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Welcome further funding for cladding but the devil, as always, is in the detail


£3.5bn extra funding for tall buildings

The Housing Secretary, Robert Jenrick, announced on 10 February 2021 that the Government will provide a further £3.5 billion to remediate ‘dangerous cladding’. This is in addition to the billion pound Building Safety Fund and the £600 million made available for ACM Cladding on private and social sector residential buildings.

This additional money is for buildings over 18 metres. Jenrick said that this further money was intended to be a “permanent and lasting settlement”; however, leasehold groups and several MPs have already cautioned that the funds fall far short of the estimated total cost to remediate tall buildings (c.£15bn). Furthermore, the money is only provided in respect of cladding and not in respect of other fire safety defects that have been found in the majority of tall buildings.

Update on Fire Safety Bill?

During the announcement Jenrick promised “leaseholders will face no cost for cladding remediation works”; however, the Government has not yet supported a proposed amendment to the Fire Safety Bill that would mean where work is required to a building (as a result of the Advice Notes issued by the Government (which expanded the scope of the existing Fire Safety Order 2005)) a leaseholder could not be required to pay for those works.   No alternative to this amendment has been put forward and when the bill returned to parliament on 24 February 2021 the amendments were voted down by the government.

Non-cladding costs

The Government has pledged additional funding to cover associated fire safety costs (via the separate Waking Watch Fund), but that fund does not appear to cover retrospective Waking Watch  costs.  Jenrick made it clear yesterday that no funding will be available for other defects, such as missing cavity barriers etc.

That leaves a clear shortfall that will become more difficult to plug if campaigners are successful in amending the Fire Safety Bill.

Claim against developers, contractors, suppliers, etc.

When challenged on the lack of funding for other defects Jenrick mentioned the prospect of recovering against developers and other entities involved in the construction of affected buildings. As those involved in these claims will know they are not straightforward.  Where investigations are ongoing and new claims for defects are pursued those claims face a further hurdle because the professional indemnity market is shrinking, and specifically excluding these kinds of claims when indemnity insurance is renewed. This means that even where companies are carrying out remedial works to rectify fire safety defects they are often not covered by professional indemnity insurance.

Building insurance premiums are also rising, although Jenrick made it clear that the government wants those premiums reduced to lessen the burden on owners and / or residents of affected buildings.

In respect of buildings under 18 metres, there is no funding.

The Government hopes that it can provide relief to leaseholders in blocks between 11 and 18m via a loan system. The loan would be provided to the freeholder and attach to the building.

The Government thinks this will prevent the burden of the debt resting with leaseholders but there is significant concern that such a long term charge over a unit will devalue that unit and/or the building, and it is far from clear how such loans will be administered.

Shared Owners

Jenrick made reference to shared owners and said that there would be “particular provision” for these residents.  It is not clear what this will entail.

Tax and Levies

To recoup some of the cost of funding the Government is introducing;

  1. A developer levy for tall buildings
  2. A new tax on residential developers

The detail of the levy will come when the Building Safety Bill returns to the House of Commons in its final draft form.  We anticipate that will be in the first half of 2021.

The outline plan is that the levy will attach to those seeking permission to build high rise blocks.

The new tax will be introduced for the UK Residential Property sector and is projected to raise at least £2 billion over a decade. There is no detail at all in relation to that tax and the Government intends to consult on the policy design ‘in due course’.

It is likely that the policy will be revisited in the Budget in March (or shortly thereafter, pandemic depending).

External Wall Assessment Form (EWS1)

Jenrick endorsed a “sensible, proportionate approach” to external wall risk assessment and indicated that the recent RICS consultation to reduce the scope of these forms will lead to a 50% reduction in the number of units requiring an EWS1. It remains to be seen whether the lending industry will in fact reduce the need for EWS1s by this level.

The industry and government also needs to resolve the apparent contradiction between reducing the scope of EWS1 and introducing separate forms to satisfy the requirements of the Fire Safety Bill and the Building Safety Bill.

What next?

Dame Judith Hackitt, commenting on Jenrick’s proposals yesterday, recognising the ongoing uncertainty is not good for any party of the housing market: from developers to residents.   She hopes that “intelligent assessment” will resolve the problems with commercial lending and that regulatory problems will be solved via the Building Safety Bill, its associated regulators and associated secondary legislation.  She made no comment on the funding of remedial works in affected buildings.

It is not yet clear precisely how all of the various strands associated with the “cladding crisis” will play out and we urgently need to see the detail of the Fire Safety Bill amendments and the updated Building Safety Bill so that the industry can plan properly for the new way of working.  The only certainty is that more change is coming.

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