Most of us have spent the last few months largely confined to our homes, as we do our bit to follow the “stay home” guidance and fight the pandemic. Whilst every household is different, most will attest to the stresses and strains that have evolved from not leaving the house, home-schooling, working from home, working from home whilst home-schooling or being furloughed and unable to go to work.
Imagine, in addition to this stress, that you also fear that your home itself is a safety hazard. Imagine further that this safety hazard is also costing you significant sums each month, as the costs of interim safety measures are added to your bills. This is the reality for thousands of leaseholders who hoped that the government’s announcement yesterday, over three and a half years after the tragic Grenfell fire, would provide a final solution to the cladding crisis.
In short, and in the government’s own words, the Housing Secretary’s announcement will:
- Pay for the removal of unsafe cladding for leaseholders in all residential buildings 18 metres and over (6 storeys) in England;
- Introduce a generous finance scheme to provide reassurance for leaseholders in buildings between 11 and 18 metres (4 to 6 storeys), ensuring they never pay more than £50 a month for cladding removal;
- Introduce an industry levy and tax to ensure developers play their part;
- Introduce a world-class new safety regime to ensure a tragedy like Grenfell never happens again; and
- Provide confidence to this part of the housing market including lenders and surveyors.
But do the measures work? Which buildings do they apply to? Is the finance scheme “generous”? Do the measures answer the Law Society’s call on the government “to protect leaseholders from the costs of making their homes safe”? And do the measures amount to a “big, bold, globally unprecedented intervention” and bring “confidence to this part of the housing market” as the Housing Secretary claimed?
Yes, no, maybe, I don’t know. The likely answer is that the announcement will provide a solution (or the beginnings of) for some, but not for all. Many leaseholders will not qualify for help, will not receive immediate help or have already incurred crippling financial costs that will not be reimbursed.
Whilst we await further details on the intricacies and precise application of the policies announced yesterday, I have examined the Housing Secretary’s statement in the hope that some of your initial questions will be answered.
“Leaseholders in high-rise residential buildings will face no cost for cladding remediation works”
This was the Housing Secretary’s pledge, and is likely to be the main headline from the announcement, as he announced a £3.5 billion fund to “pay for the removal and replacement of unsafe cladding for all leaseholders in high-rise buildings”.
Is £3.5 billion enough?
The Homes, Communities and Local Government Committee reported last year that £15 billion would be required to fully remediate all high-rise residential buildings.
The £3.5 billion fund announced yesterday is in addition to packages made available previously, including a £1.6 billion fund aimed at remediating unsafe cladding and a £30 million fund which aimed to assist with the costs of interim safety measures.
Whilst all measures have been celebrated as a step in the right direction, each of these existing measures has their own eligibility quirks, application windows and numerous reports of seemingly unfair application in practice. For example, the building safety fund for non-ACM cladding (explained in more detail here
) applied on a first-come first-served basis, only allowed three months between publishing the prospectus and closing the registration (with guidance on the application being published in the same month the registration closed), only applied to buildings over 18 metres high and was not available where remedial work had already begun (even if this was at the leaseholders’ cost). If similar eligibility criteria applies, it is fair to predict that not all buildings over 18 metres will qualify.
Even when taken together, the packages provided by the government fall some way short of the Homes, Communities and Local Government Committee’s £15 billion estimate. That said, the precise eligibility criteria for the new fund is not yet clear and it may well be that the £3.5 billion fund is sufficient to remediate all buildings that are eligible to apply.
Is my building “high-rise”?
The Housing Secretary confirmed that the fund will only be available to “high-rise residential buildings of 18 metres and above, or above six storeys”.
We await confirmation of the precise eligibility criteria, but previous funds (for example, the non-ACM cladding remediation fund – full criteria here
) have allowed a tolerance of 30cm under the 18 metre requirement and have excluded roof-top plant and any top storeys consisting exclusively of plant rooms from the measurement.
Is all cladding covered?
The Housing Secretary has said that the fund is available to pay for the removal and replacement of “unsafe cladding”.
Previous funds have been allocated based on the type of cladding, specifically whether ACM (or “aluminium composite materials”) or Non-ACM cladding systems were in place. The Housing Secretary highlighted the dangers of both types of cladding and the work done to remediate these buildings to date. The suggestion would appear to be that the new fund is to assist this work in remediating all types of unsafe cladding, though the specific eligibility criteria is yet to be reviewed.
So, what if my building is less than 18 metres high?
The government’s proposal confirmed that the additional remediation funding will not be available to “lower-rise” buildings below 18 metres. Leaseholders in buildings of four to six storeys or 11 to 18 metres will have the option of financial support by way of a “long-term, low-interest scheme” in which “no leaseholder will ever pay more than £50 a month towards the removal of unsafe cladding”.
The Housing Secretary clarified that there would be no compulsion on leaseholders to accept the loan arrangement and explained that the arrangement will sit with the building and not the individual.
It is not yet clear how long this arrangement will last (I suspect that the answer to the question “how many £50 monthly payments will I have to make?” will be different for every building affected), but is clear that the arrangement stays with the building and as such, future buyers could inherit the obligation to make these payments. Whilst the Housing Secretary claimed that the scheme “should not have a material impact on the value” of the property, it is hard to ignore the most obvious solution to buyers of reducing the purchase price to account for these additional payments.
But what about my nil valuation or the waiting list for EWS1 forms?
Whilst the Housing Secretary explained that the difference in approach for lower-rise buildings is because “the risks are much lower”, it is true to say that the issues precluding many from selling their “lower-rise” properties today are not solely due to the safety concerns of would-be buyers.
When EWS1 forms were introduced as a method of confirming the fire safety of the external walls of residential buildings, they were only required for buildings above 18 metres. However, the scope and application in practice was widened to include buildings below 18 metres where there were “specific concerns”.
It has been widely reported that lenders have required EWS1 forms regardless of the building’s height and have provided nil valuations in the absence of this form. Whilst recent guidance has clarified that EWS1 forms are not required for residential buildings without cladding regardless of height, many have experienced a stalemate where buyers are unable to obtain funding and sellers are unable to obtain the EWS1 form.
Even where EWS1 forms are obtained, the waiting list is growing and the forms are expensive to obtain.
Yesterday’s announcement confirmed that the government are consulting with industry leaders to “reduce the need for EWS1 forms” and to “work towards a targeted, state-backed indemnity scheme” to enable more qualified professionals to obtain the professional indemnity insurance required in order to provide the EWS1 form.
The government also alluded to a recent consultation and proposed guidance, led by the Royal Institution of Chartered Surveyors (RICS), which seeks to clarify when EWS1 forms are required and to encourage a more proportionate judgement on valuation risk.
It remains to be seen whether guidance will be sufficient to encourage lenders to change tack or whether further measures will be required in order to prohibit EWS1 forms or nil valuations in certain circumstances.
So, the costs of cladding remediation works are covered, but what about my related, interim safety costs?
Yesterday’s announcement deals with the costs of removing unsafe cladding only. The additional fund is not designed to assist with the costs incurred in rising insurance premiums and interim safety measures, such as installing new fire alarms and employing so-called “waking watch”, which have inevitably been passed to leaseholders.
Whilst a £30 million Waking Watch Relief Fund was announced last year, many will have hoped that yesterday’s announcement would increase the help with these interim costs or do more to discourage these costs being passed to leaseholders.
For clarity, the Waking Watch Relief Fund provides a £30 million fund to pay for the costs of installing an alarm system in buildings with unsafe cladding. The fund is only available to residential buildings over 17.7 metres in height where a waking watch is currently in place and these costs have been passed to leaseholders. The fund will only cover the cost of alarms installed after 17 December 2020 and the application window (except for those buildings in Greater London) will close on 14 March 2021. Further information can be found here
So, will the taxpayer foot the bill?
To assist the burden on taxpayers, the government’s proposal promises to introduce a “gateway 2 developer levy” implemented in the forthcoming Building Safety Bill and a new tax for the UK residential property development sector in 2022.
The levy will “apply only when developers seek permission to develop certain high-rise buildings”.
The government suggest that the new tax will raise “at least £2 billion over a decade” and will “ensure that the largest property developers make a fair contribution to the remediation programme”.
Yesterday’s announcement promised that further details on the proposed tax will follow and it remains to be seen whether this additional cost to developers will be passed on indirectly (e.g. by increased property prices).
Is the intervention “globally unprecedented”?
Not exactly. Comparisons have been drawn to the approach in Australia and specifically, in the State of Victoria, where a cladding taskforce was set up just three weeks after the Grenfell Tower disaster.
The Australian example involved auditing all buildings, identifying those with dangerous cladding and ranking them in order of priority. By comparison, many report that the UK government still do not know the exact number of buildings affected by unsafe cladding. The Australian approach also tried alternative models, before acknowledging that remediation funds had to be made available by government, with an attempt to recoup some of the money by way of a levy on developers.
Interestingly, the State of Victoria did adopt an optional loan scheme, akin to the scheme announced yesterday, but reports suggest that the loans were not widely taken up by leaseholders, who did not wish to pay for remediation where they were not at fault, nor were they popular with those tasked with administering the loans who had no material interest in it.
Whilst the Australian example is not free from criticism and will still take years to remove all unsafe cladding, by assuring leaseholders that the government will front the remediation cost, the market has been supported and sales of such properties have continued. It may, therefore, be fair to conclude that the “globally unprecedented” approach proposed by the government yesterday would be better described as an “Australian-style” solution – ring any bells?
Did he just say “Caveat Emptor”?
Many listening to the announcement yesterday would have heard the Housing Secretary refer to “caveat emptor”. When acknowledging that leaseholders may have wished the measures to go further, the Housing Secretary noted that the measures were a significant intervention, in contrast to the principles of “caveat emptor” and noted that such measures had not been made for other property risks such as flooding and subsidence.
Caveat emptor or “buyer beware” is the legal principle that it is for the buyer to carry out their due diligence on a property, to ask the right questions, carry out the right searches and surveys and ultimately (and broadly speaking), to take the risk of any unforeseen issues with the property.
It is not clear that this reference is helpful in the context of the cladding crisis, where buyers who did carry out all available due diligence would have still been advised to proceed with their purchase. The issue, as Law Society President David Greene noted, is that “many properties built over the last twenty years are potentially dangerous as a result of unclear building regulations, poor building practices, defective materials and inadequate enforcement of the rules”. Buyers would have been shown a valid building regulation completion certificate, approving the completion of the building and will have been advised to proceed with their purchase. In this scenario, reminding these leaseholders of such legal principles will provide little comfort.
Putting the risk in context
The Housing Secretary acknowledged that many leaseholders were concerned about the safety of their homes, but said that it “is also important that we put the risk of a fire, and in particular the risk of a fatal fire, in context – it is low”. The Housing Secretary went on to explain that “last year, the number of people who died in fires in blocks of flats over 11 metres was 10”, whereas “more than 1,700 fatalities were reported on our roads in 2019.”
Whilst this may be true, the comparison is unlikely to offer much comfort to those currently living in buildings with unsafe cladding, who have reported the related negative affect on mental health.
A (perhaps unhelpful) analogy. I am scared of flying. Terrified in fact. I will often pretend to become overwhelmed by the in-flight film, whilst I am actually fretting about every noise and movement of the plane. The drawer of the short straw sitting next to me will always, without fail, reassure me that there are far more road fatalities each year. I accept this, but I am not on the road, I am in the sky. I am not currently at risk from cars and the traffic on the M1 does little to comfort me at 35,000 feet.
Whilst yesterday’s announcement is undoubtedly a step in the right direction, the proposals will inevitably take time to be implemented, with buildings having to apply for funding, be assessed, agree plans for the works and have the works carried out. In the interim period, without significant changes to the market, it appears likely that leaseholders will continue to foot the bill for interim safety measures and struggle to sell their homes.
It is arguable that a line must be drawn somewhere, indeed the government’s expressed approach is to tackle those buildings with the highest risk, rather than all buildings with unsafe cladding. However, many will criticise such an arbitrary restriction, which creates a “height lottery”. It remains to be seen how effective the latest proposals will be in tackling the cladding crisis, but it has been argued that the government must tackle all unsafe cladding in order to truly fulfil their promise that no leaseholder should pay.