The cladding crisis: government’s new stance signals relief for leaseholders

The cladding crisis: government’s new stance signals relief for leaseholders

The question of who should pay the cost of replacing unsafe cladding on high-rise buildings has been a subject of intense debate over the past few years. Post-Grenfell laws came into effect in December 2018, banning the use of combustible materials in the external walls of residential buildings with a floor above 18 metres from the ground.  The need for that change was beyond dispute, but progress in implementing it has been hampered by wrangling between leaseholders, developers and building owners over the responsibility to fund the necessary work.

There is no doubt that thousands of leaseholders have experienced intolerable stress. They have been trapped in unsafe buildings and facing massive costs to fix the problem as developers refuse to foot the bill. Their predicament seemed to be compounded when the government’s Building Safety Bill progressed through Parliament in 2021 without amendments to protect them from the huge cost of safety work. However, the government has signalled a significant change in its stance this year: Secretary of State for Levelling Up, Michael Gove, has outlined a raft of amendments to the Building Safety Bill which will require developers, manufacturers and building owners to pay for the £4 billion estimated remaining cost of replacing dangerous cladding on buildings.

Mr Gove stated: “It is time to bring this scandal to an end, protect leaseholders and see the industry work together to deliver a solution. We cannot allow those who do not take building safety seriously to build homes in the future, and for those not willing to play their part they must face consequences. We will take action to keep homes safe and to protect existing leaseholders from paying the price for bad development.”


What does it mean for developers and manufacturers?

In a move to find a solution to the problem, the government is proposing various penalties designed to force developers to fund re-cladding work, releasing thousands of leaseholders from a huge financial burden. Companies that refuse to cooperate will be blocked from receiving planning permission and building control sign-off on developments.

Proposed amendments to the bill will also make it possible to sue developers that have used shell company structures to evade responsibility for cladding issues. The government is also intending to widen the scope of its building safety levy – a tax on developer profits introduced to recoup some of the government’s own costs of addressing the cladding problem – with higher rates for companies refusing to make voluntary contributions.

Building owners and landlords will be able to take legal action against manufacturers who used defective products on a home that has since been found unfit for habitation. This power will date back 30 years and allow recovery where costs have already been paid out. Cladding manufacturers prosecuted for supplying defective products would also be subject to Cost Contribution Orders, forcing them to contribute a share of remedial costs on affected buildings.


What does it mean for leaseholders?

Leaseholders will be liable to pay a certain amount in rare cases where the necessary funds cannot be sourced from a developer, manufacturer or building owner. However, the amendments would cap the amount which leaseholders will have to pay. They will be legally protected from paying costs above £15,000 in London and £10,000 in the rest of England. These costs would include bills already paid over the past five years for interim safety measures. The government has declared its intention that no leaseholder of an apartment in a building taller than 11 metres will have to pay a penny to remove unsafe cladding, so any capped costs paid by leaseholders are expected to relate to other safety provisions.


What does it mean for ‘portfolio’ landlords?

The bill prioritises the protection of leaseholders who live in the one property they own, but landlords with multiple properties might not receive the same protection. ‘Portfolio’ landlords are seen as having the financial means to cover the cost themselves. Mr Gove said that if a landlord has a “string of properties” then Building Safety Bill legislation would not apply to them.

Mr Gove suggested a flexible approach as the as the Bill made its way through the House of Lords, stating that the government would “look sympathetically” at amendments, but emphasised that “the aim is to ensure we are not in a position where we have a runaway commitment to people themselves who are of significant means.”

That position has drawn criticism from some quarters. Ben Beadle, chief executive of the National Residential Landlords Association, said: “Michael Gove’s previous comments about ending the scandal of leaseholders paying to remove dangerous cladding now ring hollow. No leaseholder, irrespective of how many properties they own, should be expected to foot the bill for dangerous and illegal cladding installed by someone else.”

The extent of protection remains an area of debate as the legislative process continues to unfold. Amendment 64 to the bill proposed that a leaseholder should not have to pay for cladding remediation if the dwelling is the leaseholder’s principal home, the leaseholder doesn’t own any another dwelling in the UK or leaseholder only owns one other property in the UK. Amendment 65, which was tabled by Lord Naseby, would effectively remove those provisos, proposing that all leaseholders are treated equally.

In the bill’s second reading Lord Naseby said:

“Fundamentally, all leaseholders—whether owner-occupiers or individual landlords—should be treated equally. Not to do so is not only unfair but, I suspect, unnecessary. Buy-to-let landlords and owner-occupier leaseholders face the same problems with developers, through no fault of their own.”


When will the Building Safety Bill become law?

The Bill has passed the Committee stage after its proposals came under detailed examination in the House of Commons. The Report Stage, where MPs were given the opportunity to propose further amendments, took place on 19 January 2022.

After completing Committee and Report stages in the House of Lords, the bill will return to the House of Commons for the final stages, with consideration of any further amendments before it becomes law.

Assuming there are no major delays, the Bill is expected to become law at some point in 2022. There appears to be broad agreement on the steps to make developers and manufacturers contribute towards the cost of re-cladding, but differences have emerged about the levels of protection provided for different categories of leaseholders and landlords.

Overall, there is a clear direction of travel in favour of leaseholders – a welcome development for the thousands of homeowners who were previously faced with ruinous remedial costs and unsellable properties.