Most tall building owners have needed to review the fire protection measures in their buildings following updated government guidance as a consequence of the Grenfell tragedy. Where remedial work is needed to bring a building in line with Building Regulations, queries will inevitably arise as to who will pick up the tab.
The Government published Advice Note 14 in December 2018, and a superseding Advice Note in January 2020, to address concerns about compliance of fire safety systems. These aimed to provide guidance for anyone responsible for a multi-storey, multi-occupied, residential building that needed to investigate and remedy the risks of combustible cladding. The latest advice is applicable to owners of all multi-storey, multi-occupied residential buildings, not just to those buildings over 18 metres.
The big question for freeholders and leaseholders alike is – who is responsible for paying for the potentially astronomical cost of bringing buildings up to the new standard?
There may be some Government funding available, but this is limited to buildings over 18m in height and is expected to only cover around a third of the impacted buildings! The funding is intended for the removal and replacement of ACM cladding (like that used in the Grenfell building) and unsafe non-ACM cladding.
This fund will be available for the benefit of leaseholders in relevant buildings who would otherwise have an obligation to meet the cost of cladding remediation by virtue of the service charge provisions in their leases. That means, if the fund does not cover the particular works or the type of building (or if it simply runs out), the leaseholders will most likely be on the hook for the costs. Furthermore, any application to the fund needs to be fully costed by 30 June 2021. There is discussion that these could be replaced by Government loans, which would attach to property like a mortgage.
There are also two bits of very important legislation working their way through Parliament, namely, the Building Safety Act and the Fire Safety Act. The former, seeks to regularise the position relating to the recoverability of fire safety works by implying terms into long leases to enable landlords to recover the costs as a separate charge akin to service charge. However, as we wait for that legislation, the position on ‘who pays’ is rather unclear. It is also unclear how the pre and post legislation positions will marry together.
Insurers or Warranty Providers?
As a prerequisite for Government funding, the Government expects building owners to identify and pursue all reasonable claims against those involved in the original cladding installations and to pursue insurance and warranty claims wherever possible. Successful claims may require some, if not all, of the proceeds returned to government.
Newer high-rise buildings may still benefit from a warranty policy. For example, the NHBC is the largest provider in the UK and the policies generally last for 10 years; if there has been a failure to build the building in accordance with the technical requirements, the cost may be recoverable under the policy. However, each case will depend on a review of the specific facts.
The Building Owner or Leaseholders?
If all other avenues are closed, it may come down to the building owner or the individual leaseholders to foot the bill. But ultimately, it will depend on the wording of the particular clauses and repairing covenants contained within the leases.
There are other inadvertent implications because of the Government guidance. For example, valuation surveyors can no longer rely on building regulation sign off as a marker that the property (of whatever height) was safe. To address this, a way of assessing the safety of external walls has been developed, the External Wall Safety Survey. If an EWS1 certificate is issued, this certifies a building as safe. There is currently no legal obligation to have one of these surveys, but we are seeing that lenders are refusing to lend on buildings without them. This means, despite it not being a legal requirement, it certainly is a necessity. These surveys are not cheap and is an additional cost which must fall on a party to pay.
How can Ellisons help you?
At Ellisons, we have a dedicated Building Safety team, made up of experienced property and construction litigators. Our specialist team recognises that this ever-changing regime means that tailored advice is required to ensure that block managers, freeholders and leaseholders alike know what the true cost of safety is.
We therefore offer a tailored package of assessment as required, which can deliver the following advice:
- The Initial Assessment – Includes a full review of relevant leases, statute currently in force and guidance in order to advise who is likely responsible for the costs of fire safety works. This will include an assessment into the recoverability of the EWS1 survey, should this be required.
- Warranty or Contractor Claims – Our team will assess whether there is scope to pursue any claims against contractors, developers or any other warranty claims in order to reduce the liability on those identified at (1) above.
- Compensation Fund/ Replacement Schemes – Advice will be given on whether there appears to be scope to make use of the Government’s compensation fund and, if so, whether any other claims must be pursued before it can be accessed. If the scheme is no longer in existence, we will provide advice as to any replacement schemes.
- Recovery of costs – If it appears there are no warranty claims and the government funds/schemes are not available, we can guide you through recovery of the costs via service charges. This will require careful adherence to relevant statute to ensure all costs are properly claimed. We will also provide advice as to your options in the event a claim against leaseholders appears unavailable, until such time as the new legislation has been passed.
If you consider that you would benefit from understanding more about building safety obligations post-Grenfell, please do not hesitate to get in touch with our Building Safety Team, Ian Seeley, Joe Brightman, Molly Frankham and James King.