On 8 January 2021, RICS announced a consultation process in relation to a proposed Guidance Note for the valuation of properties in multi-storey, multi-occupancy residential buildings with cladding. The consultation briefing document is here and RICS’ accompanying press release is here. In our, new article, Partner Michael Wharfe provides an outline of the recent consultation announcement.
RICS, together with the wider industry and public, continue to grapple with issues around the need for, and cost of, remedial works associated with defective external wall systems – what is required, who should foot the bill or bear the risk, and the impact on the home-buying market.
The EWS1 Form system was developed and agreed by RICS, UK Finance and the Building Societies Association in December 2019, to enable a consistent mechanism for building owners to provide information to mortgage lenders and their valuers about the external wall systems of multi-storey, multi-occupancy residential buildings and whether remedial work would be needed to resist the spread of fire over the façade. It was intended to free up the home-buying market, that was paralysed by safety concerns over cladding, and the cost of remediation. However, it seems to have performed sub-optimally, in that purchasers and lenders are requesting EWS1 Forms for a far wider range of buildings than those intended, due in no small part to the MHCLG’s January 2020 guidance, that that EWS1 forms should not be limited to buildings over 18 metres (around six storeys) – there was (and is) a fundamental logic to the broadening of scope, as many external wall systems, such as renders or those including combustible insulation and missing or defective barriers
The proposed Guidance Note seems to represent a further attempt to “put the genie back in the bottle” by seeking to narrow the scope of those building that should require an EWS1 Form. Underpinning this is an attempt to establish as set of assumptions that remediation work, which can affect the value of the property, is unlikely to be needed and an EWS1 Form should therefore not be required. The proposed exclusions are:
Building over six storeys
- There is no cladding or curtain wall glazing on the building and
- if there are balconies where the balustrades and decking are constructed of combustible materials (e.g. timber), they are not stacked vertically above each other.
Buildings of five or six storeys
- There is not a significant amount of cladding on the building (for the purpose of this guidance, approximately one quarter of the surface façade is a significant amount) and
- there are no ACM or MCM panels on the building and
- if there are balconies where the balustrades and decking are constructed with combustible materials (e.g. timber), they are not stacked vertically above each other.
Buildings of four storeys or fewer
- There are no ACM or MCM panels on the building.
The guidance is open for consultation until 25 January 2021 with responses sought from across the industry (leaseholders, building owners/managers, buyers, conveyancers, valuers, insurers, contractors, fire safety professionals).
The proposed Guidance Note is expected in Spring 2021, and we will need to wait and see what form the guidance eventually takes, but the critical factor will be the level of buy-in from lenders, as to whether we witness fewer demands for EWS1 Forms for those properties that fall outside the proposed criteria. However, the exercise would only seem to take matters so far, as the question will always remain whether the external wall system, be it comprised of cladding or some other external system with a problematic build-up, and regardless of height, will require costly remedial works that could lead to significant service charges and/or a reduction in property value (and therefore lender security). Short of the government legislating that certain remedial works will not be required, to the extent that those works are necessary they will need to be paid for, which will inevitably be reflected in property values and rightly raise concerns for lenders, vendors and purchasers.