On Monday (10 January 2022) Michael Gove, the Secretary of State for Levelling Up, Housing and Communities, announced the Government’s latest strategy to address the building safety crisis.
What did Mr Gove announce?
In parliament, Mr Gove promised that residents in buildings between 11-18m (and presumably over 18m) tall will not be forced to pay for “dangerous cladding” to be removed from their building. Very little detail has accompanied the announcement, although the following themes have emerged:
- Emphasis on remedial costs falling on those responsible for, or who profited from the creation of these problems (as well as the remedial works actually being undertaken by that responsible developer);
- Leaseholders living in buildings between 11-18m tall will not pay for any works associated with remediating “dangerous cladding” on their building (which would therefore seem to exclude other critical external wall system components, including insulation, cavity barriers, internal compartmentation and fire stopping);
- The existing loan scheme for leaseholders in medium-rise properties will be scrapped and replaced with proposed funding received from developers, who have been publicly lobbied for contributions off the back of this announcement.
- Current estimates are that it will take £4bn to rectify the defects in medium-sized buildings (11-18m). Mr Gove has written to the Residential Property Developer Industry offering the industry as a whole the opportunity to make significant financial contributions to this cost of rectification (through public commitments to the process and swift financial contributions this year and in the coming years).
The letter sets a timeframe of commitment by early March 2022, failing which Mr Gove makes the barely veiled threat that he is “prepared to take all steps necessary to… …[fix] the broken system… …and deliver the programme set out.” Those steps include restricting access to Government funding and future (public) procurement opportunities, planning restrictions and pursuing companies through the courts. There was talk of imposing a tax or levy on unco-operative developers, but this seems to be unfounded.
What does this announcement mean?
This announcement represents a significant change of course in the Government’s approach to the building safety and fire safety crisis post-Grenfell in June 2017.
This “hard re-set” represents a tougher stance being taken by the Government against some deemed to be responsible (or partly-responsible) for the issues we now face in terms of building/fire safety. The Government has confirmed that either developers make the required contributions to resolve the issues, or the Government will seek to introduce legislation to impose a solution.
We are told that leaseholders will not be forced to pay for the required remedial works. However, if such costs then naturally fell to the freeholders, primary legislation will be required to navigate the obvious conflict arising with existing leaseholder / service charge arrangements. That will cause major upheaval in terms of how service charges will be applied in building maintenance and needs serious consideration, and may create significant solvency issues for some freeholders.
How will funding be managed and distributed, and is “cladding” the only issue?
The Building Safety Fund will administer the funds, with “stage 2” of the BSF set to be launched. It is understood that the £4bn will be in addition to the existing £5.1bn set aside for buildings over 18m, but will still adopt a risk-based approach when analysing eligibility for funding.
Questions as to eligibility for funding will be a primary concern. We understand this will be based on the opinion of a “PAS 9980 assessor”, which will then be reviewed by a BSF expert. However, it is currently unclear what criteria the PAS 9980 assessor use, apparently based on identifying “dangerous cladding”, when deciding if an applicant is or is not eligible for assistance via this new fund. The latest proposal (again) seems to raise more questions than answers.
Indeed, whilst this proposal sounds like good news in addressing these issues, it is significant that the funding does not extend beyond “dangerous cladding” (i.e. it fails to address the vast majority of defects in tall/medium-rise buildings, which typically consist of the choice of insulation, defective or missing cavity barriers, defective compartmentation, fire stopping and inadequate fire door installation).
To that end, many argue that this proposal is not fit for purpose, and there is no real answer until all parties involved, including the Government, developers, manufacturers of insulation etc., and the entire industry develop an effective solution to the wider issues of building safety, rather than simply address “dangerous cladding”, which is frankly the tip of the iceberg.
Presumption of “low or no risk”
The Government is seeking to adopt a presumption of “low or no risk” in buildings under 18m, effectively doubling down on the independent expert statement issued in July last year, which sought to reassure leaseholders that buildings below 18m were, by and large, in the low/no risk category and to place pressure on lenders not to require EWS1 Forms for such buildings.
Mr Gove has reiterated that only buildings that are “dangerous” will be eligible for funding. Any political impetus to downplay risk inherent in buildings below 18m is not reflective of the body of expert fire engineering opinion throughout England, where based on the advice and recommendations of fire engineers, significant remedial works have been required to buildings under 18m.
If the Government were determined to grapple with this issue, it has powers under the Building Act (s8-11) to relax, vary or dispense with the application of Building Regulations. The Government will almost certainly not do that, as it is currently well aware many buildings under 18m present risks to occupants due to failures to comply with Building Regulations.
Ascertaining whether a building requires remediation (via the application/utilisation of Building Regulations, or PAS 9980 (or both)) will necessitate an evaluation of the external wall system (including internal compartmentation). Therefore, presumptions of low or no risk are simply not appropriate in the absence of a considered evaluation of the external wall system; and although certain buildings on the face of it will give rise to little or no concern, that cannot be the starting point. Indeed, this position is confirmed the Fire Safety Act 2021, where the need to evaluate external wall systems is fundamental.
Addressing the issue of perceived “profiteering” (from the crisis)
As a final point to the forthcoming action being taken by DLUHC, the Government will seek to address building insurance premium increases (some up to 1,000%) as a consequence of building safety issues. This may prove difficult as it will need to overcome the well-established insurance business model of premiums reflecting historic claims and the assessment of perceived risk in the future.
Mr Gove made a point in his address to the Commons that parties “profiteering” out of the crisis should be “made to pay”. Whilst it is somewhat unclear as to whom this rhetoric is directed, and what they did and/or are doing, it is likely that this threat is aimed at contractors/developers who built defective buildings originally and are now being employed (i.e. paid) to undertake the required remedial works.
The announcement is good news generally for the leaseholders and in seeking to tackle the building safety / fire safety crisis. It is intending to protect leaseholders (who are entirely blameless) in terms of being forced to pay for (“dangerous cladding”) remedial works to buildings between 11-18m.
However, questions are raised over:
- What the Government will do if developers do not engage with this proposed action plan either by early March 2022, or at all?
- What legislation will be sought to be introduced to resolve the situation? How will this interact with existing legislation and the current arrangements surrounding leaseholders and their service charge arrangements? This will be a very complex and lengthy process which may significantly delay any implementation of new legislation tackling developer action and existing leaseholder/freeholder arrangements;
- How will the £4bn fund be managed and administered? Who will be eligible for funding and how will that eligibility be determined?
- What does the Government propose to do over the other major defects affecting external wall systems and in buildings (including insulation, compartmentation, cavity barriers etc.)? It is not representative of the issue to simply attribute the focus (and funding) to “dangerous cladding”.
Ultimately, the proposals raise more questions than answers (again) and make the landscape for rectification of defective buildings all the more complicated, despite the change of course and re-setting of the approach to this issue. We certainly expect the position to become clearer when we see and digest:
- The final version of PAS 9980, published yesterday;
- The guidance that will accompany the implementation of the Fire Safety Act 2021;
- The detail of amendments to the Building Safety Bill re the further extension of the Defective Premises Act 1972;
- Whether RICS accede to the Government’s approach to downplaying the problem
- The approach taken by lenders; and
- The outcome of discussions with the industry – including who is spoken to and the positions taken.