The Department for Communities and Local Government has published amendments to Part L of Schedule 1 to the Building Regulations 2010 - and the transitional provisions give rise to a hidden trap for developers entering into development agreements.
The new Regulations
The amendments to Part L relate to energy efficiency and conversion of fuel and power. They came into effect on 6 April 2014.
The changes are driven by the Government's desire to create more energy efficient buildings and mean that new homes will have to be 6% more energy efficient and new non-domestic buildings will have to be 9% more energy efficient than required by existing standards.
Compliance with the amended Building Regulations is likely materially to increase the cost of development.
As with previous revisions to the Building Regulations, the amendments include transitional provisions for on-going schemes. The provisions mean that schemes which are registered prior to the implementation date of 6 April 2014 - and in respect of which work starts within 12 months of that implementation date - comply with Building Regulations if the works satisfy pre 6 April 2014 Building Regulations, rather than the amended Building Regulations.
Whilst allowing businesses to plan properly for the implementation of increased obligations under the Building Regulations, these transitional provisions do contain a hidden trap for developers entering into development agreements (eg. agreements for lease, sale and purchase agreements and project agreements).
Most development agreements contain interpretation clauses which provide that all statutory requirements, regulations etc referred to in the agreement are deemed to be the most up to date version of those requirements and regulations.
A developer who has properly registered a scheme before 6 April 2014 and commences work before 6 April 2015 may reasonably anticipate that it only needs to comply with the Building Regulations applying before 6 April 2014 - before the 2014 amendments to Part L.
However, the developer could be contractually obliged to ensure that the 'Works' comply with the most up to date Building Regulations - not the less onerous and less expensive pre 6 April 2014 Building Regulations. This could lead to the developer who has quite properly sought to protect itself from having to comply with the additional obligations, having to meet further expenditure or be in breach of contract with its tenant or purchaser.
The transitional provisions in the Building Regulations seem to be a perfectly appropriate and responsible method for managing live projects through a change in regulatory requirements. Having said this, unless a developer's legal documents accurately cater for this potential trap, those documents may oblige the developer to design and construct works which are of a more onerous nature than was originally intended.
The matter can be dealt with by an appropriate amendment to the relevant provisions of the development agreement. A check on this aspect of development agreements would usefully form an addition to internal pre exchange audit/health check processes for developers over the next 12 months.