A top enfranchisement solicitor has warned that leaseholders affected by the cladding scandal face years of misery, and that the Government’s recently announced £3.5 billion support package falls far short of what is required to address fire safety defects in the UK’s property sector.
Earlier this month the Housing Secretary, Robert Jenrick, announced up to £3.5 billion worth of grants to remove unsafe cladding from high-rise blocks of flats, in a policy intended to support the hundreds of thousands of leaseholders who have been left unable to sell or re-mortgage their properties in the wake of the Grenfell tragedy.
Mark Chick, Head of the Landlord & Tenant team at London law firm Bishop & Sewell LLP, has 15 years’ experience as a specialist enfranchisement solicitor. He said: “While the direction of the Government’s intervention is to be welcomed, there are some notable gaps in the policy, not least the fact that leaseholders living in low-rise buildings (below 18 metres) will have to pay for the removal of unsafe cladding themselves.
“As a result of the cladding scandal, and through no fault of their own, many leaseholders are facing increased service charge costs and the very significant worry brought about by being unable to sell or re-mortgage their home.
“Unfortunately, leaseholders in smaller blocks face years of misery and are likely to need to take out long-term loans to pay for remediation works to remove unsafe cladding that was fitted by developers and construction firms.
“Leaseholders urgently require more clarity on how these loans will work in practice, including how they will be repaid and over what timeframe, and what will happen to the debt in the event that they sell the property.”
The Government’s support is not means tested, so poorer leaseholders in low-rise blocks will not receive support, while affluent owners of high-rise properties would be eligible for assistance.
Furthermore, the policy is only focussed on the removal of cladding from high rise blocks, but it does not address other fire safety defects, such as inflammable materials used in the internal structure of the building, or the cost of installing additional fire retardant materials.
Mark continued: “The problem at the moment for leaseholders is that it is not clear what help (if any) will eventually come from the government and what form this will take for them. The Building Safety Bill is not yet law and its provisions are being debated.
“It seems rather perverse that defective construction practices will likely be paid for by leaseholders, probably through increases in service charges.
“Although the Housing Minister has set out plans for a new tax on developers to raise around £2 billion, this is a small contribution to a massive and costly problem. I have heard estimates from industry experts that the cost of removing unsafe cladding could be as high as £50 billion, so the support announced to date falls far short of what is required.
“Unfortunately, the Government only has itself to blame for this unholy mess, as it has presided over major failings in the construction sector and insufficiently robust policing of building regulations which were clearly not fit for purpose.”
Mark advises that in the first instance any leaseholder affected by the cladding scandal should find out whether they have grounds to make a claim against the construction company or developer for breach of warranty.
He said: “It is likely that leaseholders who are eligible for Government support will need to show evidence that the cost of remediation works cannot be covered by a claim brought against the developer before they can apply for funding. Meanwhile, leaseholders who are not eligible for support should also explore whether they can bring a claim for breach of warranty.”
The Government’s policy also has potential ramifications for freeholders, in the event that service charges rise to cover the cost of remediation works.
Mark explained: “If service charges rise to a point where leaseholders struggle to make payments, there is a risk that buildings cannot be maintained properly, which will have a knock-on effect on their safety and value.
“Assuming the worst-case scenario, which is that the costs of removing unsafe cladding will have to be met via the service charge, there is going to be a short-term impact, as flat values will be depressed by the need to find significant sums to contribute to the service charge. However, in the medium to long term (say 15-20 years) it can probably be assumed that these issues will have been resolved.”
At Bishop & Sewell, we have more than 40 years’ experience in property with a particular focus on Landlord & Tenant. If you are thinking of buying a leasehold property, or if you already own a leasehold property and you have a question about obtaining a consent to alterations that you are planning please call 020 7631 4141 and ask for a member of the Property team, or email firstname.lastname@example.org.
The above is accurate as at 25 February 2021. The information above may be subject to change during these ever-changing times.
The content of this note should not be considered legal advice and each matter should be considered on a case by case basis.