Feb 22 – Emperor’s new clothes

It has taken time but Michael Gove, the new Secretary of State, recently addressed the cladding issue deriding the previous Jenrick approach and putting the so-called ‘wrong-uns’ on notice: “We are coming for you.”

Gove has placed the liability firmly at the door of residential property developers, asking them to come up with an extra £4bn by the end of March.  This is in addition to the £2bn set to be raised by the residential property developers’ tax and the money from the levy on new tall buildings.

This approach of “those who profit must pay and be held to account”, was an interesting direction from government.  Making “the owners, the freeholders the responsible people”, apportions liability at a group he is significantly dependent on to help build new homes as part of the levelling up agenda.

What concerns these developers is that as builders and freeholders they are far removed from the original developers of most flammable, cladding infested buildings.  Those that had nothing to do with their construction can be forgiven for thinking they should not pay and that if a Housing Association or a quoted company, they should resist strongly.  Also, as freeholders with a small financial interest in the building, their model is based on recovery of all costs from the leaseholders. Many have no links to the construction of the buildings they ‘own’.

Also announced was that the loan system for the remediation of buildings below 18m was wiped out, with no explanation on what should happen to the work or the bills for the work.  The ‘wrongly interpreted’ guidance note is to go, with no new guidance.  This leaves a void for buyers, lenders, insurers and surveyors and leaves them to consider if continuing with the EWS1 form gives enough comfort. The £27m for new fire alarms got it “off the desk”, but leaves the cladding in place.  This looks like another play to avoid the impossible.

What next?

The tenants and leaseholders living this nightmare will have had their hopes raised with the words that they are innocent and that they should not have to pay. However, monies already spent are unlikely to be refunded and what will be compensated remains the previous narrow definition of cladding.

Disputes over service charges for fire wardens and remediation works look set to tie up leaseholders, freeholders and professionals in complex negotiations which have no rules.  Fairness would be to open the Treasury’s coffers as without this and the needed legislation, solutions remain a long way off.

The way out?

The massive failure of recent decades seems to have been buried.  In keeping with the FCA rule book, the highly compartmentalised model on which the industry has operated, still has multiple, legally distinct parties that all require their risk to be packaged, limited and then obliterated.  Our system of giving planning consent to entities who have no long-term commitment to a complex construction cannot be allowed to continue.  Developers need to remain liable, with contracts with appropriate tenures controlled by legislation.  Too many people bought thinking they had protection, but they have been sadly let down

There is still a disturbing lack of clarity and this can only come from government.  We cannot expect surveyors, insurers and lenders to unpick something created by planning authorities, building control, safety inspectors and constructors working at the very limits of architectural safety.  We need to remediate the most dangerous using government funding and then recover the money back from those the courts see as liable.  If there is no-one left to pay, then ultimately government must bear the cost.  It is what we should expect from a shared liability society where we are taxed for the greater good.

For the future, designs that have been approved, products that have been certified as safe and work that has been signed off must be fully relied upon. That is clearly the responsibility of the government, even where there may be additional cost implications.

However, with the limitations of a survey for an individual flat not covering everything in a building that the purchaser is liable, it is time for a single report for each building or block so that it can be relied on by multiple buyers and regularly updated.

As Michael Gove stated, we need homes that are safe and decent and sustainable. Government will not deliver those homes itself and therefore they need to provide a reliable regulatory and planning framework that delivers good, safe and sustainable homes.

Robert Sinclair, AMI Chief Executive
February 2022