Leaseholders: fire and building safety

Charley Coleman

Image shows an illuminated green emergency exit sign

On 4 November 2021, the House of Lords is scheduled to debate the following motion:

Lord Stunell (Liberal Democrat) to move that this House takes note of the situation of leaseholders who are facing substantial bills for fire and building safety remediation work; and of the need for safe, green and affordable housing.

Fire and building safety: costs of remediation

The Grenfell Tower fire on 14 June 2017 resulted in the deaths of 72 people and highlighted the dangerous nature of the external cladding that had been used. Published in October 2019, the phase 1 report of the independent inquiry into the fire stated that surveys on other buildings undertaken since the fire had “established that external wall materials similar to those used on Grenfell Tower have been used on over 400 other high-rise residential buildings around the country”.

Following the Grenfell tragedy, the Government has committed to a range of measures aimed at ensuring greater building safety. A number of these provisions have derived from the building safety programme, established in the aftermath of the fire and which included the appointment of an expert panel led by Sir Ken Knight to advise on immediate measures needed to ensure building safety and help identify buildings of concern. The building safety programme was established to “make sure that residents of high-rise buildings are safe—and feel safe—now, and in the future”. This included a ban on combustible materials in the external walls of high-rise residential buildings 18 metres tall and over. The Ministry of Housing, Communities and Local Government (MHCLG) is considering feedback on a consultation which includes extending this to buildings between 18 and 11 metres.

The Government has also provided funding to help meet the costs of remediation for both social and private sector residential buildings. For example, on 16 May 2018, the Government announced it would fully fund the removal and replacement of aluminium composite cladding (ACM) by councils and housing associations, estimated at a cost of £400 million. On 9 May 2019, the Government announced that it would fully fund the removal and replacement of ACM cladding on private sector residential buildings 18 metres or more tall, estimated at a cost of £200 million. It has also provided £1 billion funding through the building safety fund for the remediation of non-ACM cladding on residential buildings 18 metres and over in both the private and social housing sectors.

However, concern has been expressed, for example by the House of Commons Housing, Communities and Local Government Committee in its June 2020 report, that this funding is insufficient:

It is clear that £1 billion will not be sufficient to remediate all 1,700 buildings with combustible non-ACM cladding above 18 metres. The Government’s own estimate is that this will cost between £3 billion and £3.5 billion. Our expectation is that the funding will only be sufficient for 600 buildings: one-third of the total. The Government should not allocate funding on a first-come-first-served basis and instead guarantee that additional money will be made available when it inevitably becomes necessary.

The committee also stated that building surveys carried out following the Grenfell Tower fire have demonstrated that “fire safety problems extend far beyond dangerous cladding”. It has estimated the total cost for fixing all such defects in social and private sector buildings could be £15 billion in England:

Funding for other fire safety defects would, of course, be very expensive for the Government. Widely quoted in our evidence was the National Housing Federation’s estimate, from March 2020, that the cost of fixing all fire safety issues in the social sector alone could “easily exceed” £10 billion. Of course, it is very difficult to estimate the potential cost of a scheme that would include private sector buildings. But if we are to take as instructive that twice as much money was provided for the removal of ACM cladding on social sector buildings (£400 million) as was the case for private sector buildings (£200 million), then one might use a similar ratio to estimate an overall cost of £15 billion to remediate all fire safety defects from both social and private sector buildings in England.

An additional £3.5 billion in funding, and a long-term low-interest loan scheme for buildings between four and six storeys, was announced by Robert Jenrick, the then Secretary of State for Housing, Communities and Local Government, on 10 February 2021. He said that although there was “no doubt” there would be leaseholders who wanted the Government to go further, he described it as a “very significant intervention”. Mr Jenrick said it was the Government’s expectation that building owners should cover the cost of work but that the legal position of leases meant they often sought to pass them on to leaseholders:

It has always been our expectation—our demand—that building owners and developers should step up to meet the cost of this work. Where they have not, or where they no longer exist, the Government have stepped in, providing £1.6 billion to remediate unsafe cladding. However, it is clear that without further Government intervention many building owners will simply seek to pass these potentially very significant costs on to leaseholders, as this is often the legal position in the leases that they signed.

The House of Commons Housing, Communities and Local Government Committee held two oral evidence sessions on the announcement in March 2021. Witnesses included Lord Greenhalgh, Minister of State for Building Safety and Communities at the Ministry of Housing, Communities and Local Government, and Dr Will Martin, co-founder of the UK Cladding Action Group.

The House of Commons Library has published a briefing which examines the issue of the cost of fire safety works in further detail: Leasehold High-rise Flats: Who Pays for Fire Safety Work?, 16 July 2021.

Statistics

As part of the building safety programme, what is now the Department for Levelling Up, Housing and Communities publishes a monthly statistics release on the testing programme for ACM cladding and progress made in identifying buildings that have unsafe cladding combinations.

The September 2021 release states that as at the end of September:

94% (445) of all identified high-rise residential and publicly owned buildings in England had either completed or started remediation work to remove and replace unsafe aluminium composite material (ACM) cladding (97% of buildings identified at 31 December 2019)—an increase of four buildings since the end of August.

It further states: “397 buildings (84% of all identified buildings) no longer have unsafe ACM cladding systems”.

Building Safety Bill

The Building Safety Bill was introduced in the Commons in July 2021 and is currently in its committee stage.

The bill would give effect to policies that the Government set out in its response to its Building a Safer Future consultation on reforming the building safety regulatory system. The consultation built on recommendations from Dame Judith Hackitt’s Independent Review of Building Regulations and Fire Safety, published in May 2018.

The Building Safety Bill’s explanatory notes state that it would ensure “there is greater accountability and responsibility for fire and structural safety issues throughout the lifecycle of buildings in scope of the new regulatory regime for building safety”. This would include provisions specifically on leaseholders and residents: “ensuring residents have a stronger voice in the system, and establishing additional protections for leaseholders in relation to financing remediation works”. The bill would also extend the length of time that homeowners would have to claim against poor workmanship:

All homeowners will also have more than twice the amount of time, from 6 to 15 years, to claim compensation for sub-standard construction work. This will apply retrospectively—meaning that, properties built up to 15 years prior to this change coming into effect will be able to bring a claim for compensation for defective work.

Speaking in answer to an oral parliamentary question in the House of Lords, Lord Greenhalgh said the bill would provide for “a legal requirement for building owners to explore alternative ways to meet the costs of remediation works before passing them on to leaseholders, along with evidence that this has been done”.

For further information on the bill see the House of Commons Library briefing: Building Safety Bill, 16 July 2021.

Budget 2021

The Autumn Budget and Spending Review 2021 announced details of a ‘developer tax’ to help cover the cost of remediation work:

5.46 Residential Property Developer Tax (RPDT)—As announced in February 2021, the Government will introduce a new tax from April 2022 on the profits that companies and corporate groups derive from UK residential property development, to ensure that the largest developers make a fair contribution to help pay for building safety remediation. The tax will be charged at 4% on profits exceeding an annual allowance of £25 million.

The Government has stated that the tax is part of its ‘building safety package’ and to seek a contribution from the “largest” developers:

The tax forms part of the Government’s Building Safety Package aiming to bring an end to unsafe cladding, provide reassurance to homeowners and support confidence in the housing market. Given the significant costs associated with the removal of unsafe cladding, the Government believes it is right to seek a fair contribution from the largest developers in the residential property development sector to help fund it.

The Government had previously consulted on the policy between April and July 2021.

The campaign group End Our Cladding Scandal has described the tax as a “slap on the wrist” for developers.

Impact on leaseholders

Concern has been expressed about the impact of remedial costs on leaseholders in cases where building owners have sought to pass costs on to them.

On 24 May 2021, the Lord Bishop of St Albans asked the Government in an oral parliamentary question what assessment it had made of the current and future incidence of leaseholder bankruptcies brought about by remedial fire safety works and interim fire safety costs.

Responding for the Government, Lord Greenhalgh, Minister of State at the Home Office and Department for Housing, Communities and Local Government, argued it was not possible for the Government to make such an assessment. He said this was because it would “depend on a professional fire risk assessment of individual buildings and the extent to which costs might be met by or recovered from developers, contractors or building warranties”. Lord Greenhalgh also said that the Government was not able to assess the “potentially wide range” of individual factors that could be involved in someone losing their home or having to declare bankruptcy.

The Bishop quoted figures from the Institute of Residential Property Management which he said had estimated the cost of non-cladding fire safety defects as between £26,000 and £38,000 per lease depending upon the height of the building. The minister said that the Government’s approach prioritised unsafe cladding “which is what accelerates fire”.

On 18 October 2021, Lord Kennedy of Southwark (Labour) asked the Government in an oral parliamentary question what plans they had to ensure “that victims of building safety defects are not liable for the costs of rectifying those failures”. During the passage of the Fire Safety Act 2021, the House of Lords amended the bill to prevent a building owner from passing on the costs of remedial work attributable to the act to leaseholders or tenants, but this was removed by the Commons during ping pong. In response to Lord Kennedy’s question, Lord Greenhalgh referred to government funding sources and provisions contained in the Building Safety Bill:

My Lords, the Government are investing £5.1 billion to remediate unsafe cladding in residential buildings over 18 metres. The Building Safety Bill will require building owners to consider other cost-recovery routes for remediation before passing them on to leaseholders. A new developer tax and levy will make sure that industry contributes. Finally, for the small number of 11-to-18 metre buildings with cladding remediation costs, our support offer will ensure that leaseholders are protected.

Lord Kennedy described the minister’s response as “disappointing”. He argued that there had been a “clear failure on the part of the Government to protect the innocent victims of this scandal in building safety”. He said leaseholders needed to hear from the Government that they would “no longer [be] expected to pay for other people’s mistakes”.

The Bishop of Durham asked the minister whether the Government had considered the principle that the “polluter pays”, so that funds for remediation work were recouped “from those who were initially responsible”. The Bishop asked if this would form part of the Building Safety Bill. Lord Greenhalgh said that the Government was looking very closely at the principle “and the amendments that have been supplied to us by Steve Day”. He said that there were “some difficulties and hurdles” to making the principle work. He said that that “I do not exaggerate; they will be quite challenging to overcome”. Steve Day is a campaigner who has been campaigning against a bill for £40,000 to fix flammable cladding on his flat in London.

The press has also reported on other people who have faced large bills for remediation work. For instance, BBC News has reported on the case of Reece Garcia, who received a service charge for £103,000. The building’s management agent was reportedly not seeking immediate payment because it “was negotiating with government over grants to cover remedial work”. However, Mr Garcia said that it has had a major impact on his family life and he and his partner could not plan to have another child. Martina Lees, writing in the Times, reported on the case of Matthew Harris, who had received a bill that was higher than he had paid for his home.

The Guardian has reported that Clarion Housing Group, which the paper describes as the UK’s largest provider of affordable housing, had said it was “on course to build 1,800 fewer affordable properties over the next five years as a result of the [building safety] crisis”. The newspaper reported on other providers as well, including “the largest providers of cheaper housing in London” which estimated they would have to spend £3.6 billion on repairs in the next 14 years, “an amount which could provide more than 70,000 new homes”.

Fire and building safety: costs of remediation

Statistics

Building Safety Bill

Budget 2021

Impact on leaseholders

Read more: safe, green, and affordable housing