It’s not unusual for some housebuilders to use Special Purpose Vehicles (“SPV”) to acquire and then develop sites. The SPV is usually a limited company with minimal assets. To date the use of an SPV has offered the advantage of ringfencing any potential liability associated with a particular scheme, thereby protecting the assets of the wider corporate group. Often the SPV is wound up after a period of time, for example, when the management company takes over responsibility for the ongoing maintenance of any unadopted common areas.
However, the continued use of SPVs to ringfence liability and thereby mitigate development risk must be reconsidered in light of the Building Safety Act 2022 (BSA”).
The BSA provides a mechanism for an affected party to obtain a Building Liability Order. Such an order is designed to ensure that all those directly involved in the original development cannot avoid liability in the event that the construction works are subsequently found to be defective and thus unsafe. It applies to liability created by the Defective Premises Act 1972 for uninhabitable residential buildings, where there is a building safety risk as defined in the Building Safety Act creating a risk to the safety of people in or about the building arising from the spread of fire or structural failure.
A Building Liability Order allows the affected party to sidestep the legal rule of privity of contract, which (in the absence of collateral warranties or statutory rights) precludes claims against third parties who were not a signatory to the contract. This means that it is now possible for an affected party to ask the Court to make an order joining in more valuable asset rich members of the corporate group to the original development liability even if the original SPV is dormant, insolvent or dissolved.
Connected to the Building Liability Order mechanism is the right for an affected party to apply for information to ascertain the who the associated companies are in order to be able to implement the Building Liability Order mechanism.
In light of the above, housebuilders should consider whether the ongoing use of SPVs in residential development is worthwhile.
