Despite an extended public spotlight being shone on the issue, hundreds of buildings across the country are still covered by unsafe cladding similar to that which cost all the tragic loss of life in the Grenfell disaster. With confusion about whether developers or leaseholders are liable to pay for remediation and the number of government schemes multiplying, we spoke to Nigel Glen, Executive Chair of The Property Institute, about building safety funding options available for remediating buildings with unsafe cladding or other fire safety issues, as well as his thoughts about the future of such schemes and what lies ahead.
Building Safety Fund
The Building Safety Fund (BSF) was launched in May 2020 and designed to protect leaseholders from the costs of fire-safety risks caused by unsafe non-ACM cladding systems on high-rise (over 17.7 metres) residential buildings. Initially, Chancellor Rishi Sunak announced £1 billion in funding, but the pot was increased by £3.5 billion in 2021. In order to apply, the building’s ‘responsible entity’ (who could be the freeholder, head leaseholder, private sector building owner or appointed agent, right to manage company or registered provider of social housing) has to make an application to the fund under the grounds that they have the right to carry out remediation works on the building and legally recover the costs from leaseholders as a service charge. The application is processed by the Department for Levelling Up, Housing and Communities (DLUHC). The funding does not cover the costs of Waking Watches and cannot be applied to buildings under 18 metres in height. Sadly, figures from DLUHC show that progress has been slow: as of 31 December 2021, the BSF’s total expenditure across both public and private sectors was only £219 million.
As of 14 February, we now have the “waterfall” system whereby the developer should pay, if not the building owner, and, if not, a capped contribution by leaseholders. “Although many developers have agreed to the scheme,” observes Nigel, “there will still be blocks where there is no developer, where the landlord cannot or will not step in and contracts to undertake the work simply cannot be placed. There are still details to work out, and let’s be clear – this is a far better place to be in than we found ourselves looking at a year ago when leaseholders were facing huge bills. Vast progress has been made to date, and you can’t help feeling that we are in the final furlong.”
Building Safety Levy Fund
The Building Safety Levy (also sometimes referred to as the ‘Gateway 2 Levy’) is part of a new building safety regime set out in the Building Safety Bill to provide tougher regulations around the design and construction of new residential buildings 18 metres in height or over.
The Building Safety Bill contains a staged programme to ensure that building safety risks are considered at each stage of a building’s planning and design, construction, and pre-occupation. Gateway 1 covers the planning stage of a building, Gateway 2 is when the Building Safety Regulator must be satisfied that a building’s design meets the functional requirements of the Building Regulations, and Gateway 3 begins when construction of the building is completed. The Building Safety Levy will be payable by the building’s developers (unless excluded) during the pre-construction stage at Gateway 2. If the developer does not pay the levy, construction is likely to be blocked. There are currently two options to calculate what amount the developers will pay under discussion – either a charge per square metre of the internal floor area or a fee per residential unit contained within the development. Assuming the Housing Safety Bill is passed as anticipated, the Building Safety Levy will come into effect in 2023.
Waking Watch Fund
Currently, ‘waking watch’ means employing a person to carry out a physical patrol to check for fire safety in a building 24 hours a day. The Waking Watch Fund was established in December 2020 to cover the costs of installing a fire alarm system in buildings with unsafe cladding. Originally capped at £30 million, the fund’s first round of funding opened on 31 January 2021, a second round opened on 16 September 2021 and an additional £27 million was made available at the start of 2022. Fitting out fire safety systems should be significantly cheaper than paying to maintain a 24-hour guard, which was the reasoning behind the fund. In order to qualify for the fund, a building has to be 18 metres or over, patrolled by a waking watch and have unsafe cladding. The RP or Responsible Person (person or group responsible for ensuring building safety) has to apply for the funding. At the time of writing, historic waking watch costs would not be covered.
What isn’t covered by funding?
“Things that aren’t covered,” Glen sighs. “Buildings Insurance – that’s been a really unpleasant shock for people. When ARMA did a survey of around 150 blocks, they found an average of a 425% increase in insurance costs, which meant that each individual was paying around an additional £1,100 a year for buildings insurance. 10% of them had a 1000% increase.
Another one of the problems with the various pots of money available through building safety funds is that they’re not retrospective for landlords. If you recall, when the scandal first broke out, the government was saying that landlords should be responsible for the issues and they should fix the problems themselves. Some of them actually did, but they don’t get the money back. The next time the government says to do the right thing, those people might think, ‘Maybe I won’t, because if I hang on, the government will bail me out.’ To me, it would have been natural justice if those people were recompensed for having done the right thing.”
What other issues are building remediation facing?
“We’re questioning no-fault costs,” says Nigel. “You look at a building; you strip it; hopefully, you know what’s going to be underneath, but there’s bound to be a surprise somewhere. If that surprise is bad workmanship, the developer should pay, but what if it’s nobody’s fault, and it’s just the building is old, and there are works that need doing? When this was first raised, the government said as a leaseholder, you bought into a 15-year-old building, and you paid less for that, so why should the taxpayer pay to bring it back to brand new? But what if the leaseholders don’t have the money? We’ve got a building that’s stripped, the cladding’s gone, the scaffolding is on-site, but no work can be done. This is a practical issue that’s likely to happen, and we don’t have an answer yet as it’s not clear to me that developers will agree to pick up such costs under the “waterfall”.
“There are other complications if a building has a commercial aspect to it. For example, if there is a large commercial component to a building – shops, kindergartens etc. on the ground level and for whatever reason, they cannot pay without becoming insolvent. That leaves a big gap in the whole building funds required, and you can’t do half a building. It’s very unlikely another company will step in and take over a lease, so you’re left with a building you can’t finance. Is taxpayers’ money for bailing out commercial properties? Overlaid on top of that is proportionality: where do we have to stop? Does every carpet have to be checked and nailed down again? A great example of this is in a car, technically, we should have five-point racing harnesses and roll cages to be safe, but we accept three-point harnesses as not as safe but safe enough. The government needs to talk to the industry, and somebody needs to make the decisions.”
It’s clear that buildings requiring safety work will require careful and diligent management. With such a sea change on the way, block managers should go back to basics and make sure they have a handle on their current portfolio.