The extension to the Building Safety Fund: counting the cost of cladding remediation

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The expansion of the Building Safety Fund (BSF) scheme for external wall remediation will come as a welcome relief for thousands of leaseholders living in high-rise apartments in buildings that have been identified as requiring remediation to their external wall systems. In this article, we look at the development of the BSF to this point, what the new announcement means, and where further improvements are needed in order for the BSF to address its remaining critics.

Why was the Building Safety Fund needed?

We will all remember the Grenfell Tower tragedy, where a fire at the 24-storey Grenfell Tower in North Kensington, West London caused 72 people to tragically lose their lives.

In the aftermath, it became apparent that the cladding installed at the tower, a combination of combustible Aluminium Composite Material (ACM) panels and combustible insulation, ignited and significantly contributed to the spread of the fire.

Following widespread reviews of multi-occupancy buildings as recommended by the Government following the tragedy, it soon became apparent that similar cladding systems had been used in many buildings across the country. The initial focus was on ACM type systems, but attention then turned to ‘Non-ACM’ systems (e.g. High-Pressure Laminate (HPL) panels and insulated render systems) that also incorporated combustible materials and were equally a cause for concern.

Complex arguments quickly ensued about whether or not the range of systems installed on thousands of buildings were in breach of the ‘Part B’ fire safety requirements of the Building Regulations at the time of design/construction.  

Questions are now understandably being asked about why so many buildings, now considered to be ‘non-compliant’ with the standards at the time of design/construction, were approved for use at the time by building control inspectors. All these issues are now playing out in (often multi-party) litigation across a broad spectrum of parties including developers, designers, contractors and property owners.  

These issues are also the focus of the ongoing Phase 2 of the Grenfell Inquiry, which is examining the circumstances and causes of the disaster. The Inquiry has generated much criticism of the various parties involved in the design and construction process, including the product manufacturers, as a result of some highly controversial testimonies and document disclosures in recent months.

Since the Grenfell tragedy occurred, the Ministry for Housing, Communities and Local Government (MHCLG) has published various advice notes which broadly recommend that building owners should investigate the composition of external wall systems in their buildings and decide whether remediation of systems incorporating combustible materials is required. Current building owners, acting on the MHCLG advice notes, have commissioned reviews and surveys which have recommended a need for remediation.  

The net effect of the above mix of problems is that there are now thousands of buildings across the UK that have been identified as requiring very expensive external wall remediation schemes.

Who foots the bill? Leaseholders or owners? 

Whilst the Government’s mantra to date has been that building owners and original developers must “do the right thing” and remove the costs from leaseholders, the uncomfortable truth is that the costs of repair and maintenance of leasehold-owned blocks of apartments ordinarily fall to the leaseholders through the service charges provisions of their leases. This issue is further compounded by mortgage providers refusing to offer new loans or re-mortgages in respect of apartments in buildings flagged as requiring remediation. This has left literally hundreds of thousands of leaseholders legally liable to pay the cost of remediating their buildings, with this liability often running to thousands of pounds per apartment.  

Disputes have arisen in every direction: from arguments about the legal liabilities of original developers, designers and contractors, to whether non-compliance with current guidance equates to breaches of the regulations at the prevailing times. There are uncertain prospects for recovering costs from original parties involved in the design and build process, made more difficult by insolvencies and a hardening in the insurance market for such liabilities.

In short, there is no prospect of a quick resolution to ease the burden on the many thousands of affected apartment owners, making the need for Government intervention acute and unavoidable. The Government has been compelled into action with its recent announcements about the Building Safety Fund, in the face of cross-party support among MPs who want meaningful solutions to what is a major problem in the majority of parliamentary constituencies. 

What has happened under the Building Safety Fund to date?

The BSF was originally conceived as a temporary remedy to address buildings at an immediate fire risk through non-compliant cladding, until legislation could be brought forward offering a long-term solution. 

Specific bodies (such as building owners and those responsible for fire safety) can apply to the BSF where the building in question is over 18m tall and where, without the fund stepping in, the individual leaseholders would have to pick up the cost of remediation.

The BSF originally had £1bn at its disposal to address non-ACM systems, and had previously announced funding of £600m to address ACM cladding remediation. There was a narrow window for registration of 1 June 2020 to 31 July 2020 and applications were then treated on a “first come first serve basis” with a deadline of 31 December 2020 for submissions.

What has the government done to extend the scheme?

This month, the government announced:

  1. £3.5bn of extra funding to remove unsafe cladding from blocks over 18m tall. This follows an announcement in December that the BSF applications deadline would be extended until 30 June 2021, with works required to commence by 30 September 2021.
  2. A new scheme to fund the remediation of external walls in blocks below the 18m height threshold. This new scheme takes the form of a loan rather than a fund to cover this cost, with leaseholders never having to repay more than £50 per month in repayments. 
  3. An incoming levy on new high-rise developments to be paid at the planning stage, as well as a separate new tax on residential property development in the UK from 2022. These measures are designed to cover some of the cost of the BSF to the taxpayer. 

Does this announcement address the criticisms of the BSF?

One of the key concerns previously raised by campaigners was that the money in place was not enough to address the scale of the problem faced.  £3.5bn of additional funding is therefore welcome relief to those in tower blocks taller than 18m. 

There are many criticisms emerging including specifically:

  1. The ‘Cladding: progress of remediation’ report prepared by the Communities and Local Government Select Committee identified that it would cost approximately £10bn (according to the National Housing Federation’s March 2020 estimate) to remedy non-cladding fire safety issues present in high-rise blocks. When the cost of non-compliant cladding is accounted for the total cost of making all high-rise blocks across the country completely free of fire safety issues would likely exceed £15bn. Although the increase to the BSF covers the cost of remediating non-compliant cladding (estimated at £3-3.5bn) this is only the tip of the iceberg and the funds available still fall far short of covering the magnitude of the issues faced by leaseholders. The BSF has only avoided running out of funds because, as the Select Committee highlighted, the EWS1 process is not working, leading to a very large number of buildings remaining uninspected for many years to come. 
  2. The different loan arrangement for buildings that are less than 18m in height has been criticised as arbitrary, as apartments below this height are still being deemed unmortgageable by lenders, even if the risk of a serious fire incident is much reduced compared to taller blocks. 
  3. Accessibility of funds may still be an issue potentially saddling building owners with debts for years to come which they cannot always recover through the service charge.  
  4. It is unclear at this stage how the debt for remediating the cladding of blocks below 18m in height will be managed and whether it will be tied to the property or leaseholder, both of which could have serious consequences.
  5. Non-cladding related fire safety issues, such as internal fire stopping/compartmentation defects, remain unaddressed following the latest announcement. There is still no provision for leaseholders facing the cost of a range of other fire-related issues, such as defective fire stopping or fire breaks. 

Are you concerned about the safety of a block of apartments you built?

If you are concerned that a block of apartments you built or are responsible for might be unsafe, or simply don’t know and want to find out more, please get in touch with our experts listed below.

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