Cladding Crisis – finally, a workable solution or more empty promises?

13 January 2022

The Housing Secretary has detailed the government’s plan to “reset” its approach to building safety in order to “protect leaseholders and make wealthy developers and companies pay to fix the cladding crisis”.

In the government’s own words, this plan intends to:

  • “open 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;
  • ensure that 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;
  • restore 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
  • introduce 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.”

Whilst reading these headline points, you may be forgiven for feeling a frustrating sense of déjà vu. Previous Housing Secretaries have set out policies that they claimed would resolve this crisis and which promised that leaseholders would not continue to foot the bill for cladding remediation works. Indeed, we previously analysed the government’s last “big, bold, globally unprecedented intervention” (see here) and predicted that it would likely provide a solution for some leaseholders, but not for all. Unfortunately, as the latest announcement acknowledges, this prediction was correct.

So what has changed? Why will this “new plan” succeed where previous policies have failed? And do leaseholders finally have reason to feel optimistic?

Unfortunately, I suspect that the conclusion will be unchanged. If enacted, the announcement will provide a solution for some, but not for all. Whilst the new policy seeks to extend remediation funds to “medium rise” buildings, it appears to invite the same criticism as previous policies – namely, a focus almost entirely on unsafe cladding (neglecting wider fire safety issues) and a distinct lack of good news for those who have already incurred significant costs in paying for the remediation of their buildings.

Whilst we await further details on the precise application of the new policy and indeed any conclusions from the government’s negotiations with developers, I have examined the Housing Secretary’s statement in the hope that some of your initial questions will be answered.

 

What has changed?

To clarify, the latest announcement did not introduce new legislation, nor did it provide a clear timetable for any legislative change. The announcement simply set out an intention to negotiate with developers and invite them to make financial contributions to “cover the full outstanding cost to remediate unsafe cladding on 11-18 metre buildings, currently estimated to be £4 billion”.

The Housing Secretary has proposed a deadline of early March, by which time he hopes to have agreed a fully funded plan of action to remediate unsafe cladding on buildings between 11-18 metres high. In doing so, the previous solution for such “medium-rise” buildings (being the introduction of a financial scheme offering “long-term, low-interest” loans) has been scrapped. This scheme had been heavily criticised for adding to leaseholders’ debt, rather than protecting them from continued costs and to this extent, the new policy marks a welcomed change of approach.

The policy is supported by proposals to increase the funds available for common alarm systems, enter into discussions with the insurance sector to reduce insurance premiums and reissue advice on building safety assessments (see Section 4 below for further details).

 

Is the £4 billion in addition to funding announced previously? If so, how will it be funded?

Yes – the government’s intention is to require developers to contribute to the latest remediation fund. Whilst it might initially be difficult to see why developers would decide to contribute now, the government have said that they will “impose a solution” on developers by law should negotiations not prove fruitful. However, it is not currently clear what this solution would be, how it would work in practice, nor how long it would take to draft, debate and enact.

If developers are not willing to contribute and actions to “impose a solution” are not forthcoming, there is some confusion as to the government’s plan B with the treasury reportedly unwilling to introduce new taxes or increase existing taxes to raise the funds. Whilst the threat of additional tax may have helped the Housing Secretary’s negotiation, if such options are not readily available it is likely that the fund will either come from the department’s existing budget (taking previously allocated funds away from the department’s other remits such as the so-called “levelling up” fund) or the policy will be sent back to the drawing board.

In the meantime, little will be done to change the status quo for affected leaseholders.

 

Is my building affected?

The additional £4 billion fund is intended to assist the remediation of unsafe cladding on buildings between 11 and 18 metres in height.

We are yet to see the precise eligibility criteria and are unable to confirm how the fund will be allocated to “medium rise” buildings. Previous policies have contained strict eligibility criteria (explained in more detail at Section 2 of our previous blog) which have restricted the application of funds and so it would be fair to exercise caution and suggest that not all buildings between 11 and 18 metres will qualify.

Whilst buildings of 18 metres and above are subject to existing policies, the latest announcement does not propose a solution for buildings which are declared unsafe but are less than 11 metres tall. Without affective and targeted policy, such buildings are likely to remain unmortgageable making it impossible for leaseholders to sell. Leaseholders of buildings less than 11 metres are left with the hope that the government’s change in advice on building safety assessment encourages lenders to relax their position and return to lending on such properties.  

 

So, the costs of cladding remediation works are covered, but what about my related, interim safety costs?

The Housing Secretary has suggested that the fund will apply to “unsafe cladding” only. This is in keeping with previous policies which have been criticised for merely providing partial solutions. It has long been clear that unsafe cladding is only part of the problem, with buildings also requiring rectification of defects such as flammable balconies, missing cavity barriers, missing fire breaks and faulty fire doors. The latest announcement does little to change the position on non-cladding fire safety issues, leading to criticism that the policy only makes buildings “half safe” and meaning that leaseholders will likely continue to incur the cost of remedying these issues.

The latest announcement did, however, include the following additional measures:

  • a new £27m fund to install “a common alarm system in all buildings with a Waking Watch”, in addition to the existing Waking Watch Relief Fund (see Section 7 of our previous blog for further details);
  • discussions with the insurance industry to try to reduce the insurance premiums on buildings which have been declared as unsafe, which have reportedly soared in recent years; and
  • reissuing advice on the need for and application of safety assessments on buildings (see Section 5 below for further details). 

Whilst such additional measures are welcome, the government are yet to publish detail of the scope, eligibility criteria or timetable for implementation and so the true impact of such measures is difficult to predict. What is clear is that they will not cover all known fire safety issues and so the criticism of a partial solution is likely to remain, as is the requirement for leaseholders to cover any related cost.

 

Does this latest announcement signal an end to EWS1 forms?

As detailed previously (see Section 6 of our previous blog), interpretation of building owners, lenders and future buyers as to when External Wall Safety (EWS1) forms are required has led to significant delays in obtaining assessments and a rapid increase in the price of such assessments.

The latest announcement withdrew the government’s previous advice on the basis that it had been “wrongly interpreted” and had “driven a cautious approach to building safety…that goes beyond what we consider necessary”. The government have said that new, proportionate guidance will follow.

It remains to be seen whether such guidance will be sufficient to encourage lenders to change tack or to encourage buyers that such assessments are not required. Given the industry’s application of the previous guidance and lenders’ preference to guarantee their investment with a compliant EWS1 form, it is arguably unlikely that a change in guidance will achieve a significant change in approach. Indeed, as referred to in our previous blog, the government have tried this option before with little success. It is not clear why stronger action is not being taken to ensure that such assessments are only required where absolutely necessary and do not continue to act as a barrier to lenders and buyers.

 

The repeated promise to protect all leaseholders

The Housing Secretary’s announcement included the confirmation that “no leaseholder living in a building above 11 metres will ever face any costs for fixing dangerous cladding”. A bold promise, but one that fails to acknowledge the many thousands of leaseholders who have faced such costs already and who will continue to do so until the latest policies are actually implemented.

The announcement did suggest that statutory protection for leaseholders would be introduced. Whilst this is encouraging, many leaseholders will query why this protection was not introduced sooner. We await the details of the proposed protection and cannot yet assess how affective it will prove to be. However, it was made clear that the new protection will not include refunds to compensate those leaseholders who have had to pay for remediation costs or interim safety measures and will instead be dedicated to cover the “outstanding cost” of remediation. As such, the new remediation fund will be too little too late for many leaseholders and will offer little comfort.

The promise to protect leaseholders and acknowledgement that no leaseholder should foot the bill is not new. The government have repeatedly stated that leaseholders should not pay. In 2018, then PM Theresa May confirmed that the government “expect private building owners to take responsibility…and to not pass the cost on to leaseholders”. This sentiment was repeated in last February’s announcement, when the current PM stated that the government was “determined that no leaseholder should have to pay for the unaffordable cost of fixing safety defects that they didn’t cause and are no fault of their own”. Whilst the vast majority of neutral observers would agree with the sentiment, policies to date have failed to achieve this promise and a large number of leaseholders have continued to receive eye-watering and financially crippling bills to cover the costs of remediation or interim safety measures. These leaseholders can be forgiven for taking the latest promises with a pinch of salt.

 

Conclusion

Our assessment of the previous policy concluded that whilst it was a step in the right direction, the proposals would inevitably take time to be implemented and without significant changes to the market in the interim period, it was likely that leaseholders would continue to foot the bill for interim safety measures and struggle to sell their homes. It is, unfortunately, difficult to reach a different conclusion on the latest measures.

The Housing Secretary promised that the changes would be “rapid” but “not immediate”. Legislative reform is often slow and taken on its own, this statement is fair. However, this June will mark 5 years since the tragic Grenfell Tower fire. Assessed in that context, the fact that many buildings continue to have fire defects similar to those which caused the Grenfell disaster is (to put it mildly) extremely disappointing, but the fact that we are still without an agreed and implemented policy to rectify such defects and to adequately protect affected leaseholders can only be described as an abject failure.

Shortly after the Grenfell Tower fire in June 2017, the then prime minister stated that the government “cannot and will not ask people to live in unsafe homes”. Almost 5 years later, many continue to live in such homes and continue to pay significant sums for the pleasure of doing so. Until leaseholders are adequately protected by law, on-going delays and multiple policy changes do little to change the status quo and with seemingly little appetite for future policy to compensate those who have already lost out financially (and indeed in many other, less easily quantifiable ways), the latest announcement is unlikely to provide a final solution to this saga.

 

Further information

You may be interested in our Real Estate & Construction pages.

If you would like to discuss any topics raised in this blog, please contact a member of our team.

 

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