What is happening?

• The Building Safety Act 2002 (BSA), which came into force in April 2022, introduced the concept of a developer levy, more frequently referred to as a building safety levy (Levy).  This empowered the Government to impose an additional charge for the development of new residential buildings in England.
• The Government has confirmed that the implementation of the Levy will now be delayed until Autumn 2026 – this delay is intended to give developers more time to factor in the Levy when carrying out financial planning.
• The Government has yet to publish draft regulations (which we are told are due later in 2025), although we now know the Levy rates for each local authority area.  The Levy charge will depend on the floorspace of the relevant development, including communal areas.  It is expected that the Levy will be prospective and only apply to developments that have not commenced before its introduction.  
• Developers should ensure that they factor the Levy into their financial planning for future developments.  It is the submission of the building control application and not planning applications that will be the key milestone in determining this. 

What is the aim of the Levy?

The Government plans to raise £3.4bn from the residential development industry to fund remediation of safety defects and protect taxpayers and leaseholders from financial burden. By requiring that developer contribution, the Government also sees the Levy as a scheme that will promote greater accountability within the construction industry.

Which developments will be caught by the Levy?

Save for some limited exemptions, the Levy will apply to all new residential developments that require building control approval (including mixed use developments) regardless of their height. This means that developments caught by the Levy would include:

• Privately owned houses and flats
• Build to rent schemes
• Purpose built student accommodation
• Conversions or change of use to residential
• Retirement housing.

There will be some exemptions from the Levy, but they are limited.  The exemptions are:

• internal refurbishments
• residential sites where there are fewer than 10 plots or units
• purpose-built student accommodation with fewer than 30 bedspaces
• affordable rented and intermediate housing provided to eligible households whose needs are not met by the market
• community facilities such as NHS hospitals, care homes, supported housing, children's homes, domestic abuse shelters, accommodation for armed services personnel and criminal justice accommodation.

When will the Levy to come into force?

The Government has now stated that the Levy will apply from Autumn 2026, having been postponed from the original launch date of Autumn 2025.   The delay is intended to allow developers additional time in which to factor in the cost implications of the Levy when planning financially.  

How will the Levy be calculated and how much will it cost?

• The Levy will be calculated by each relevant local authority based on the gross internal area of floorspace using the RICS Measuring Code 6th Edition.
• For the purposes of the calculation, communal areas will be included even if they do not directly generate income.  The theory behind this is that these areas contribute to the overall value of the development.  Where, however, a development contains a mix of exempt and non-exempt units, the Levy will only be charged on the communal spaces on pro-rata basis equivalent to that part of the development which is not exempt.  
• The Levy rate itself varies by local authority to reflect the geographical variation in house prices.  Quite simply, those areas with the highest house prices will attract the highest rates and the lowest house prices the lowest rates. There is an average Levy rate of roughly £34 per square metre, but unsurprisingly the rates vary significantly - for example the highest rate is set in Kensington and Chelsea at £100.35 per square metre, but in County Durham it is £12.70 per square metre. The Government has published the full list of rates, which you can access here.  The rates will be reviewed every three years and may be adjusted to reflect changes in property prices.  
• A 50% discount on the Levy will apply where the development is on 'previously developed land'.  However, this discount will only apply where 75% or more of the land within the planning permission redline is 'previously developed land'.  The draft regulations (when published) will determine the scope of the term 'previously developed land' for the purposes of calculating the Levy. 

How will it work and what are the consequences? 

• Whilst the detailed procedure will be set out in the regulations, it is understood that developers will be required to submit the relevant information for the Levy prior to or at the commencement of works.  The relevant local authority will then calculate the Levy, which must be paid before a building control completion certificate or a final certificate (where 18 metre plus buildings are concerned) is issued.  
• It is important to note that it is expected that entire Levy liability must be paid before those certificates are issued, regardless of whether there is staged completion.  In practical terms, this means that occupation will be delayed until the Levy liability is paid in full. 

Will the Levy impact developments?

The Levy applies irrespective of whether the developers that will be required to pay it were responsible for historic building safety failures, and it may affect house building in several ways, including the location for new developments, the type of land being developed and the timing of building control applications.  

It remains to be seen whether the Levy will impact the Government's ambitious target to build 1.5 million homes over the next 5 years.  However, what is clear is that this additional cost to residential development will need to be found somewhere.