Whilst winding my way home this evening, I chanced across a piece from Inside Housing in which is was reported that the Secretary of State, (Sajid Javid) had suggested that private freeholders should pick up the costs associated with fire-safety works and not recharge them to leaseholders. More remarkably, he is reported as saying that the private sector should follow the lead of the public sector in this regard (story here).
This is, frankly, pie in the sky thinking:
(a) Why on earth would a private landlord want to subsidise the leaseholders in this way? What planet does he live on? These costs are going to run into hundreds of thousands of pounds (if not more). I’m presently advising on one case where the costs are £11K per week just on fire safety measures, with a further £1m or so needed in the next few months in order to replace the cladding. It is just unrealistic to think that a private developer will pick up those costs (not to mention that, in many cases, the present freeholder will not have been responsible for commissioning the now flawed work, thus making it even less likely they’d want to pick up the costs).
(b) In any event, many private landlords will not be able to do so. Imagine that you have a lessee-owned freehold vehicle (e.g. a nominee purchaser post-enfranchisement). Where do you think it would raise the money from to do this? The capital value of the building is mostly (if not totally) in the long leases. Likewise where the “landlord” is actually an RMC or RTM Company (which are “landlords” for the purposes of service charge recovery, even though they own no estate in land).
(c) Even if you have a true private landlord (whether an Earl Cadogan-esque figure, or a private developer, or a ground rent fund), the reason for holding a freehold reversion is to generate an income stream, not to pay tens upon tens of thousands of pounds for a service where the benefit is, on any view, at least shared with the leaseholders.
(d) And it’s just not true to say that social landlords are absorbing these costs. They will, I accept, where there are secure/assured tenants in a block, but that isn’t because of any high minded approach, but because of s.11 LTA 1985 and the relative paucity of service charge provisions in such tenancies. Where there are RTB/RTA, shared ownership (sic) or just commercial leasehold sales, there will be attempts to recover (as the IH piece makes clear). That is because social landlords have fiduciary duties to seek to recover these costs (and, at this stage, can I just waive at our DCLG readers – if you don’t believe me, go and read the annotations to s.219, Housing Act 1996 in the Encyclopedia of Housing Law as that’ll explain why they have to recover these costs; and before you get ahead of yourselves, no, the existing Directions under ss.219, 220 are unlikely to help).
The costs to leaseholders of fire safety works post-Grenfell are going to be enormous and, likely, unaffordable in many cases. There is a real problem developing here and the Secretary of State needs to give this much more serious and thoughtful attention than it seems he has done so far.