20 January 2022

Cladding Reform: Developers in the crosshairs

Graham Halsall looks at the Government’s latest plans to assist leaseholders in the removal of Grenfell-style cladding from buildings.

In the aftermath of Grenfell, many buildings up and down the country were found to have been constructed with the same kind of combustible cladding that caused the rapid spread of fire at Grenfell. Therefore, steps needed to be taken to remove this cladding as quickly as possible and to make the buildings safe in the meantime.

Unsurprisingly, this has all come at a significant cost and disputes have arisen over who is to pay for it. In many cases, the affected buildings are blocks of flats and the costs of remedial works have been claimed by the building owner via the service charge. These charges can run into tens of thousands of pounds, which many leaseholders have been unable to afford. Selling is often not an option either because some lenders are refusing to offer mortgages on affected properties. And who wants to buy a property that is subject to such high service charges and / or a risk of fire?

Unsurprisingly, this has all come at a significant cost and disputes have arisen over who is to pay for it. In many cases, the affected buildings are blocks of flats and the costs of remedial works have been claimed by the building owner via the service charge. These charges can run into tens of thousands of pounds, which many leaseholders have been unable to afford. Selling is often not an option either because some lenders are refusing to offer mortgages on affected properties. And who wants to buy a property that is subject to such high service charges and / or a risk of fire?

With many leaseholders stuck in limbo or facing financial ruin, this had led to a crisis all of its own.

Previous interventions by the Government have been met with a lukewarm response. In March 2020, a “Building Safety Fund” was set up to meet the cost of removing unsafe cladding on residential buildings that are 18 metres and over. Funding is available on application and subject to eligibility criteria. The fund also does not meet the cost of interim safety measures such as a “Waking Watchmen” (i.e. a 24 hour fire safety patrol). Therefore, the fund does not cover all costs in all cases. For lower-rise buildings between 11 and 18 metres, a loan scheme was set up, through which leaseholders would repay a maximum of £50 a month. Therefore, many leaseholders were still bearing the brunt.

In this latest announcement, the Government has turned its attention to the developers for answers. It has warned the industry that it will take "all steps necessary" to make firms pay for the removal of unsafe cladding buildings between 11m and 18m. In a letter to developers in England & Wales, the Secretary of State for Levelling Up, Housing and Communities, Michael Gove invited developers to:

• make financial contributions to a dedicated fund to cover the full outstanding cost to remediate unsafe cladding on 11-18 metre buildings, currently estimated to be £4 billion;
• fund and undertake all necessary remediation of buildings over 11 metres that they have played a role in developing;
• provide comprehensive information on all buildings over 11 metres which have historic safety defects and which they have played a part in constructing in the last 30 years.

If developers do not co-operate in this way, they could face a range of sanctions, such as:

• Restricting access to government funding and future contracts;
• Using planning powers, or changing the tax system; or
• Or, if the industry fails to take responsibility, imposing "a solution in law".

Following his letter to industry, the Secretary of State has revealed a 4-point plan to reset the government’s approach:

1. Opening up the next phase of the Building Safety Fund to drive forward taking dangerous cladding off high-rise buildings, prioritising the government’s £5.1 billion funding on the highest risk

2. Those at fault will be held properly to account: a new team is being established to pursue and expose companies at fault, making them fix the buildings they built and face commercial consequences if they refuse

3. Restoring common sense to building assessments: indemnifying building assessors from being sued; and withdrawing the old, misinterpreted government advice that prompted too many buildings being declared as unsafe; and

4. New protections for leaseholders living in their own flats: with no bills for fixing unsafe cladding and new statutory protections for leaseholders within the Building Safety Bill

Comments

By targeting developers directly, this latest announcement represents something of a change of tact in the Government’s approach. Battle lines have been drawn and the Government has the developers in the crosshairs.

For leaseholders, the news will undoubtably be met with enthusiasm. However, this new approach does not appear to apply retrospectively, meaning that leaseholders who have already paid for the removal of cladding will not receive a refund. The announcement will come as scant comfort to those who have already lost their home in the process. The new measures are also not likely to cover all fire safety works, such as: fire breaks, new balconies, safety doors and sprinkler systems. So, it is not a “cure all” solution by any means.

For developers, the cost of compliance will be significant. Whether or not businesses are able or willing to meet those costs is another matter. Some of the developers involved may have ceased to exist (e.g. if they have been dissolved and struck off). It may also be difficult to pin-point responsibility, with so many different parties involved in these building projects. “Spin off” litigation would seem inevitable. The announcement is to be followed by a series of round table discussions and negotiations between the Secretary of State and industry leaders. Until we see the end-product of those discussions, it is difficult to gauge the success or otherwise of this latest intervention.