After attempts to amend the Fire Safety Bill failed, and the bill passed into law, liability for remedial work on apartment buildings with unsafe cladding remains with leaseholders. Daniel Stern, Partner and Head of Property Litigation at Slater Heelis, proposes a possible solution.

14^th June 2021 marked a grim but important anniversary: four years have now passed since the Grenfell Tower tragedy, when a fire at a block of flats in West London sadly claimed the lives of 72 individuals.

An investigation into the incident determined flammable cladding on the building’s exterior to be a major cause of the fire spreading so rapidly, which in turn galvanised a national conversation around fire safety and gave rise to the “cladding issue”. This conversation recently returned to prominence following the debate around, and repeated dismissal of, the Lords Amendment 4J to the Fire Safety Bill in the Commons.

In the wake of Grenfell, the Government reviewed its building regulations and ruled that any apartment block above a specific height which had the same aluminium composite (ACM) cladding or similar would need to have it replaced. The proposed amendment sought to enforce a “prohibition on passing remediation costs [of any works attributable to the provisions of the Act] on to tenants and leaseholders” by the owner of a building.

It was voted down “because the issue of remediation costs is too complex to be dealt with in the manner proposed”, therefore leaving leaseholders liable to exorbitant sums – estimated by the Government to be up to £75,000 per individual.

The question of who should bear the cost of liability for remedial works is a contentious one, and has understandably led to an uproar among leaseholders who bought their flats relying on government-set standards for building regulations and fire safety at the time. Equally, the outcome of the Commons vote may not come as a surprise to many given the financial power of building owners and developers relative to leaseholders, and the influence they acquire by assisting the Government to meet its housing targets.

A solution?

One potential solution to the issue that I would like to suggest would be for the Government to offer leaseholders a scheme of long-term, low-interest-rate loans to cover the costs of changes to cladding. These Government-backed loans would be transferable upon sale to any buyer and secured by a charge against the relevant apartment.

There obviously would be some adjustment to the sale price as a result of the charge being secured against the property but this would, I hope, be minimal due to the length of its term and the relatively small impact of the loan repayments.

This seems to me to be a more equitable way of managing the financial burden than debating whether the cost should fall onto the shoulders of developers, leaseholders or the Government – none of whom, I think, are to blame for the issue having arisen in the first instance.

Who stands to gain?

A further interesting point has arisen with regards to whether the changes to the building as a result of the fire safety issue will add value to the landlord’s interest. My own opinion is that the opposite is true: that if the changes are not made then the leaseholder’s interests will be negatively impacted, not least in the diminished value of the property but also in their reduced market of potential buyers. Most buyers will require a mortgage and banks could choose not to lend on a property which has such enormous defects, and indeed this is already happening.

In reality, this leaves the leaseholder with a stark choice and few options: to get the defects remedied or face not being able to sell their flat in the future. Anyone buying a flat now, however, should consider negotiating a reduced price to allow for the uncertainties and risks around remediation costs.

Hindsight is, of course, a wonderful thing. Building regulations naturally develop over time as a result of experiences, bad or good. It is not unreasonable to think that these regulations will evolve once again in the future. Incidents like Grenfell, as tragic as they are, hopefully lead to improved safety standards, lessons being learned, and the tightening of regulations as a result.

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