The Building Safety Levy

The Building Safety Levy is due to be launched in the Autumn of 2026; the power to impose the levy is found in the Building Safety Act 2022.

Tina Dobbs, Senior Associate in our Commercial Property team tells us what it is, and who will it affect:

1. What is the levy? It is essentially a mandatory fee payable by developers of most new residential buildings in England. The fee affects residential developments with 10 or more units, including houses, flats and purpose-built student accommodation (with certain exemptions). It is important to note that the levy does not merely affect new residential flats in certain height buildings referred to by the Building Safety Act 2022 (the Act) per se.  The levy will vary according to the development locality, with higher charges being relevant in high value areas such as London and the South East. The levy will also target conversions of non-residential buildings to residential use.

• Why has the levy been introduced? It is a levy to raise Government revenue to fund remedial works to existing residential leasehold properties in England that do not comply with the standards expected by the Act, considering the Grenfell Tower tragedy.  The Government’s aim is to raise at least £3 billion over a decade and the sums will be collected by Local Authorities.

• What are the levy rates?  The rates will vary from locality to locality depending on regional property values. It will be based on the number of square metres of gross internal area following the RICS Code of Measuring Practice.  High-value areas may face the highest charge of more than £100 per square metre. Previously developed land is intended to have the benefit of a 50% discounted rate.

• Where will the levy be spent?  The Government has committed to ensuring that buildings over 11 metres in height with unsafe cladding are remedied. The levy is intended to protect the taxpayers and leaseholders from costs in making those buildings safe.

• What is the potential financial effect on developers?  Developers must now factor into their build costs the levy, which might have a detrimental impact on their profit margins and the viability of a development, especially those in the pipeline where the land has already been purchased.  They must also factor in the cost of professional advisers potentially required to assist with navigation of the compliance requirements, such as submitting precise figures and data to support those figures on each development. Overlooking such responsibilities could result in additional costs associated with project delays. 

• What is the potential financial effect on landowners?  Going forward, it is expected that developers will want to pass on the levy costs to landowners from whom they purchase their sites, as developers generally factor in all their costs when bidding on sites.  Therefore, it will no doubt be the landowners who will incur the levy by default in the future.

• What are the consequences of not paying the levy?  On the basis that development projects cannot be completed or occupied without receipt of either a building control completion certificate or final certificate for structures exceeding 18 metres in height, the Government has outlined strict enforcement whereby if the levy is not paid, then no building control completion certificate will be issued.  Therefore, a developer will have difficulty selling a building without such certificates, especially if a buyer is reliant on funding where mortgagees are unlikely to lend.

• What residential buildings will be exempt from the levy?  Where certain residential buildings provide essential and important community facilities and accommodation, they will be exempt from the levy.  The exemption is to ensure that the building of such essential accommodation is not deterred.  Examples of exempt buildings are NHS hospitals, care homes and shelters, armed forces and criminal accommodation.  Hotels are also generally likely to be exempt as their use is considered to serve a commercial function rather than a residential one.

In conclusion, it would be prudent of developers and landowners to be aware of and prepare for the introduction of the levy in the Autumn of 2026 having regard to the above.

For more information contact Tina Dobbs Senior Associate on 0203 871 0115 or tina.dobbs@attwaters.co.uk