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NEWSFLASH: HCLG Committee issues damning report on cladding remediation

12 June 2020

Today, the Housing, Communities and Local Government Committee has issued its urgent report “Cladding: progress of remediation”, criticising the government’s handling of the cladding crisis, but also building owners and freeholders who have not yet fixed unsafe buildings. Managing agents were in the frame for not passing on information about the construction of the buildings but were otherwise not the focus of the recommendations.

The report makes clear the government funds of £400m, then £200, then £1bn are not sufficient even for their restricted target, the cladding. Then the report goes on to highlight the other fire safety issues such as insulation, fire stopping and compartmentation, fire doors, etc. It regularly restates the view that leaseholders who bought their flat in good faith should not have to pay for putting right someone else’s bad work. And the same applies to the costs of fire-watching and other interim safety works. I entirely agree and I don’t see why agents should have to chase leaseholders for cash that they should not need to find either.

Prioritising remediation works by risk to life is something IRPM has repeatedly called for and is pleased to see make the report. It will not be possible to fix every building straight away and estimates are being bandied about of 5-10 years. Given it takes 2 years to fix a large and complex building and there are a finite number of builders and scaffolders in the country, the Committee’s call for all ACM buildings to be fixed by December 2021 and non-ACM buildings by June 2022 is ambitious. But whatever the timeline, it has to be right to check buildings quickly and then remediate them according to risk.

Encouragingly, the report is clear on how leasehold works; that the freeholder usually recovers the cost of the repairs from leaseholders. It recognises that if no-one else will pay to fix the building, such as a warranty or the builder, then the leaseholders end up with the bill. And it expresses irritation with government for continuing to fall back on “the building owner should fix it”. What they are very clear about is that leaseholders should not pay and therefore government needs to step in with more money. Of course, the taxpayer shouldn’t be paying either, so every attempt should be made to get the costs recovered from those to blame for the faults. I agree with all that too.

Where it gets into deeper waters is the expectation that the freeholder should pay. Beneficial owners, shell companies and Cayman Islands were mentioned. And if they don’t, then government should use compulsory purchase powers to acquire the freehold interest and get the building fixed. Further, the price paid to the freeholder should have the cost of the remediation deducted. I’m not sure they quite grasp the value of freehold reversions (potentially a fraction of the remediation costs), or how compulsory purchase legislation works, which will all come out in the wash, but the underlying message beneath the headline is clear. While they recognise that some owners have got on with the job and responsibly tried to avoid costs falling onto leaseholders, some are in their crosshairs for failing to make buildings safe. Personally, I agree that building owners should be straining every sinew to get buildings fixed ASAP, but I would also moot that a freeholder who buys a bad building in good faith from a bad builder is also a victim of the 20 year legacy of abysmal construction and regulation this country has suffered. Elsewhere, the report does say that the costs should fall to those that caused the problem.

However, the suffering of thousands of leaseholders not just financially but mentally was captured and should be read by everyone in our industry. Two witnesses called by the Committee, Rituparna Saha of the UK Cladding Action Group and Alex Di-Giuseppe of Manchester Cladiators, calmly delivered powerful and compelling testimony and I recommend the session on Parliament TV as essential viewing. The stress of living in an unsafe building, with no certainty as to when it will be fixed but every certainty it will cost a life-changing sum can be immense and there is no denying it is causing real harm every day. This is why government needs to step in today and sort the costs out tomorrow. And the report calls for government mental health and welfare services to step in and support too.

The thorny EWS1 gets a mention and we are pleased to see the report call for the insurance of fire risk engineers to be addressed by government. Also for other capable professionals (surveyors/engineers) to be accepted for signing these reports off. With around 100 fire risk engineers available to sign off thousands of buildings, probably less due to professional indemnity insurance (PII) limitations, there is only one way out of this. If government wants buildings fixed ‘at pace’, then they need to be checked ‘at pace’ and that means more qualified, insured boots on the ground straight away. IRPM has called for government to accredit other competent professionals and underwrite their PII to increase capacity. In doing that, government gets the data we all need to prioritise those people and buildings most at risk. The Committee went even further and said government should pay for that. The sooner we rule safe buildings as safe, the sooner the housing market and its secondary economy (carpets, kitchens, furniture, etc.) can recover, and unsafe buildings can be prioritised for remediation.

There is more to the report than these highlights and below we have listed out the 24 main summary points.

Conclusions and recommendations

Progress of remediation

1. In addition to those 300 buildings with ACM cladding awaiting remediation, we now know there are likely to be a further 11,300 buildings with other forms of combustible cladding, of which approximately 1,700 are high-risk and likely to require urgent remediation. Three years since the Grenfell Tower fire, to still have 2,000 high-risk residential buildings with dangerous cladding is deeply shocking and completely unacceptable. (Paragraph 13)

2. The £1 billion Building Safety Fund announced by the Chancellor in March is much needed and very welcome. However, it is not “what the Select Committee called for”, as the Chancellor told the House. We called for–and continue to call for–a fund that:

Applies to all high-risk buildings—of any height;

Covers a range of fire safety defects, including combustible insulation;

Covers all costs associated with remediation works. (Paragraph 23)

3. It is clear that £1 billion will not be sufficient to remediate all 1,700 buildings with combustible non-ACM cladding above 18 metres. The Government’s own estimate is that this will cost between £3 billion and £3.5 billion. Our expectation is that the funding will only be sufficient for 600 buildings: one-third of the total. The Government should not allocate funding on a first-come-first-served basis and instead guarantee that additional money will be made available when it inevitably becomes necessary. (Paragraph 24)

4. We are concerned by the number of exclusions that exist in the Funding Prospectus for the Building Safety Fund, which suggest that the Government is trying to find ways to fit a £3 billion liability into a £1 billion funding pot. In particular, it would be entirely wrong for social landlords to be prohibited from accessing the Building Safety Fund. If local authorities and social housing providers are forced to pay for remediation works from their own budgets, this would have a very detrimental impact on the number of affordable homes they are able to build and to the maintenance and refurbishment of existing buildings, while putting an upward pressure on social rents. The Government must ensure that social housing providers have full and equal access to the Building Safety Fund. (Paragraph 25)

5. The Government should urgently clarify if they intend this fund to be a rolling fund whereby funding is provided to make buildings safe whilst attempting to secure return of costs from building owners. If this is the case, then the assumptions made should be published as well as the impact on costs not being recovered. (Paragraph 26)

6. Too many residents are still unaware of whether their buildings are safe. Sometimes this is because their buildings are yet to be surveyed, due to a national shortage of qualified professionals. But often it is because developers, building owners and managing agents have unreasonably refused to pass information on. Where this is the case, the Government must compel those in positions of responsibility to be honest with their residents about fire safety defects in their buildings. (Paragraph 31)

7. The Government’s own Advice Notes make clear that it is more than just combustible cladding that requires urgent remediation. There is no point fixing the cladding, but leaving a building fundamentally unsafe. We believe that there is no reason to fund the remediation of some fire safety defects but not others. Our view is that funding will need to be increased to address all fire safety defects in every high-rise or high-risk residential building—potentially costing up to £15 billion. (Paragraph 35)

8. We recognise that this would be an expensive commitment and we would much prefer to see that money spent on social care, homelessness services or social housing. But if the Government doesn’t step in and provide this funding, let us be clear: it means tens of thousands of residents sent massive bills for problems that aren’t their fault, which, in many cases, will be a financial burden from which they will never recover and could in some cases lead to potential bankruptcy; it means thousands fewer affordable homes, as councils and housing associations are forced to divert funds to remediation projects; and worst of all, it will mean that some works are never carried out, with people continuing to live in dangerous buildings for years to come. (Paragraph 36)

9. Funding of remediation should reflect where blame lies. It is clear that there have been widespread failures. What is also clear, however, is that residents are in no way to blame and it is our view that they should bear none of the cost of remediation. (Paragraph 43)

10. Given the urgency of these remediation works, it is necessary for the Government to provide the funding up front. However, it cannot be fair for the financial burden of remediating buildings to rest solely with taxpayers. Those who are responsible for this crisis should be made to contribute. For each affected building, the Government should actively seek to recover funds from the construction companies, architects, suppliers of faulty products, approved inspectors and any others who are found to be responsible for fire safety defects. (Paragraph 44)

11. Consideration should also be given to how the remaining burden for funding should be shared. The Government should undertake a review of proportionate taxes on freeholders, developers and others to help fund these remedial works. This should include consideration of a temporary levy linked to the sale of new-build properties, as has been proposed by some industry stakeholders. (Paragraph 45)

12. It is concerning that the Government is again falling back on the argument that responsibility for paying for the remediation of fire safety defects is the responsibility of ‘building owners’. Freeholders do have a legal responsibility to ensure remedial works are undertaken, but they usually do not have a legal duty to pay for them, regardless of how we feel about the morality of the situation. The last three years has shown that building owners simply will not ‘do the right thing’—however often Ministers ask—and leaseholders will continue to receive extremely high bills for things that aren’t their fault. If the Government wants this to change, it has to intervene directly. (Paragraph 52)

13. We believe that there needs to be an urgent national effort to remediate all affected buildings, starting now. The Government should set a realistic target—not merely an ‘ambition’—that all buildings of any height with ACM cladding should be fully remediated of all fire safety defects by December 2021. Buildings with any other fire safety defect, including non-ACM cladding, should be remediated before the fifth anniversary of the Grenfell Tower fire in June 2022. (Paragraph 55)

14. In the same way as it has done for buildings with ACM cladding, the Government should publish a monthly data release on the number of buildings with non-ACM cladding and other serious fire safety defects awaiting remediation. (Paragraph 56)

15. We would support a much more extensive use of Compulsory Purchase Order (CPO) powers, to take direct ownership of the freehold of buildings with serious fire safety defects. The Government should give urgent consideration to the setting up of a new national body whose sole purpose is to purchase the freehold and manage the remediation of buildings with serious fire safety defects. This new body should step in where overburdened local authorities are unable or unwilling to act. The valuation of buildings under CPO should consider the cost of remediation and this should be deducted from any financial consideration paid to the building owner. Consideration of legislative changes should be included in the forthcoming Building Safety Bill. Any residential building where works have not commenced by December 2020 should be subject to a CPO by this new body. (Paragraph 59)

16. Once a building has been fully remediated, the new body should take the opportunity to convert freeholds into commonhold, kick-starting a revolution in how such buildings are owned and managed in future—as we called for in our Leasehold Reform report in April 2019. Leaseholders in such buildings should be consulted and informed of the costs and responsibilities involved. The aim should be to empower existing leaseholders. (Paragraph 60)

17. The Government should undertake a review to determine whether new legislation will be required to ensure those responsible for building safety have a legal right to gain access to leaseholder-owned properties in multi-occupancy residential buildings. The Government should publish its findings within six months and undertake to bring forward whatever legislation may be necessary to remedy the situation. The forthcoming Building Safety Bill should provide the necessary clauses to enable the Secretary of State to implement any requirements by secondary legislation. (Paragraph 62)

18. While we recognise the importance of the combustible cladding ban and the discontinuation of the use of desktop studies, we remain concerned that there is a lack of consensus around the efficacy of the wider testing regime. We reiterate our call for a review of product testing, including the performance of materials in real-life scenarios such as windows, vents or other openings, leading to the implementation of a regime that can command wider industry support and bring reassurance to residents. (Paragraph 65)

The toll on residents

19. We are concerned that, in many cases, 24-hour waking watch fire patrols are inadequate, unduly expensive and have wrongly become the primary means of mitigating risk for many freeholders. The Government told us it had recently undertaken a review of waking watches and had called for changes to the relevant guidance. In its response to this report, the Government should outline how guidance will be changed to ensure residents have a right to the most effective fire safety measures. (Paragraph 70)

20. We note the Minister’s view that some of the charges to residents for interim fire safety measures are “usurious”. We agree that greater transparency of costs could lead to lower charges for residents, but more could be done to protect residents. Last year, the Competition and Markets Authority (CMA) undertook an investigation into the leasehold sector at this Committee’s request, finding evidence of excessive and disproportionate fees charged to leaseholders. We now call on the CMA to investigate these “usurious” charges for interim fire safety measures, as part of its ongoing work into the leasehold sector. (Paragraph 71)

21. Residents are facing bills of thousands of pounds while they wait for their buildings to be made safe. None of these things are the fault of residents and they shouldn’t be the ones made to pay. The Government should include the costs for interim fire safety measures in the Building Safety Fund for the remediation of affected buildings. (Paragraph 74)

22. We are concerned that buildings insurance in some high-rise and high-risk buildings has become unaffordable over the last year. The Government must ensure that residents have access to reasonably-priced buildings insurance in the period until their buildings are remediated. That is what matters; how it is done is a different question. The Government must ensure that residents have access to reasonably-priced buildings insurance in the period until their buildings are remediated. (Paragraph 79)

23. A Fire Safety Reinsurance scheme would be comprehensive and provide long-term security to residents in affected buildings. However, we hope and expect that this will not be a long-term problem. We recognise concerns that a full ‘Re’ scheme would require primary legislation, take time and cost millions to implement, while applying only to a relatively small number of buildings. Our expectation is that a simple solution would be more appropriate. The Government should act as an insurer of last resort for buildings unable to obtain insurance. For other buildings, the Government should underwrite a percentage of the insurance on any affected high-rise and high-risk buildings where premiums have increased by more than 50% in the last two years, to reduce costs for residents. (Paragraph 80)

24. While safety must always be the first priority, the Government should have been more aware that its Advice Notes were likely to have serious consequences for residents. Ministers should have issued clearer guidance to mortgage lenders and worked with them to come up with solutions in advance of issuing new advice. As it is, residents are now paying the price: unable to move home, putting off having families and forced to pay substantially higher interest rates on their mortgages. The Government must urgently work with mortgage providers to give residents the right to remain on their existing mortgage deals and not be forced to move onto expensive Standard Variable Rate mortgages. Where residents have already been forced to move onto Standard Variable Rate mortgages, lenders should immediately offer them the right to move to one of their cheaper products. (Paragraph 83)

25. The industry-designed External Wall Fire Review (EWS1) was put in place to provide a process that would allow mortgage providers to make informed lending decisions on high-rise residential properties potentially at risk of serious fire safety defects. However, the EWS1 process is not working. There is a lack of qualified, insured Chartered Fire Engineers to undertake these surveys, meaning a very large number of buildings will not be inspected for many years. EWS1 surveys can be very expensive, with costs typically passed to residents through their service charges even where no fire safety defects are found. Government fire safety advice has led to a much larger number of buildings falling into the scope of the EWS1 process than had been envisaged at its inception. It is clear that the process has lacked sufficient input from leaseholder representatives, but also other important stakeholders, including the insurance industry. (Paragraph 90)

26. We accept the need for surveys to take place on some buildings, but call on the Government to take full control and put in place a much faster and fairer process. Reforms could include a relaxation of the rules on who is able to undertake these surveys, clarification of which buildings should fall within scope and more guidance to ensure the correct prioritisation of buildings. The Government should provide necessary funding to ensure that all affected buildings are surveyed within the next 12 months, so residents are not forced to wait years before they are able to sell their properties or obtain new mortgages. (Paragraph 91)

27. We have heard clear evidence of the physical and mental health toll that this crisis has had on residents. We view this as a public health crisis and the Government must do so as well. The Government must ensure that residents in affected buildings are offered support by the NHS to cope with the physical and mental health toll of living in potentially dangerous buildings. This should include the provision of basic information to every resident offering signposting to services for residents worried about their safety or financial situation. (Paragraph 95) 

 

PLEASE CLICK HERE TO READ THE FULL HCLG REPORT.

 

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