And although its recent enactment applies to new and existing buildings in England over 18 metres or seven storeys in height which contain at least two residential units, the sentiment of the law – if not the letter – is beginning to be embraced by investors across other sectors.

Investors are keen to minimise risk: people must be safe. The long-term liquidity of investments and corporate reputation must also be protected.

By investing time, resources, and attention into ensuring assets meet and – where prudent – exceed building safety regulations, investors are not just protecting assets, but also contributing to the overall wellbeing of community and creating a legacy of responsible real estate ownership.

Despite recent legislation, the issue of whether a building meets fire safety requirements is far from black and white. To properly assess this, a working appreciation of the Act must be mapped onto an understanding of the current owners’ business plan for the asset, and future investors’ potential requirements.

What the market demands now – and into the future – may be very different to what the legislation currently requires.

The majority of investors have by now registered relevant assets under the BSA and are finalising their building safety case reports. But the Act does not represent a one-size-fits-all solution.

The sad truth is that most in-scope assets will have some shortcomings. The legacy of delegated design, ill-conceived fire-engineering solutions, and unrealistic build programmes, mean that issues are likely to be identified by due diligence. Of course, safety will always trump the list of priorities, but meeting the requirements of the Act may not go far enough to achieve liquidity.

For long-income investors, a base position on safety might mean rigorously meeting all requirements of the Act – ensuring no breaches in compartmentation and that fire doors are up to standard.

However, in this scenario there is no commercial driver for further action, so combustible materials might still be acceptable in external walls, and a single staircase may be permitted, for example. Here, building safety minimums – known as a “tolerable pass” – is a different proposition to marketability.

At the opposite end of the scale, there are investors who would seek to maximise value by exceeding requirements; opting to strip out all combustible material, replace cladding, install a second staircase and remedy internal compartmentation prior to marketing.

Conversely, purchasers with a different business plan may be comfortable with a single staircase – and may accept a risk-assessed façade with a tolerable pass rating – depending on their own strategy. In this scenario, the millions spent on replacing combustible materials and cutting holes through the building would prove unnecessary, making a poor position worse.

As the industry adapts to BSA legislation, it also needs to learn to be adaptable to potential investors’ commercial objectives. Avoiding the significant abortive cost and carbon associated with enhancements is a consideration.

Traders of residential assets should perhaps focus on achieving a baseline compliant building, stopping short of enhancements, but providing a fully costed menu of upgrade options for a purchaser to consider.

Such an approach requires investment in feasibility and procurement spend but stops short of the hard costs associated with upgrades. Does this approach arm the purchaser and expose the vendor? Not really, the BSA already means there is more focus than ever on fire; difficult questions and price-chipping tactics are inevitable. Proactively declaring, scoping and costing the questions purchasers are likely to ask can shortcut the due diligence process, while limiting hard costs.

The building consultant’s role should now be to demystify technical reporting, advise on the base-compliant solution, and offer a menu of enhancement options, which set out differing liquidity profiles and corresponding capex requirements.

The importance of understanding the client’s intentions when providing advice on building safety, rather than relying on generic due diligence reports, means investors can gauge how far they need to go before starting the journey.

This article first appeared in CoStar News. 

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Matthew Osborne, Partner and Fire Advisory Lead, Workman