UK: Leasehold Issues For Lenders Mini-series 6: Unsafe Cladding Update

In March 2020 we reported on the legacy from the Grenfell tragedy that was adversely affecting leaseholders and lenders.

In short, unsafe cladding and general fire safety concerns highlighted by the Grenfell Tower fire have resulted in potentially hundreds of thousands of leaseholders living in flats which pose a real and immediate fire risk; facing crippling 'waking watch' fire safety guard costs, rising insurance costs and extensive, often unaffordable, costs for remedial works; and being effectively trapped, and in negative equity, in properties which are un-saleable and un-mortgageable.

A year on, Walker Morris' Paul Hargreaves, Louise Power and Sandip Singh provide an update on government and industry action aimed at tackling the issues.

Unsafe cladding: Where are we now?

Legislative progress

In December 2020 the House of Lords proposed amendments to the Fire Safety Bill that would prevent the freehold owners of buildings with unsafe cladding and other fire concerns from passing on remediation costs to residential leaseholders.

In February 2021 those amendments were rejected by the House of Commons.  The House of Lords submitted the same text to the Commons again, along with further amends to the Fire Safety Bill designed to protect leaseholders, for consideration on 22 March.  The amendments were defeated again.

The Minister for Crime and Policing has stated that the Fire Safety Bill, which is a short bill dealing specifically with fire assessments in multi-occupied residential buildings, is not the correct place for remediation costs to be addressed, but that the Building Safety Bill would be.

The draft Building Safety Bill has been provided to the Housing, Communities and Local Government Select Committee for pre-legislative scrutiny.  The UK Government's response to the Select Committee's report is currently awaited and the Bill has yet to be formally laid before Parliament for debate.

The Shadow Minister for Policing and the Fire Service has criticised what she described as the "snail's pace" of progress by the Government to deliver on its repeated promises that leaseholders should not be left to foot the bill for dangerous cladding and other fire safety risks discovered at their premises in the wake of Grenfell.

The immediate impact for lenders, borrowers and leaseholders is that, with the Building Safety Bill still yet to make its journey through the legislative process, it could be some considerable time before remediation costs are addressed in a legally binding manner. Other initiatives therefore must play a greater role for those affected by cladding.

Funding initiatives

Alongside proposed legislative measures and the funds for removal of dangerous cladding mentioned in our earlier article, the UK Government has, as of 31 January 2021, opened a £30 million Waking Watch Relief Fund to pay for the installation of alarm systems in eligible buildings with unsafe cladding, so that existing costly waking watch measures can be replaced.  The Government has also announced a five point plan and £3.5 billion fund to remove unsafe cladding from buildings over 18m in height, and will provide a government-backed scheme to enable leaseholders in buildings of 11 – 18m in height to borrow money, over a long term and at low interest, for the replacement of cladding.  No measures have been promised for leaseholders of flats within buildings of under 11m.

Industry action

At industry level, following an extensive consultation process with valuers, leaseholders, lenders, fire safety experts, and the UK Government, the Royal Institution of Chartered Surveyors (RICS) has published further guidance for valuers dealing with multi-storey, multi-occupancy buildings with cladding, which is expected to be implemented in April 2021. The RICS is also conducting an EWS (External Wall System) assessment training programme and working closely with the professional indemnity insurance industry to try to work towards a solution which would enable more mortgage lenders and surveyors to commission fire safety assessments and complete EWS1 forms.  The aim is to relieve bottlenecks that currently exist and to stimulate mortgage lending in relation to such properties wherever that proves possible.

What next?

Resolution of the issues connected with unsafe cladding and fire safety generally in high rise multi-let blocks is complex and multi-faceted.  Whilst debate about the legal liability for remediation liability costs is likely to run for some time, and whilst it remains to be seen how many buildings and leaseholders will receive financial assistance from the Government's various relief funds, and how quickly, the UK Government has published its targets of the end of 2021 and June 2022 for completion of remediation works at high rise buildings with ACM cladding and unsafe non-ACM cladding respectively.  Walker Morris will monitor and report on key developments – in particular the progress of the Fire Safety and Building Safety Bills which, it is currently envisaged, could be passed during 2021 and implemented in 2023.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.