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2020 News Articles

06 Oct 2020

IRPM responds to the Government on cladding

The IRPM has responded in detail to the Housing, Communities and Local Government Committee’s recent call for evidence on cladding. The call for evidence will inform the Cladding: Progress of Remediation inquiry which is reviewing progress in removing potentially dangerous cladding from high-rise and high-risk buildings, and the adequacy of funding by the Government.

The Committee is seeking evidence on the following issues:

  • Is the Government’s new £1 billion remediation fund sufficient to address all remaining concerns in high-rise and high-risk buildings?
  • What lessons should be learned from the administration of previous funding mechanisms?
  • Will the new External Wall Fire Review process for the valuation of high-rise properties be effective in improving access to buildings insurance and mortgage finance for leaseholders?
  • What additional challenges have been presented by the coronavirus pandemic and how might these be overcome?

The IRPM response addresses these questions in order.

Is the Government’s new £1 billion remediation fund sufficient to address all remaining concerns in high-rise and high-risk buildings?

No. The contribution is substantial and warmly welcomed, but it is a small sum compared to the likely cost of remediating buildings to a safe condition. The National Housing Federation estimates that their membership is facing a £10bn bill to remediate buildings in the social and affordable sector. The G15 group of housing associations estimates £6.8 bn for their members alone. ARMA estimate £3.6bn for their private sector members. Until at-risk buildings have been assessed, the final remediation cost will remain unknown but since the size of the private sector is approximate to the social sector, the best estimates suggest a bill anywhere between £12-20bn.

However, the scope of the fund is limited to certain types of non-ACM cladding only for buildings above a notional height. It does not include other elements of the external wall system, nor other failings of fire safety such as compartmentation and fire stopping both internally and externally. It is akin to funding one or two new tyres on a car but disregarding the loose wheel nuts, defective brakes and leaking fuel tank.

Replacing cladding will not in itself make buildings safe. Within the defined scope of the terms of the fund, it is thought likely that the £1bn fund will require increasing. Further analysis and more surveys will be required to assess by how much. However, if the question is widened to providing safe external wall systems and fire compartmentation in multi-dwelling residential buildings, then it is clear that the £1bn fund is a small fraction of the likely cost.

Beyond the scope of the original ACM fund and the later £1bn non-ACM fund are other costs and other buildings.

Other costs are:

  • other related remediation costs, e.g. insulation and related fire safety failures. The focus on cladding alone as opposed to the external wall system does not tackle the more complex reality of wall systems.
  • waking watches (typically £3,000 per building per week, £6,000 for a larger building). Around 420 waking watches across the country are wiping out estate reserve funds and being charged back to residents with harmful consequences. Some residents are simply unable to meet these substantial and unexpected costs.
  • ameliorative measures such as temporary alarms.
  • increased insurance premiums and excesses.
  • the human cost. The metrics of this situation seem confined to easily measured financials. It is difficult to quantify the human cost to people whose lives are on hold and blighted personally and financially but anxious residents are suffering a raft of harms including stress, mental health issues, bankruptcy and domestic violence. In addition to the misery caused to innocent residents, some of these costs will crystallise into monetary costs against the state; welfare, policing, health, restrictions on labour mobility, bankruptcy procedures and so on.
  • the time, cost and stress on managing agents, who find themselves involved in the substantial reconstruction of sometimes very large and complex buildings, far beyond their remit and expertise of managing a functional building. They are now dealing with justifiably unhappy residents, an obstructive and protracted system that can prevent them from acting, a [worsening] lack of experts and contractors to survey and fix buildings, and an expectation of providing solutions over which they may not have the authority, the funding or the ability to act. As with innocent leaseholders, managing agents are similarly not to blame for the failure of our construction industry; they are left trying to clear up someone else’s mess.

Other buildings:

  • buildings below 18m in height, where government’s own advice (Consolidated Advice Note) recommends buildings of all heights with ACM and HPL cladding should be within the building safety regime. Note, bringing these buildings into scope changes the number of buildings under scrutiny from around 12,000 to over 100,000, a massive leap in scale. Fire, as demonstrated in Barking, Bolton and beyond, does not respect notional boundaries.
  • buildings with external wall systems that are considered a risk but are not covered by the scheme, such as rendered polystyrene.
  • buildings constructed of nominally safe materials but are unsafe due to poor construction, building control and certifications; for example missing fire breaks and inadequate compartmentation.

While considering whether £1bn will meet the costs within the limited scope of the fund, it is the costs outside the scope of the fund, which constitutes the majority of buildings and works, that will likely prove the greater concern if we are to make our buildings safe.

Going forward, this situation will further crystallise. Dame Judith Hackitt’s Building Safety Programme will require buildings to be certified. Meanwhile, mortgage lenders are now alive to lending only on demonstrably safe buildings. These two drivers will ensure that intrusive inspections will take place on buildings above and below 18m irrespective of the external wall system, whereupon the systemic failures of our construction industry, building regulations and supervisory/certification system will be further laid bare in the coming years, with further remediation costs to follow.

Prioritisation of risk, speeding up the process and unlocking the housing market

Given the shortages of funds, building inspectors and remediating contractors, there is no prospect of remediating all buildings swiftly. There needs to be a way of allocating funds and prioritising resources to buildings and residents most at risk irrespective of tenure. Works will have to be phased. Government must set or approve the criteria for this prioritisation and have some oversight of the decisions, progress and outcomes of the programme, with periodic reviews of the criteria. Some buildings will have to wait for years to be fixed and the leaseholders in those buildings will be faced with ongoing waking watch, insurance and other costs for a long time to come.

If they are to be patient, government should:

  1. facilitate the protection of the leaseholder from the costs of waiting.
  2. facilitate measures to speed up delivery of remediation. That comprises a suite of measures including bringing forward funding solutions, testing/surveys, professional indemnity insurance solutions and building insurance pooling. Restoring confidence in remediation and the costs thereof will also assist the now stalled housing market to unlock sales of flats and the mortgages that drive them.

The structure of leasehold

Key to understanding why the £1bn fund is inadequate is to examine the leasehold system and government’s approach to it. The government continues to assert that freeholders should remediate unsafe buildings, as per their duty as owner. We understand the simple appeal of this demand but note that, in a leasehold block, a freeholder does not own the entire asset but an interest that is worth a fraction of the total of the building. The cost of remediating a building can far exceed the value of the freehold interest. The freeholder may be responsible for the safety of a building, but leaseholders are generally responsible for meeting the cost.

This arrangement makes sense under normal circumstances; flat owners understand they are paying for their property to be routinely maintained, redecorated and so on. But the leasehold system did not expect to have to deal with a fundamentally flawed building. Where a leaseholder simply cannot pay such a large bill, the developer and warranty are gone and the property is unable to secure a mortgage or loan, the funds for remediation cannot be gathered and work cannot be done. Leaseholders and freeholders alike purchased their respective interests in a building in good faith, relying upon the regulatory framework underpinning the construction industry for their protection. That framework failed and neither they (nor the managing agent) are responsible for the failures in building safety they are now being forced to pay for.

The causes of those failures lie elsewhere; somewhere in the complexity of developers, building regulations, building control, suppliers and contractors. It is not a battle that leaseholders, freeholders or managing agents should be part of but it is in the nature of things that those least able to fight their corner, leaseholders, are left paying the price.

Only government has the power to intervene for a more just solution, to rebalance the situation so that those who caused this problem are those that pay for it. In the meantime, the costs, including human costs, continue to rack up and remediation is not happening fast enough. Where warranties and developers are gone, then government needs to intervene. Additional funding, whether by grant, lowcost/long term loans, charges against property, etc., together with other measures such as underwriting of fire risk engineers’ PI, should be brought to bear in a concerted effort to meet not just the challenge of cladding on high rise buildings but of fire safety for all unsafe multi-dwelling buildings at any height.

  1. What lessons should be learned from the administration of previous funding mechanisms?

The ACM fund process has proven difficult, unclear and obstructive. There were up-front costs (legal, technical, administrative) to be collected from and borne by leaseholders before the submission could be made.

One particularly vexatious requirement was the need for every leaseholder to complete a state aid declaration form. Since some leaseholders live overseas or have died with their estate in probate, it is little wonder that at the end of the ACM fund, only a handful of buildings had secured funding. The system should be cloud based. Having to collect many pieces of paper from hundreds of leaseholders is very cumbersome and, in a Covid world, will make matters even harder. The funding was limited to tight specifications, with one member reporting being declined because the thickness of the ACM cladding sat outside the criteria.

Applications are being rejected where the lease is not clearly worded or reliable enough to recover the funds from the leaseholders.

Example evidence: Property in London, E3 “Funding has been rejected as the lease is not clearly worded or reliable enough to recover the funds from the leaseholders. The Freeholder is now required to pay for the cost of the replacement cladding. Cost is circa £600,000.”

There remains a lack of clarity over the allocation of funding when the size of the claims exceeds the size of the fund. Given the likelihood of this happening, it should be noted that the complexities of sourcing the funding for other heads of expenditure through the service charge route and complying with a burdensome process [e.g. state aid forms] will slow down applications from the leasehold sector compared to others. If the allocation is ‘first come, first served’, leasehold owners will be left at a disadvantage.

  1. Will the new External Wall Fire Review process for the valuation of high-rise properties be effective in improving access to buildings insurance and mortgage finance for leaseholders?

The external wall system process, involving the EWS1 form, has been helpful where the building has been inspected by a competent person and confirmed to have been designed and constructed correctly.

Unfortunately, this has applied to a minority of cases and the system has not achieved the desired positive impact for these reasons:

  1. There is a shortage of competent fire risk engineers who can carry out inspections. The cost of surveys has increased.
  2. The above shortage is being made worse by the tightening of professional indemnity insurance for fire risk engineers and the change to the minimum required insurance terms for Chartered Surveyors.

Alongside other organisations, IRPM co-signed a BIBA letter to the Secretary of State, Robert Jenrick MP, in March highlighting this very issue and proposing solutions. Either the Fire Risk Engineer is provided with an assigned risk pool insurance scheme or is otherwise exempted from claim. IRPM would also moot that engineers are simply contracted to government, who then reclaim the cost from the building. This will enable government to control costs to the end consumer and underwrite the risk or at least the risk tail, which when amortised across the market will be manageable.

  1. Valuers for lenders are now calling for EWS1 forms for buildings below 18m, even where the building is of traditional brick and block construction with or without any small areas of cladding. Consequently, the small and reducing pool of suppliers is now stretched ever more thinly across many more properties. See above note regarding PII for surveyors, who may lack cover to pass any opinion on fire safety and related construction.
  2. When a building is inspected, the report may lead to further investigation work and further delay. e. When all necessary investigations are completed, the building often fails. Evidence so far suggests buildings fail more often than they pass. Having a building inspected will reveal rather than remedy those defects brought about by the systemic failures of our construction sector over last twenty years.

This is a deteriorating situation which requires further and urgent attention, as the housing market is increasingly going into lockdown just when we are coming out of the [first] Covid lockdown and buyers and sellers are returning to the market. As noted above, there is an urgent need for certainty to be brought to the remediation of buildings so that both lenders and buyers can understand and manage the risk of purchase, unlock the sales market and allow sellers to move on.

Post inspection, we note instances of insurers being unrealistic over the time given to remediate faults found. Instances of just 12 weeks being given are quoted.

  1. What additional challenges have been presented by the coronavirus pandemic and how might these be overcome?

A mixed picture has emerged, which is changing by the day. Remediation programmes were mostly stalled. Some but not all are now underway or partially underway again, albeit at a slower pace due to social distancing working practices, which is stretching timelines and adding to interim costs. Some occupiers refuse to allow contractors to visit their property due to the risk of infection. Lead times for fire risk surveys are increasing and surveys for balconies have been stopped. Additional costs incurred for safety systems of work including additional welfare huts and facilities for workers on site. There are shortages of some materials for the recladding works.

Where projects are dependent on leaseholder contributions, those funds are now under threat as service charge contributions are increasingly difficult to collect in this period of financial uncertainty for everyone. This is exacerbated where the properties are sub-let to tenants and the tenants have stopped paying rent; not all BTL landlords can have a corresponding mortgage holiday.

Overcoming working difficulties is variable and largely dependent on the contractor that has already been commissioned for the work. Preparation works can continue, and the delayed timelines have allowed further time for improved communication and ensuring more FAQ’s are answered and circulated.

However, while stronger PPE measures can be put in place, the contractors may be having difficulty in sourcing supplies.

Example evidence: Property in Croydon Works stopped for 3-4 weeks. In addition, works which require the contractor to complete repairs/restoration inside apartments are unable to be completed. Such as EPC and taking photos of external walls. Works have resumed now, however the delays continue and only smaller preparation tasks are able to be completed i.e. scaffolding.

 

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