On February 10th Housing Secretary Robert Jenrick announced a government pledge of £3.5 billion in funding to replace combustible cladding. High-rise buildings in England will either be allocated grants or loans depending on the chances of them being the location of fires involving “fatalities or serious casualties”. The funding is in addition to £1.6 billion that was provided for the same purposes in 2020.
The issue of who should foot the bill for these fire safety improvements and how quickly the necessary work can be carried out has raged since the Grenfell Tower disaster exposed significant flaws in building safety regulations. The government’s total commitment to £5.1 billion should aid thousands of leaseholders. Many of whom are facing substantial costs to undertake safety improvement works as a result of combustible cladding.
The question of who is responsible for paying for remedial works has been described as “a legal quagmire.” The government is finally attempting to settle on a fair resolution to this long running dispute that involves: building developers, current freeholders and existing leaseholders with the below scheme:
- Funding for the removal of unsafe aluminium composite material (ACM) cladding is available for residential buildings that are 18m high or above in England. That constitutes a six storey block or higher. Applications for funding are only being considered from building owners, freeholders or registered responsible entities. An extension to the previous deadline has been granted until June 30th 2021.
- Lower-rise buildings will have access to a low interest loan scheme aimed at helping to cover the cost of cladding removal. The Government states “no leaseholder will ever pay more than £50 a month towards the removal of unsafe cladding.” The loan scheme will apply to blocks between 11 and 18 metres.
The government states that the logic behind this two tier scheme stems from deep analysis. This research points to buildings between 18 and 30 metres in height having quadruple the probability of being the site of a fire involving “fatalities or serious casualties” compared to other apartment blocks.
Mr Jenrick also revealed that a tax will be placed on housing developers to assist with meeting the expense. An anticipated £2 billion is expected to be raised from this initiative during the coming decade. A planning levy on future high-rise developments will also be introduced. The Housing Secretary stated that the intention is to, “ensure that the largest property developers make a fair contribution to the remediation programme, reflecting the benefit they will derive from restoring confidence to the UK housing market.”
Andrew Southern, chairman of Southern Grove, a developer of high-rise residential buildings was less than impressed by the proposed measure. He claims the “regressive tax” will only serve to “stagnate housebuilding” and “dis-incentivise creation of housing in high-density areas that are badly in need of new stock.”
Estimates of up to £15 billion in costs to adequately address fire safety issues in each high-risk residential block have been put forward by The Housing, Communities and Local Government (HCLG) Select Committee of MPs.
Financial Impact of Cladding Crisis on Flat Owners
The issue of combustible cladding continues to affect thousands of people in the UK. Many leaseholders are currently covering the cost of additional fire safety measures until unsafe cladding or insulation is removed from the buildings they reside in.
The issue has rendered many property owners unable to sell their flats. This is the case even if the cladding in question has been deemed to be of a low risk. Many banks and other lenders are declining mortgage applications for properties in such buildings.
Mental Health Impact of the Cladding Crisis
The first phase of the Grenfell Tower Block inquiry found that the construction’s cladding caused the fire to spread more rapidly as it was combustible. Subsequent inspections on other tall blocks of flats found that as well as hazardous cladding other fire safety faults were present.
This issue has been affecting many peoples’ quality of life and taking a mental toll for over 3 years. Owners have been trapped in flats that no longer meet theirs and/or their family’s requirements. They have also been forced to remain living in these abodes despite underlying concerns about their safety. Given that the public inquiry into the Grenfell disaster of 2017 that killed 72 people found ACM cladding to be the main reason for the rapid spread of the fire, these fears are understandable.
Landlords have been hampered by these potential liabilities on assets that cannot be liquidised. This will no doubt have caused small business owners’ undue stress and headaches.
How Many Buildings Does the Cladding Crisis Affect?
462 high-rise residential buildings with dangerous cladding have been identified by the Department for Housing.
216 of this total have had their cladding entirely removed as part of the government’s Building Safety Programme and it is claimed removal work has begun on a substantial percentage of those remaining buildings. Unfortunately 132 blocks remain “unremediated” according to House of Commons paper Leasehold high-rise flats: who pays for fire safety work?
Statistics and updates on buildings under 18 meters in height that feature the type of cladding applied to Grenfell Tower are not available. Though the Association of Residential Managing Agents (ARMA) states that approximately 500,000 residents remain living in structures that feature a form of cladding that poses a fire risk.
Reactions to the Government’s Funding for Cladding Scheme?
The extra financial support from government has been praised in some quarters. The Local Government Association (LGA) described it as “unprecedented” and an “important step” towards protecting leaseholders. Although the LGA also pointed out that further money is required to assist with a number of other safety upgrades as well.
A number of campaigning groups have outright accused the measures of being insufficient. The End our Cladding Scandal Group accused the government of failing, “Many people living in buildings under 18m” who will still be “saddled with debt” of up to £30,000 “around their necks for thirty years.”
Kate Henderson, CEO of the National Housing Federation believes the house building tax is flawed. She feels the money, “Is being diverted away from providing services and maintaining the homes of people in the lowest incomes in this country as well as building new affordable homes for those in need.”
What Issues Does the Cladding Scheme Overlook?
- The scheme does not help in the short term any flat owners who are looking to sell their property imminently. This is due to the fact that a fire safety certificate (EWS1) which is a mandatory requirement of mortgage providers cannot be supplied before completing. The government confirmed that it is “working with industry” to overcome this problem.
- No financial support has been made available to lease holders of flats that have fire safety faults excluding or in addition to cladding. A common issue in these types of constructions has been found to be balconies built using flammable materials. Social housing providers predict that they will have to find £10 billion to ensure all their buildings are properly safe.
- The Building Safety Fund excludes buildings where work was committed to or started before March 11th 2020.
How Will the Additional Tax Impact House Builders?
The Home Builders Federation (HBF) released the following comment regarding the plans, “Only government can fund the works up front but the industry has always supported sensible targeted solutions for recouping costs in the longer term. The housebuilding industry looks forward to working with government to understand and develop proposals for a tax to ensure it is equitable and does not threaten housing supply.”
Home builder Persimmon has identified 26 developments that are potentially clad in unsafe materials. The developer points to the fact that the constructions were built in line with regulations at time. It also states that it has no legal obligation to ensure the safety of buildings it is no longer the owner of. However £75 million has been allocated to cover the cost of these works.
According to the HBF over £500 million has already been committed by the UK’s largest home building companies towards remediation works. However these firms should be able to cope with the financial impact of the new measures. Each firm has announced record sales over the last six months. Their balance sheets are in good health thanks to a buoyant housing market that’s been driven by a stamp duty holiday and the Help to Buy Scheme.
Analysts at the Swiss bank UBS forecast that impact on developers “should be less than 4 per cent” of their profits.
This is a complex and highly emotive subject. Many campaigners would seek to hold freeholders liable rather than leaseholders. However both parties have been victims of the poor building standards and weak regulatory oversight that Grenfell has revealed. Yet, pursuing developers for sins committed, in many cases, decades ago is largely fanciful thinking as the firms simple may not exist. Well not as the same legal entities in any case that is. Although far from perfect, the government’s new measures are at least a step in the right direction.