The Building Safety Levy is now in force, adding another cost to an already challenging viability equation for housebuilders.
Much of the discussion has focused on which developments are caught, how the levy is calculated and when it must be paid. Less attention has been given to a different question: What does the levy do to the price payable for the land?
The levy is administered through the building control system. However, its commercial impact begins much earlier, when a housebuilder prepares its appraisal, negotiates an acquisition and agrees how the purchase price will be calculated.
For new transactions, the levy can be addressed expressly. Existing conditional contracts, options and promotion agreements may be more difficult. Many were drafted before the detailed regime was known and may not say whether the levy is deductible, how it should be estimated or who benefits from an exemption or discounted rate.
That matters because a levy calculated by reference to floorspace does not necessarily sit comfortably with a land price calculated differently, for example by reference to units.
What is the Building Safety Levy?
The Building Safety Levy applies to certain residential development in England and came into force on 1 October 2026.
Broadly, development may be chargeable where it forms part of a major residential development, creates new residential floorspace and the client is not exempt. Major residential development generally means at least 10 dwellings or, for purpose-built student accommodation, at least 30 bedspaces.
The levy is collected through the building control system. Liability is calculated by applying the relevant local authority rate to the chargeable residential floorspace. Qualifying development on previously developed land generally attracts a 50% discounted rate. Exemptions include qualifying social housing, supported housing and specified uses such as care homes, hospices and hotels.
The result is a statutory cost which varies according to a site’s location, design, tenure mix, planning history and previous use.
Who pays and who bears the cost?
The legislation identifies who must pay the collecting authority. It does not decide who should ultimately bear the economic cost under a land contract.
A housebuilder considering a new opportunity will ordinarily include the levy in its appraisal. All other things being equal, the additional cost will reduce the land value or affect the amount of affordable housing the scheme can support.
The position is more complicated where a conditional contract or option has already been exchanged. If the price is fixed or calculated by reference to consented dwellings, the developer may carry the levy without any corresponding reduction in the land price.
A market value or residual valuation may offer more protection, but only if the drafting captures the levy. A general right to deduct “development costs” might be wide enough. Equally, it might create an argument about whether the levy is a construction cost, planning cost, tax or statutory payment.
So while the levy will be payable by developers, landowners are unlikely to be insulated from its effects. As with other development costs, it may ultimately be reflected in land values and the terms on which sites are bought, sold or promoted. Parties negotiating option agreements, promotion agreements and conditional contracts should therefore consider carefully how levy risk is allocated.
Conditional contracts and satisfactory planning
Many conditional contracts require completion once satisfactory planning permission has been obtained. The definition usually addresses matters such as unit numbers, affordable housing, section 106 obligations, CIL, planning conditions and abnormal infrastructure costs. The Building Safety Levy should now form part of that discussion.
A permission may deliver the required number of homes but produce a materially different levy liability from the scheme anticipated at exchange. Changes to dwelling sizes, communal areas, affordable housing or the development boundary could all affect the amount payable.
A contract might therefore include:
- a maximum assumed levy liability or wider viability test;
- an express right to take the levy into account when assessing the permission;
- a right to amend the housing mix or design; or
- an adjustment to the purchase price.
The final liability may not be known when the planning condition is satisfied. The contract may therefore need to use a reasonable estimate rather than the amount ultimately payable.
Does the price mechanism work?
Fixed price
Under a fixed-price contract, the purchaser is likely to carry the levy unless the contract provides for an adjustment.
Price per plot
A price-per-plot mechanism creates a more fundamental mismatch. The levy is charged per square metre of chargeable residential floorspace and may include communal areas. Two schemes with the same number of homes can therefore produce different liabilities because of dwelling sizes, communal space, tenure mix, exemptions and local rates.
Residual land value
A residual calculation should, in principle, allow the levy as a development cost. The contract should nevertheless establish whether the actual or estimated levy is used, which scheme determines chargeable floorspace and how exemptions and discounts are treated.
The parties should also avoid double-counting. If the levy is already reflected in a valuation or comparable evidence, it should not necessarily be deducted again.
Open market value
Where the price is a percentage of open market value, the assumptions should require the hypothetical purchaser to account for the levy. Otherwise, the parties may disagree over whether it is reflected in market evidence or should be deducted separately.
Timing, floorspace and reconciliation
The levy ordinarily applies to relevant building control applications made on or after 1 October 2026, subject to transitional arrangements. An earlier application may remain outside the regime, but an application rejected and resubmitted after that date may be caught.
The contract should say which legislation, rates and scheme assumptions apply to the price calculation, and address changes between price agreement and completion. A landowner will not want the price reduced by a liability that is never incurred. A developer will not want to pay a price based on an assumed exemption which later proves unavailable. An estimation and reconciliation process may provide the fairest answer.
Land contracts also use various floorspace definitions, including gross internal area and net saleable area, however the levy introduces a separate regulatory measurement. Chargeable floorspace includes certain communal areas, excludes qualifying exempt accommodation and may require shared areas to be apportioned.
Exemptions, brownfield land and phasing
Qualifying social housing, supported housing and certain other accommodation are exempt. The exemption generally applies to the qualifying accommodation rather than removing the whole development from the regime. Any price mechanism should identify the assumed tenure mix and who benefits if additional accommodation later becomes exempt.
Specialist housing requires particular care. Care homes may be exempt, but retirement housing or housing with care should not be assumed to qualify merely because of its description. The development and operating model must satisfy the regulatory requirements.
Brownfield status also affects value because qualifying previously developed land generally benefits from a 50% rate. The parties should address what evidence is required and who bears the risk of the collecting authority reaching a different conclusion.
Phased and multi-parcel schemes create further complexity. The levy may apply even where an individual building control application concerns fewer than 10 homes if the works form part of a planning permission for a major residential development. A contract may need to allocate liability by parcel, phase or an agreed proportion of a site-wide amount, supported by suitable information and cooperation obligations.
What should housebuilders check?
The levy is not simply a building control issue. It affects residual land value, conditionality, valuation assumptions and risk allocation.
For new transactions, it should be addressed expressly. For existing contracts, housebuilders should check:
- whether the levy is an allowable deduction;
- which rates, regulations and floorspace assumptions apply;
- how exemptions, brownfield status and phasing are treated;
- whether liability is estimated or actual;
- whether there is any risk of double counting; and
- whether a reconciliation mechanism is available.
The legislation tells us who must pay the levy. The land contract determines where the cost ultimately falls.
Building Safety Levy – Frequently Asked Questions
How is the Building Safety Levy calculated?
The levy is generally calculated by applying the relevant local authority rate to the chargeable residential floorspace within a development. The amount payable will depend on factors such as location, exemptions, tenure mix and whether any discounted rate applies.
Does the levy automatically reduce the land price?
No. It may reduce residual land value, but the contractual outcome depends on the price mechanism. Under a fixed or price-per-plot contract, the developer may carry the cost unless there is an express adjustment.
Can it be deducted as a planning cost?
Possibly, but that should not be assumed. The levy is administered through building control. A definition limited to planning obligations, Community Infrastructure Levy and section 106 contributions may not capture it.
Should the actual levy or an estimate be used?
If the price is determined before detailed design or confirmation of exemptions, the actual liability may be unknown. A reasonable estimate followed by reconciliation may be appropriate.
Does phasing avoid the levy?
Not automatically. An application for fewer than 10 dwellings may still be caught where the works form part of a planning permission for a major residential development.
Are retirement living and housing-with-care schemes exempt?
Not automatically. Some care homes and supported housing may qualify, but the position depends on the particular development and operating model.
What should housebuilders do about existing contracts?
Review the definitions of development costs and statutory payments, valuation assumptions, change-in-law provisions, satisfactory planning requirements, floorspace measurements and reconciliation arrangements before the price is determined or the planning condition is satisfied.
How can we help?
Our real estate team advises regional and national housebuilders, developers, promoters and landowners on conditional contracts, option agreements, promotion agreements and strategic land transactions.
If you are negotiating a land acquisition or need to understand how an existing contract deals with the Building Safety Levy, please get in touch.
