The Building Safety Levy (“Levy”) comes into force on 1 October 2026. It is a new charge on major residential developments in England, collected by local authorities. While targeted at residential development, its impact extends beyond the housebuilding sector. Commercial property developers, landowners and investors involved in mixed-use schemes should now be considering how the Levy could affect project viability, contractual arrangements and project delivery.
The Levy forms part of the Government’s building safety reforms and is intended to raise funds to remediate historic building safety defects in residential buildings. Although many purely commercial developments will fall outside its scope, the growing prevalence of mixed-use schemes means commercial developers cannot afford to ignore it.
Why Commercial Property Developers Should Take Notice
Many regeneration projects and strategic developments now incorporate a blend of commercial, retail, leisure and residential uses. Where a scheme creates residential floorspace, the residential element may trigger Levy liability, even where the development is predominantly commercial in nature.
This is particularly relevant to:
- mixed-use developments incorporating residential and commercial uses
- residential conversions of offices, retail premises and other commercial buildings
- regeneration and strategic development projects that include residential elements
As developers continue to repurpose underutilised commercial assets and respond to changing occupier demand, the Levy is likely to become an increasingly important consideration when assessing development opportunities.
Understanding When the Levy Applies
Unlike planning obligations, the Levy operates through the building control regime and is triggered when an initial notice or other relevant building control application is submitted. Broadly, it applies to major residential development that creates or increases residential floorspace and where the relevant building control application is made on or after 1 October 2026.
A ‘major residential development’ means a scheme delivering a net increase of at least 10 dwellings or 30 purpose-built student accommodation bedspaces.
Developers should not assume that phasing a larger development into smaller parcels will avoid the Levy. Whether a development falls within scope is assessed by reference to the wider planning permission rather than individual phases in isolation.
As the Levy is triggered by the initial notice or other relevant building control application, it will impact development schemes where planning is already in place, potentially impacting the profitability or financial viability of the scheme where the developer may no longer have the opportunity to price the Levy into the value of the site.
Key Exemptions Developers Should Know About
The regulations contain several exemptions, including affordable housing, supported housing and social housing delivered by qualifying providers. Certain accommodation types are also excluded, including schools, care homes, hospitals, hotels and temporary accommodation for homeless individuals.
However, eligibility is subject to detailed criteria and may require supporting evidence. Developers should therefore be cautious before assuming an exemption applies, particularly where viability depends on it, and seek advice.
Assessing the Financial Impact
The Levy is calculated by applying location-specific rates to the chargeable residential floorspace within a development. As rates vary significantly between local authority areas, the financial impact can differ considerably from one scheme to another.
For developers involved in projects with a residential element, the Levy should be considered alongside construction costs, financing costs, planning obligations, Community Infrastructure Levy contributions and wider compliance requirements.
Developments on previously developed land, often referred to as brownfield developments, may qualify for a discounted Levy rate. Brownfield sites commonly include former industrial premises, offices, warehouses and other previously developed land undergoing redevelopment. However, developers should seek advice and verify eligibility carefully before relying on any discount.
Allocating Liability in Development Transactions
Liability generally rests with the “named client” identified in the building control application. In many cases this will be the developer, although the position may vary depending on the projects structure.
This creates an important contractual consideration. Parties should review development agreements, promotion agreements, option agreements and funding arrangements to ensure responsibility for the Levy is clearly allocated and reflected in financial modelling.
Developers acquiring land for residential schemes (including mixed-use schemes) should also consider whether Levy costs have been appropriately reflected in land values and development appraisals.
The levy Could Affect Project Delivery
Perhaps the most significant aspect of the Levy is its connection to the building control regime. Failure to satisfy Levy requirements can affect the ability to obtain final certification, potentially delaying occupation of completed units and impacting transaction timetables. The Levy should therefore be viewed not just as a financial obligation, but as a project risk requiring active management throughout the development lifecycle.
What Developers Should Be Doing Now
The Levy arrives at a time when developers are already navigating increased construction costs, financing challenges and evolving regulatory requirements. While aimed at residential development, its effects will inevitably be felt across the commercial property sector due to the continued growth of mixed-use developments, urban regeneration projects and residential-led repurposing of commercial assets.
With implementation fast approaching, developers, investors and landowners should review their development pipeline, assess potential Levy liabilities and ensure that appraisals, funding arrangements and project deliveries adequately account for the new regime. Early planning and careful due diligence will be key to avoiding unexpected costs and delays.
How Tees Can Help
Tees’ Land and Real Estate team advises developers, investors and landowners on all aspects of development, regeneration and mixed-use projects. If you would like advice on how the Levy may affect your current or future development, please get in touch with a member of our Land and Real Estate team.
