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What the statutory compliance in property documents are and why they matter
Fire Risk Assessments, Electrical Installation Condition Reports, and asbestos surveys are not just regulatory paperwork. They tell you whether a property is safe, insurable, and fit for its intended use. When they are missing, out of date, or deficient, the consequences for borrowers and lenders can be serious.
A Fire Risk Assessment is required under the Regulatory Reform (Fire Safety) Order 2005 for virtually all non-domestic premises, including hotels, care homes, commercial buildings, and even the common parts of residential properties. The responsible person (usually the owner, employer, or occupier) must ensure a suitable and sufficient assessment is carried out and kept under review. An FRA identifies hazards, evaluates existing precautions, and produces an action plan for any remedial works. It is not a one-off exercise: it needs to be reviewed regularly and updated whenever anything material changes.
An Electrical Installation Condition Report (EICR) is the formal record of whether a property’s fixed electrical wiring is safe. Under the Electrical Safety Standards in the Private Rented Sector (England) Regulations 2020, residential landlords must obtain a satisfactory EICR at least every five years. For commercial and mixed-use properties, periodic inspection is just as important. An unsatisfactory EICR (or no EICR at all) creates immediate regulatory, insurance, and operational risk.
Under the Control of Asbestos Regulations 2012 a dutyholder must ensure that ‘a suitable and sufficient assessment is carried out’ for all non-domestic premises. In practice, this means an asbestos management survey is required for all buildings constructed prior to 2000. This helps a dutyholder demonstrate that they have complied with the regulations by identifying and assessing any asbestos-containing materials. The dutyholder still has a duty to manage such materials and, where medium- or high-risk materials are found, a management plan is needed, and, in most cases, removal will be recommended.
Risks for borrowers
A borrower who completes without updated, satisfactory statutory compliance documents is walking into trouble with its eyes wide shut. We recently acted on a care home acquisition by way of a share sale where the fire and rescue service issued a formal Notification of Deficiencies after an audit. The audit identified inadequate fire separation, deficient detection systems, means-of-escape failures, and fire door defects. The local authority then issued a Default Notice, making clear that its care contract with the target company was at risk until the problems were fixed. The seller repeatedly argued they saw no reason to include contractual protection because the issues had been “disclosed”. However, disclosure is not the same as protection. A buyer who completes with knowledge of live regulatory deficiencies may find itself unable to pursue a warranty claim for those very matters, precisely because they were disclosed before completion.
The practical consequences go further: regulatory enforcement action, fines, prohibition notices, potential prosecution, loss of care or licensing contracts, as well as the critical risk that building insurance is invalidated or the insurer reserves its rights.
The structure of the transaction matters too. In an asset sale, the enforcement risk for pre-completion regulatory breaches generally stays with the seller because they were the responsible person at the time of the breach. The buyer acquires the property, but not the seller’s personal liability for historic non-compliance. In a share sale, however, the position is fundamentally different. The buyer acquires the company, and the company — as the entity that owned and operated the property throughout the period of non-compliance — remains liable after completion. Any outstanding enforcement action, fines, regulatory consequences, or remediation obligations all travel with the target company into the buyer’s ownership. The buyer inherits the problem in full. That distinction makes it all the more important, in a share sale, to negotiate robust contractual protections before completion. Once the shares transfer, the target’s liabilities, in effect, become the buyer’s liabilities.
Risks for lenders
For lenders, the risks are just as real. A property with unresolved fire safety deficiencies, an unsatisfactory or missing EICR, or unmanaged asbestos, is a property whose security value is compromised. If the lender needs to enforce, it may find itself unable to sell or re-let the property without first carrying out costly remedial works. A live Default Notice from a local authority — particularly in the care sector — can undermine the income stream supporting the loan. Insurance uncertainty compounds the problem: if cover is not confirmed as valid and effective, the lender’s security may be uninsured or underinsured.
This would be a nightmare for any lender or financier with security over what could potentially turn into a worthless pile of uninsured embers.
Equally important is the quality of the borrower’s legal representation. In our experience, a borrower’s solicitor who fails to negotiate proper contractual protections such as retentions, indemnities, undertakings, and price adjustments before completion leaves the borrower and, by extension, the lender, carrying risks that could and should have been allocated to the seller. A lender should not assume that the borrower’s solicitor has dealt with these issues adequately and, as ever, taking clear and timely advice from your solicitor is key to ensuring the facility is as secure as possible.
Keeping records current
Having a document is not enough. An FRA that is two years old with an incomplete action plan is not satisfactory. An EICR that was satisfactory five years ago tells you nothing about today. An asbestos survey that identifies medium-risk materials but has no evidence of a management plan or follow-up is a liability, not an asset. The key is not just commissioning the document, but ensuring that action plans are progressed, completed, evidenced, and closed out, with contractor certificates, invoices, photographs, and regulatory sign-off kept on file.
A practical conclusion to statutory compliance in property
Lenders and borrowers should both treat current, satisfactory FRAs, EICRs and asbestos surveys as non-negotiable elements of due diligence. Where deficiencies exist, best endeavours should be used to ensure they are resolved before completion. If this is commercially not possible, deficiencies should be supported by meaningful contractual protections: retentions, escrow arrangements, specific indemnities and, where necessary, price adjustments. The cost of getting this right before completion is a fraction of what it could cost to deal with the fallout afterwards.
If you wish to discuss the contents of this blog or have questions about statutory compliance in property transactions then please feel free to contact one of our expert real estate solicitors by email or call on +44(0) 3333 231 580.
