Gove intends to make developers pay for the cladding crisis

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Over the weekend Michael Gove made a play to the electorate with an announcement that he intends to make developers fund cladding remediation on all buildings over 11 metres tall.

One doesn’t need to have a particularly good memory to recall that the same tenor of announcement has been made several times before by other housing portfolio Minsters and each time, those predecessors have come up against the realities of an existing legal framework with robust limitation periods.

In situations where no other party was legally responsible, Robert Jenrick ultimately planned to make individual leaseholders play for cladding, which he was going to help them to afford through long term loan schemes and so forth. Not Michael Gove, he comes armed with lots of rhetoric in which he threatens to name and shame, introduce a developer’s tax and restrict access to government funding if developers do not come forward to retrospectively cover cladding remediation costs voluntarily, but he also comes armed with a war chest.

The announcement was posted on the Government website yesterday along with the content of a letter to industry. There is now a deadline of March 2022 for a fully funded action plan to be up and running and his letter to developers talks of getting the top 20 housebuilders and other industry and residents’ stakeholders round the table quickly. All this is hot on the heels of suspending Grenfell cladding firm Rydon Homes from the Help to Buy scheme and persuading Mercedes to drop Kingspan as a sponsor, so developers will have to take the threats seriously.

What do developers have to do in the short term?

  • Agree to commit to a remediation fund of £4 billion – Gove suggests this will be a contribution from companies with profits above £10 million.
  • Get on with remediation for buildings over 11m (including those over 18+ metres).
  • Co-operate with Government providing information for buildings constructed in the last 30 years.

The announcement has genuine teeth this time, with the introduction of a £27 million fund for smoke alarms to remove the expensive waking watch costs from leaseholders, the introductions of a 4% tax on the most profitable housebuilders and the introduction of retrospective legislation to increase the limitation period to 30 years for leaseholders to claim damages from developers. The only thing not addressed in the announcements is how the industry is going to find the manpower and materials to carry out the necessary works.

The clear difficulty for developers when limitation periods have long expired has always been that voluntarily funding remediation could be in direct breach of statutory fiduciary obligations to shareholders. Limitation periods exist for a reason and it is to give economic certainty to all interested parties. Developers obtained expert input on cladding design and materials from architects, fire engineers and cladding contractors, most of whom are insured during the currency of any limitation periods. If those experts got it wrong, developers pursue claims underpinned by insurance and homeowners of course had the benefit of the longer 10 year NHBC Buildmark warranty. Whilst no one can argue with the concept that it is wrong for individual leaseholders to fund remediation of design and installation problems not of their making, leaving developers, and ultimately their shareholders, to carry the can for 30 years whilst letting experts and their insurers completely off the hook is going to be really problematic. 

If we look behind the bully boy tactics and rhetoric, Gove is not actually saying anything new. He is not saying there is a current legal obligation on developers in these historic cases, merely that if they do not voluntarily cough up, the Government “will use legal means and ultimately if necessary, the tax system” to sort it.  He is putting a plan in place that will leave the bill squarely with developers, but without allowing those developers to claim from the parties ultimately responsible which is effectively opening an entirely unprecedented can of worms…

Watch out for a more detailed analysis of the announcements by my colleagues later today (11/01/2022).

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