Gateway 3 and Practical Completion: The Illusion of Risk Transfer

With the Building Safety Act 2022 (BSA) and the introduction of Gateway 3 certification, many UK developers have attempted to transfer the risk of non-compliance onto contractors by tying BSA requirements into the definition of Practical Completion (PC). This approach is based on the assumption that if the contractor is responsible for achieving Gateway 3, the developer is protected from delays, financial exposure, and liability.

However, this strategy is fundamentally flawed.

While contractual mechanisms may allow developers to seek liquidated damages (LDs) or claim against contractors for non-compliance, they do not solve the real-world problem:

Projects are still delayed, meaning tenants and purchasers cannot move in.
Rent is not collected, affecting income for Build-to-Rent (BTR) and student housing schemes.
Construction finance remains in place, increasing holding costs.
Investors and lenders are exposed, as capital cannot be refinanced or redeployed into new projects.

Furthermore, the ability to enforce damages against contractors for Gateway 3 failure is untested in the UK courts, leaving developers in a legal grey area. What happens if Gateway 3 certification is considered a statutory undertaking rather than a contractor’s contractual responsibility? Could the delay be classified as a Relevant Event or Relevant Matter under JCT contracts, rendering damages unrecoverable?

This article explores the pitfalls of assuming risk transfer and why developers should adopt a proactive compliance strategy, rather than relying on contracts alone.

The Illusion of Risk Transfer:

Contractual vs. Regulatory Responsibility

At a basic level, Practical Completion (PC) is a contractual milestone, whereas Gateway 3 is a statutory approval process. By tying PC to Gateway 3 compliance, developers risk blurring the lines between a commercial obligation and a regulatory requirement.

Contractor’s Responsibilities Under the Building Safety Act

Under the BSA, contractors have explicit obligations regarding compliance, safety, and the provision of information. This reinforces the idea that they have a duty to ensure that the building is compliant for Gateway 3 approval.

Contractors are required to provide a 'Golden Thread' of information – this means they must supply accurate, complete records of all design, materials, and construction processes for safety compliance.
Contractors face civil liability for safety breaches, meaning developers may have legal recourse if Gateway 3 rejection results from a contractor’s negligence.

However, achieving Gateway 3 approval is ultimately subject to the decision of the Building Safety Regulator (BSR), which is beyond the contractor’s control. This raises a fundamental issue:

if the regulator delays or rejects an application due to factors outside the contractor’s responsibility, can the developer still claim damages?

The JCT Contract Risk: Relevant Events & Matters

Under the JCT Design and Build 2016, contractors can claim relief for delays caused by Relevant Events (Clause 2.26) and Relevant Matters (Clause 4.21). If Gateway 3 approval is classified as a statutory requirement beyond the contractor’s control, a delay could:

Entitle the contractor to an extension of time (EOT) under Relevant Events.
Shift liability back to the developer, preventing the enforcement of liquidated damages.
Give the contractor grounds for claiming additional costs, if compliance requirements change or regulatory delays affect completion.

In essence, developers may believe they have passed the risk to contractors, but in practice, they could find themselves unable to enforce damages, while still bearing the financial consequences of project delays.

The Financial & Commercial Impact of Gateway 3 Delays

Even if developers successfully enforce contractual penalties, this does not eliminate the commercial risks of a Gateway 3 delay:

Delayed Handover to Tenants/Purchasers – Build-to-Rent (BTR) and student housing schemes depend on timely occupation. A six-month delay in Gateway 3 approval could mean six months of lost rental income, far exceeding any damages recovered from a contractor.
Extended Construction Finance – Development finance is structured around a clear exit strategy. If PC is delayed due to Gateway 3, developers remain on higher interest construction loans, increasing costs.
Investor & Lender Exposure – Capital cannot be refinanced or deployed into new projects. This creates a negative knock-on effect for portfolio performance and investor confidence.
Reputational Risk – Delays in achieving Gateway 3 could damage relationships with institutional investors, lenders, and future tenants.

Thus, levying damages against the contractor is not a solution—it is merely a reactive financial penalty that does nothing to prevent the underlying problem.

A Proactive Compliance Strategy:

Technology & Process Controls

Rather than relying on contractual risk transfer, developers should implement real-time compliance tracking to prevent Gateway 3 delays before they occur.

Digital Compliance Management

Technology platforms such as ‘Project Monitor’ and ‘Building Monitor’ provide a solution by:

Tracking compliance from Day One – ensuring all regulatory documentation is captured and verified in real time.
Providing a digital audit trail (‘Golden Thread’) – ensuring all safety information is easily accessible for Gateway 3 submission.
Automating compliance alerts using AI – flagging missing documents or non-compliance issues before they cause delays.

Early Regulatory Engagement

Conducting mock Gateway 3 audits in advance, involving legal teams, fire safety engineers, and regulatory consultants.
Engaging with the Building Safety Regulator (BSR) early to clarify submission requirements and avoid last-minute rejections.
Mandating phased compliance reviews throughout construction, ensuring Gateway 3 documentation is compiled in parallel with project progress.

Contractual Adjustments for Greater Clarity

To mitigate uncertainty, developers should:

Define Practical Completion (PC) separately from Gateway 3 certification.
Ensure clear contractor responsibilities for documentation but recognize that ultimate approval lies with regulators.
Consider alternative security measures, such as performance bonds or escrow holdbacks, rather than relying solely on liquidated damages.

Rethinking Risk Management for Gateway 3

The assumption that contractually tying Gateway 3 compliance to Practical Completion will protect developers from risk is fundamentally flawed.

Achieving Gateway 3 is a statutory approval process, not a contractor-controlled milestone.
Regulatory delays beyond the contractor’s control could excuse them from liability under JCT provisions.
Even if damages are recoverable, the commercial impact of delays—lost income, increased finance costs, and investor exposure—remains significant.
A proactive compliance strategy, driven by digital technology and real-time monitoring, is the only reliable way to mitigate Gateway 3 risk.

Developers, investors, and funders must shift from a reactive, contract-focused approach to a proactive, compliance-driven strategy.

Rather than assuming that a contract clause solves the problem, the industry must invest in technology, process controls, and early engagement with regulators to ensure Gateway 3 is achieved without delays or financial fallout.

If Gateway 3 failure leads to delays, liquidated damages might offer some compensation—but they won’t recover lost rental income, wasted finance costs, or investor confidence. The best strategy is not legal disputes, but preventing delays from happening in the first place.

By embracing technology-driven compliance tracking and early regulatory engagement, developers can ensure Gateway 3 success, protect asset value, and safeguard their financial exposure.