Following the Secretary of State for Housing, Communities and Local Government, Robert Jenrick’s, statement in the House of Commons yesterday, we summarise the long-awaited announcement in respect of the Building Safety Bill, the extension of the Building Safety Fund and the Government’s plan to ensure that the industry takes collective responsible for historic building safety defects.
Mr Jenrick started out by stating that the policies are based on the findings of the independent advisory panel and the extenuating risks posed in high rise residential buildings (over 18 metres), but that the proposals will also address buildings between 11 and 18 metres.
Mr Jenrick announced that leaseholders in high rise residential buildings would face no costs in respect of unsafe cladding remedial works. This is a welcome development given the difficult position the landlords of such buildings have been put in, being put under pressure to levy large service charges against leaseholders, while hoping that they will receive funding through the Government’s Building Safety Fund. However, stating that leaseholders will face no costs seems somewhat misleading when the parameters of the Government’s funding does not seem to have been extended and there is no indication of how the further funding will be allocated.
The Government’s Building Safety Fund has been extended from £1.6 billion to £3.5 billion for buildings of at least 18 metres (with a 30cm tolerance). It is unclear how this will be apportioned as the announcement did not specify the sum that will go to the housing sector and the sum that will go to the private sector or how it will be split between unsafe ACM or non-ACM cladding.
There will be a new structure set out in the Building Safety Bill which will introduce a new ‘gateway developer levy’. The proposed levy will be targeted and only apply to developers that have sought permission to develop certain high-rise buildings in England.
In addition, a new tax will be introduced for the residential development property sector in 2022, which will raise at least £2 billion over a decade to help address unsafe cladding remediation costs. The largest developers will make a fair contribution to the remediation programme in relation to the profit they make in developing residential property. A consultation on this will be issued shortly.
Obviously, the announcement places greater emphasis on the fact that the Government’s Building Safety Fund will only be meeting the costs of the remedial works where the developer themselves are not. It did not however address the financial impact on developers that will be meeting the cost of the levy, a new tax, and the remedial works to their buildings. Understandably the wider public may not have much sympathy for the developers in these circumstances. As the collapse of Carillion demonstrated, the liquidity of some of the large developers could have a significant impact on the industry and subsequently could put further pressure on the Building Safety Fund provided by the Government.
For buildings with unsafe cladding under 18 metres, the Government has proposed a long term, low interest loan system for leaseholders in buildings between 11 and 18 metres. The loan will sit with the property and the building itself – it will not be a ‘personal’ loan. The repayments will not be more than £50 per calendar month. The loan will not be registered on leaseholders credit ratings. While this is a welcome introduction and we can see that it could potentially assist with sales in the housing market, there is still a substantial cost associated with this loan. A further £600 a year in addition to the leaseholders’ mortgages and bills is still significant (and may affect mortgage affordability). This may potentially affect the value of the property itself (although future sale or rental prospects should, at least, be boosted). It is not clear what the proposed interest rate would be.
With a view of considering the industry as a whole, the Government made a commitment to work with the industry, including the insurers, lenders and surveyors to address the difficulties with the insurance premiums and restrictions in the insurance market. Mr Jenrick also confirmed that buildings between 11 and 18 metres will not require an EWS1 form, however he fails to address buildings under 11 metres. Currently, Royal Institution of Chartered Surveyors (RICS) draft UK Guidance Note gives examples of a three storey building which may require an EWS1 Form. Mr Jenrick has called on the larger banks and building societies to support this initiative.
While the Government’s purported offer to protect leaseholders is welcomed news, it is unclear if the current proposals are sufficient, and the detail is yet to be released. We will provide a further update once the detail is issued.