On 8 March 2021, RICS published its Guidance Note for the valuation of properties in multi-storey, multi-occupancy residential buildings with cladding, following a consultation process we outlined in January.
The Guidance Note is here and RICS’ accompanying press release is here.
As previously outlined, 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 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. However, EWS1 Forms were requested for a far wider range of buildings than those intended. The Guidance Note is a response to this, and an attempt to “put the genie, or at least a significant portion of it, back in the bottle” by seeking to narrow the scope of those buildings 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. Largely in accordance with the proposals suggested at the start of the consultation (a key exception being the eventual inclusion HPL as a risk factor necessitating a form), the Guidance Note suggests that EWS1 Forms should only be required where:
Building over six storeys
- There is cladding or curtain wall glazing on the building or
- there are balconies which stack vertically above each other and either both the balustrades and decking are constructed with combustible materials (e.g. timber) or the decking is constructed with combustible materials and the balconies are directly linked by combustible material.
Buildings of five or six storeys
- There is a significant amount of cladding on the building (for the purpose of this guidance, approximately one quarter of the whole elevation estimated from what is visible standing at ground level is a significant amount) or
- there are ACM, MCM or HPL panels on the building or
- there are balconies which stack vertically above each other and either both the balustrades and decking are constructed with combustible materials (e.g. timber), or the decking is constructed with combustible materials and the balconies are directly linked by combustible materials.
Buildings of four storeys or fewer
- There are ACM, MCM or HPL panels on the building.
The Guidance has been welcomed by the Housing Secretary who is quoted as opining that it “will mean nearly 500,000 leaseholders will no longer need an EWS1 form – helping homeowners to sell or re-mortgage more quickly and easily” and also alluded to the 500 assessors who would be recruited and funded “by nearly £700,000 Government funding” to carry out valuations. RICS is working with the Government and other stakeholders with an aim to having the Guidance implemented by 5 April 2021, and intends to produce consumer guidance to inform buyers and sellers about the information that might be available to help them understand the risks of a property in a multi-story, multi occupancy building.
It remains to be the case that the level of buy-in from lenders, i.e. fewer demands for EWS1 Forms, will be critical. Outside the form itself, and the attitude of lenders, questions remain around those external wall build-ups that may require costly remedial works, the costs of which may 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.
It should also be noted that the Guidance will not be relevant to the Fire Risk Assessments that will be required by the proposed Fire Safety Bill, which are expected to apply to buildings of all heights and will be subject to a different Code of Practice or criteria of assessment. Fire Safety Bill/Act assessments, which will be required periodically, are likely to be of more interest to lenders and insurers in the long term.
For more information, please contact Mark London or Michael Wharfe, Partners in our Construction team.