WHAT DOES THE GOVERNMENTS CLADDING REFORMS MEAN FOR FLAT OWNERS?

Saturday January 15, 2022

New proposals will free thousands of leaseholders from sky-high remediation bills

The cladding crisis has been paralysing parts of the property market for years and causing untold stress for flat owners.

Leaseholders of flats in buildings 11 metres or higher will now pay nothing towards the remediation of unsafe cladding, after Levelling Up Secretary Michael Gove said he would make the building industry foot the bill.

Campaigners have repeatedly called for a “polluter pays” approach to the cladding crisis, which has left owners trapped in unsaleable and unsafe homes.

But what will Mr Gove’s announcement mean in practice for victims of the scandal?

Who will benefit? 

Leaseholders living in buildings between 11 and 18 metres high will be spared from paying to remove unsafe cladding from their homes.

It marks the end of a controversial scheme in which the Government covered the costs for buildings taller than 18 metres, but owners in smaller buildings were told to take out punitive loans to pay for the works.

Those long-term loans would have dragged down property prices, as their repayments would have been tied to the flat, not the owner.

The change will spare tens of thousands of flat owners from crippling costs. Some 38,000 apartment blocks are estimated to be 11 to 18 metres high, although campaigners put the figure closer to 90,000.

Savings will be significant. Leaseholders have faced average costs of £40,000 each to rectify unsafe cladding, but bills can spiral to £100,000.

 

Can leaseholders with cladding now sell their flat?

These proposals do not change anything for those in blocks over 18 metres, who must wait for their buildings to be fixed before they can sell up. But for those in mid-rise buildings between 11 and 18 metres, these plans offer a chance to escape the crisis.

Mr Gove has now withdrawn the Government’s “consolidated advice note”, which has caused chaos for flat owners in mid-rise blocks. This was brought in in January 2020, and made External Wall System 1 (EWS1) forms – the fire safety forms that are required to sell flats in modern blocks – necessary on virtually all flats, no matter the height of the building.

On the face of it, this is a huge win for flat owners in mid-rise blocks who now do not need such a form to sell or remortgage.

Flat owners in blocks of all heights also face having to fix other fire safety defects such as combustible insulation, wooden balconies and missing fire breaks. These often only become apparent when cladding remediation work starts on the building.

There is some uncertainty about who will fund these repairs. The initial leaked letter from the Treasury suggested that these non-cladding issues would not be covered by the new fund.

However, Mr Gove suggested in the House of Commons that these non-cladding costs would be met, and that statutory protection would be brought in for leaseholders, in theory shielding them from the costs of this work. He added that those who had already paid for cladding works would not be reimbursed.

He told MPs that medium-rise buildings were “safe, unless there was clear evidence to the contrary”. He added: “There must be far greater use of sensible mitigations like sprinklers and fire alarms in place of unnecessary and costly remediation works.”

It is unclear whether lenders and surveyors will now offer mortgages on these properties without an EWS1 form, or lend on properties which originally failed their assessment, especially if they have other, non-cladding defects. Lenders have so far refused to offer mortgages without this form, even if the cladding was removed but other defects remained.

Liam Spender, spokesman for the End Our Cladding Scandal campaign, said: “Solving issues such as the compartmentation of flats, and properties not being properly divided from each other, can be as expensive as the cladding itself.

“In some buildings each flat is facing a bill of £30,000 to £40,000 to fix unsafe cladding and then another £40,000 to remedy compartmentation.”

 

Who will pay? 

The Government intends to make developers pay the bill, to the tune of £4bn.

Housebuilders must pay for the remediation of any buildings over 11 metres that they have played a role in developing. The sector as a whole must also come up with a “fully funded plan of action” for the £4bn bill.

All housebuilders with annual profits of £10m and above are expected to be liable for the funding, although the Government is yet to announce a final decision on the scope of contributions. However, it is uncertain how this will work in practice and property developers have historically refused to accept financial responsibility for the building safety crisis.

Developers of high-rise buildings have already been hit with a levy on profits to raise £2bn for the Government’s cladding remediation pot. It is unclear if tax will be expanded or increased.

There is also concern that even with this extra £4bn – on top of the £5bn pot for buildings over 18 metres – there will still not be enough money to solve the problem. The housing committee has previously estimated it will cost £15bn to fix the crisis, while others have claimed it could be much more due to other non-cladding related defects.

 

What if your developer refuses to pay?

Mr Gove announced several tools to force developers to pay to remediate their buildings. One is an “immediate” amendment to the Building Safety Bill to give leaseholders up to 30 years to challenge companies responsible for defects in buildings.

Those in buildings where the developer refuses to pay may have to take their battle for cash through the courts. Kate Davies, of the Intermediary Mortgage Lenders Association, a banking trade body, said: “The question of enforcement is one that will loom over the sector, as taking builders to court will require time, money and courage from already-exhausted leaseholders and, if undertaken by the Government, gives little relief to leaseholders in the interim.”

Mr Gove also threatened to cut off developers’ Government funding, such as access to the Help to Buy scheme, should they fail to co-operate. He also announced a dedicated team to “expose and pursue” those responsible for, and still profiting from, the cladding scandal.

 

How long will it take?

Mr Gove has set a deadline of early March for the building industry to come up with its plan, and told MPs he planned to meet developers in the coming weeks and would report back before Easter.

Funding has historically been slow to materialise. Flat owners in buildings taller than 18 metres have technically been able to access the £5bn Building Safety Fund since 2020, but allocation of money under the scheme has been slow. So far, just 12 blocks that have received funds have had their cladding works completed.