In our last article, we summarised the effects of the cladding crisis on residential leaseholders who own flats in affected blocks. In this one, we look at what the government has done to date in terms of funding.
Despite some high-flown announcements, the government’s funding allocation for replacement cladding has been painstakingly slow and its attitude towards the issue closest to leaseholders’ hearts - who pays to remediate dangerous buildings – inconsistent. On the one hand, the government maintains that it -
‘expects developers, investors and building owners who have the means to pay to take responsibility and cover the cost of remediation themselves without passing on the cost to leaseholders.’
Yet at the same time, it has drafted legislation – in the Building Safety Bill - that will allow building owners to recover the costs from their leaseholders, although this may change as the Bill makes its way through Parliament.
Building owners
Government rhetoric has repeatedly urged building owners to ‘do the right thing’ and accept ‘moral responsibility' for funding cladding remediation costs. Some owners may have deep pockets but the reality for many landlords is that their freeholds do not have sufficient value to use the building as security for the additional borrowing required to fund remediation. Typically most of the value is held in the long leasehold interests. Owners point out that they are no more to blame for the cladding crisis than their leaseholders, a crisis created by poor construction industry practice, an inadequate regulatory system and developers seeking to reduce the cost of housing.
Promises, promises
Initially, the government promised to pursue those responsible for the cladding crisis – developers, architects, product manufacturers and contractors, in addition to building owners. But at the start of this year, the government backtracked, watering down its promise with an announcement that leaseholders should merely ‘be protected from unaffordable costs’ arising from past defects. When asked by the House of Commons Select Committee what he meant by ‘affordable’, the Housing Minister could only suggest that it meant ‘costs that did not bankrupt a person’, revealing how little thought had gone into the proposal: what might be affordable to one leaseholder could plunge another deep into debt, depending on their individual circumstances. This shift in emphasis has attracted widespread condemnation, leading to the government’s latest proposal to make long-term loans available to leaseholders whose buildings do not qualify for public funding.
Long-term loan scheme
The government has announced a long-term, low interest, government-backed loan scheme for buildings between 11 and 18 metres, whereby no leaseholder ‘will ever pay more than £50 a month’ towards cladding remediation. The announcement was short on detail, with many important questions left open. For example, will the loan sit with the building owner or with individual leaseholders? Either scenario will impact adversely on the borrower’s ability to refinance in the future. Leaseholders could find themselves saddled with a debt that lasts beyond their own lifetimes, or - if the loan sits with the building rather than the leaseholder - a reduced property value. In any case, critics argue, leaseholders should not have to contribute a penny towards remediation costs when -
‘Out of everybody involved with the building safety crisis, the only people we can all guarantee are innocent are the leaseholders’.
Who is responsible?
To varying degrees, most of the parties the government has pointed its finger at have played a part, but the government itself, along with previous governments, is also culpable, for partially deregulating the construction industry in the 1980s and subsequently diluting building regulation requirements to vague aspirations. The initial £200 million fund announced in 2019 now seems derisible in the light of the extensive fire safety issues revealed by ongoing investigations. To date, the government has announced piecemeal funding amounting to £5 billion but impressive as this figure sounds, it still falls a long way short of the staggering estimated £15-30 billion needed to address all the fire safety risks that have been identified since Grenfell.
Claims against developers
The standard government response to complaints about the funding shortfall is that it is the responsibility of building owners to make their buildings safe and they should bring claims against developers and other construction professionals for breach of contractual warranties. However, such claims are not as straightforward as the government suggests. A National Audit Office Report found that the Ministry of Housing, Communities and Local Government is well aware that only in a minority of cases would it be financially justifiable for building owners to take legal action to recover money. Whether a developer and its construction team exercised their duties with reasonable skill and care will be judged largely according to industry standards prevalent at the time of construction, and evidence from the first Grenfell Tower inquiry has indicated widespread use of combustible cladding materials in high-rise buildings over an extended period of time.
Some good news
Nonetheless, some developers have come forward and agreed to cover future and backdated costs relating to waking watches and replacement of unsafe cladding in some of their buildings. And the National House-Building Council (‘NHBC’), which provides the majority of new build warranties in the UK, recently accepted a claim, estimated at between £25 and £40 million, on the basis that the cladding was signed off by the NHBC in its capacity as building control officer.
Public funding
The current position is -
Criticisms
Comprehensive Building Safety Fund
A recent House of Commons Select Committee report advocates a comprehensive fund that targets support to buildings where occupants are most at risk, rather than the current height and product-based approach. The Committee also wants to see funding cover the full range of fire safety defects unearthed by fire assessments, including fees for extensive and expensive waking watches in buildings at risk, currently paid by leaseholders. It described the physical and mental toll on affected leaseholders as representing a public health crisis, calling on the government to provide upfront funding with a view to recovering the costs from those responsible in the longer term.
If you would like advice or more information about any of the issues discussed in this article, please contact Deborah Caldwell.
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