the Act introduces a range of measures to enhance the safety and regulation of buildings. BLOs interact with the Building Safety Act 2022 in several key ways:
- Clarification of Responsibilities – The Building Safety Act seeks to ensure clear accountability for building safety. The BLO can be used to determine and enforce which party is responsible for the costs of repairing and maintaining the building.
- Enforcement of Safety Standards – The Act introduces strict standards and requirements for building owners. BLOs can be used to enforce these standards, holding the responsible parties liable for necessary repairs and maintenance.
- Remediation of Unsafe Buildings – BLOs can be employed to determine who is financially responsible for remediation works, ensuring that costs are correctly allocated to those responsible.
Contractor's responsibility
BLOs can impose significant liabilities on responsible contractors, especially those involved in ongoing cladding and fire safety issues. The liabilities are designed to ensure that contractors who have contributed to defects or safety issues are held accountable. Below are some of the impacts and liabilities that contractors may face:
Financial Responsibility – Contractors can be held financially liable for the costs of repairing or remediating defects in the buildings they worked on, including issues related to structural integrity, fire safety, and cladding.
Non-Compliance – Contractors will be held responsible for any resulting issues and associated costs if building regulations, including those under the Building Safety Act, were not met.
Remediation Costs – In cases with multiple potential responsible parties, BLOs will determine the proportion of remediation costs each party must bear.
Penalties – Contractors may face legal and regulatory penalties, which could be enforced through a BLO.
Remediation Orders – Contractors may be required to undertake specific works, including both immediate and long-term maintenance obligations.
Compensation – Contractors may also be required to compensate affected parties, including building owners and leaseholders, for the costs and damages incurred, which can include loss of property value as well as temporary accommodation expenses.
Implications
On its own, BLOs can be used to expedite the apportionment of liabilities in respect of building defects. This is generally seen as a desirable outcome, but because BLOs are linked to the Building Safety Act, the full impact must be carefully considered. As readers may be aware, the relevant limitation periods under the Building Safety Act have been amended:
- Retrospective Extension for Existing Buildings: For existing buildings, where the right of action accrued before 28 June 2022, the Act extends the limitation period for claims under the Defective Premises Act 1972 from 6 years to 30 years. This means claims can be brought for defects that occurred up to 30 years before the Act came into force.
- Prospective Extension for New Buildings: For new buildings, the limitation period for claims under the Defective Premises Act 1972 is extended from 6 years to 15 years. This applies to buildings completed after the Act came into force.
- Product Liability: The Act also introduces a new 15-year limitation period for claims related to construction products that are found to be defective and cause a building safety risk. This extends to 30 years for cladding products where the right of action accrued before 28 June 2022.
These extended limitation periods are designed to provide greater protection for building owners and residents, allowing more time to identify and address safety defects and hold responsible parties accountable. The retrospective extension, in particular, aims to address historical issues and ensure that older buildings with identified defects are brought up to standard and made safe.
The impact of this is significant. BLOs can now be used to bring actions against contractors on issues related to buildings that they may have previously believed they were no longer responsible for. This will affect the balance sheets of the contractors involved, as they will now need to evaluate their potential liabilities across decades and potentially hundreds of projects.
Additionally, there are implications for contractors' insurance. Following the tragic events at Grenfell, many Professional Indemnity (PI) policies were renewed with fire safety and cladding exclusions. These exclusions range from total exclusions to heavily restricted coverage. Due to the ‘claims made’ nature of PI policies, which typically cover only claims made during the policy period, issues related to fire safety that arose from historic projects may no longer be covered by these policies. If a contractor becomes liable for such issues, it may be subject to an exclusion for all or part of the issues raised, depending on the circumstances. Furthermore, the timing of when the contractor was made aware of the original issue and whether it was notified to insurers in accordance with policy terms and conditions will also be a consideration.
The same 'claims made' issue applies to contractors who have Financial Loss cover under their annual Third Party Liability insurance. While the intention of BLOs is to do the right thing in addressing past issues and remediating defects in buildings, contractors must carefully consider the implications. These measures effectively bring liabilities from the past into the present without the insurance cover that would provide the necessary balance sheet protection.
Conclusion
The introduction of Building Liability Orders (BLOs) under the Building Safety Act 2022 marks a significant shift in how liability for building safety defects is managed, particularly in cases involving historical issues. BLOs extend accountability to parent companies, contractors, and other entities, ensuring they take responsibility for defects, safety risks, and remediation costs. However, the retrospective extension of limitation periods and the impact on contractors' insurance policies highlight the complexity of these changes. Contractors must carefully assess their potential liabilities, evaluate their insurance coverage, and prepare for the financial and legal consequences that BLOs may bring.
While the intention behind these measures is to address past failures and improve building safety, they also raise practical concerns regarding historical liabilities, insurance coverage gaps, and long-term financial exposure. Therefore, ongoing vigilance and proper risk management will be crucial for contractors navigating this evolving landscape.
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Arthur J. Gallagher (UK) Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: The Walbrook Building, 25 Walbrook, London EC4N 8AW. Registered in England and Wales. Company Number: 119013.