By J
10/01/2021

Ping Pong and fire safety

Fire safety issues in blocks of flats and other multi-occupancy buildings are one of, if not *the* biggest issue in housing law and policy today. The background is pretty well-known and, for present purposes, can be quite easily summarised. Since the Grenfell Tower disaster, it has become clear that there are hundreds of thousands (if not millions) of dwellings across England and Wales which have fire safety problems, either as a result of how they were originally constructed or because of conversion/adaptation works. Those problems are not limited to ACM cladding (which was the kind of cladding on Grenfell Tower) but also includes lots of other types cladding (including something called HPL cladding, in essence, wood-effect), and the absence of fire breaks (designed to stop fire spreading from one flat to another), defective or absent fire doors.

The precise reasons for these defects has yet to be established. Some people focus on the Building Act 1984 and the rise of the “approved inspector” regime. Some want to focus on Approved Document B (in effect, fire safety guidance). In reality, there are numerous failings and attempting to list them all (or rank them) is far beyond what I have time or capacity to do here. The Grenfell Tower Inquiry is going to deal with the regulatory framework in Module 6 and is widely expected to criticise successive governments for their ineffective regulation and guidance. There are then many thousands of individual contractors, developers, etc, who need to be called to account for individual buildings.

The Fire Safety Bill is part of the response to the fire safety problems. Before we turn to the Bill, however, we have to start with the Regulatory Reform (Fire Safety) Order 2005. This is the primary legislative vehicle for dealing with fire safety, including in the common parts of residential buildings (but not the flats themselves – that would usually be a HHSRS issue under Housing Act 2004, ‘tho there is some overlap: see Pt.5 of the Operating Guidance ). There are (at least) two problems with the 2005 Order. Those problems are that (i) it probably doesn’t apply to cladding and (ii) there is an ambiguity about how it applies to the front doors of flats where those doors are demised under leases.

The Fire Safety Bill attempts to deal with those two defects by bringing both within the scope of the 2005 Order. That is a good thing.

The problem is how those reforms will affect leaseholders. And, whist it *may* lead to the buildings containing the flats becoming safer, it is almost inevitably going to lead to an enormous service charge liability for affected leaseholders. That is because it is almost invariably the case that a long lease includes a covenant requiring the leaseholders to pay a service charge in connection with costs incurred by the landlord (or third party under the lease, such as a lessee-owned management company) in meeting statutory requirements or complying with the directions of a “competent authority” (such as where the Fire Bridgade serve notice requiring the freeholder to make the cladding/fire doors safe).

Those costs are likely to be staggering. Estimates vary, but I have seen credible estimates of £15-18 billion to make all affected buildings safe. Leaseholders of the worst affected buildings are looking at costs of anywhere up to £80,000 per flat just to pay for their share of the necessary works (and that is on top of other associated costs, such as waking watch costs as interim measures to – apparently – keep the building safe pending the necessary remedial works).

There is a growing consensus that this is simply not fair nor is it a practical solution to the problems of fire safety. Leaseholders of affected blocks have come together to form various pressure groups. They have the support of journalists (most notably, at least for a housing law blog, Inside Housing) and local and national politicians. One result of this is that two Tory MPs (Royson Smith and Stephen McPartland) have put down an amendment (building on some work that a Lib Dem Peer (Baroness Pinnock) did in the House of Lords) which would prevent landlords passing on the costs that arise from compliance with these new duties as service charges. And it’s clear that the amendment is attracting quite a lot of support. At least 21 Tory MPs have signed on to support it so far. I’ve seen at least one Labour MP say he has signed on to support it (there is just a delay in getting the information up on the Parliament website). Whilst the Lib Dems have their own amendment, I understand that they are minded to support this one if it has greater prospects of success (which it does).

The full amendment is as follows:

“Prohibition on passing remediation costs on to leaseholders and tenants
(1) The owner of a building may not pass the costs of any remedial work attributable to the provisions of this Act on to leaseholders or tenants of that building.
(2) Subsection (1) does not apply to a leaseholder who is also the owner or part owner of the freehold of the building.”

“Costs arising from relevant notices or risk based guidance under the Fire Safety Order
(1) This section applies to a long lease of a dwelling in a relevant building.
(2) This section applies—
(a) where a notice has been served by an enforcing authority under article 28, article 29 or article 30 of the Fire Safety Order; or
(b) where a responsible person carries out works on the basis that they are required or said to be required by the risk based guidance issued by the Secretary of State under article 50 of the Fire Safety Order.
(3) In the lease there is an implied covenant by the lessor, or any third party to the lease, that the lessor or third party shall not recover from the lessee any amount in respect of the costs of works under subsection (2) where the works are to remedy any defect, risk or issue that predated the first grant of a long lease of the dwelling.
(4) Subsection (3) does not apply where the works are to repair a deterioration in original condition.
(5) Subsection (3) does not apply to any interest or shareholding the lessee may have in any superior lessor or freeholder.
(6) This section does not apply to commonhold land.
(7) “Dwelling” has the meaning given by s.112, Commonhold and Leasehold Reform Act 2002 and “long lease” has the meaning given by ss.76 and 77 of that Act, save that, in the case of a shared ownership lease, it is irrelevant whether or not the tenant’s total share is 100%.”

Restriction on contracting out of section (Costs arising from relevant notices or risk based guidance under the Fire Safety Order)
(1) A covenant or agreement, whether contained in a long lease in which section [Costs arising from relevant notices or risk based guidance under the Fire Safety Order] applies or in an agreement collateral to such a long lease, is void in so far as it purports—
(a) to exclude or limit the obligations of the lessor or the immunities of the lessee under that section, or
(b) to authorise any forfeiture or impose on the lessee any penalty, disability or obligation in the event of the lessee enforcing or relying upon those obligations or immunities.”

In essence, it means that, where work is required to a building as a result of the 2005 Order, then the leaseholder cannot be required to pay for it so long as the underlying defect pre-dated the grant of the first lease (i.e. it is a construction defect). It does not, however, prevent service charges being raised for routine maintenance work or “normal” repairs.

Why are we writing about this now? After all, we don’t usually cover pending legislation. Indeed, we don’t actually know the date when the House of Commons will consider this amendment (or even whether it will go to a vote – it is at the “ping pong” stage, hence the title of this post). Well, I wanted to deal with some of the reasons that *some* MPs are giving for not supporting the amendment.

First, this is said to be the wrong Bill for dealing with this issue. The Building Safety Bill is, it is said, the proper vehicle. As a counsel of perfection, I would probably agree. But there are (at least) three reasons why that can’t be the right answer in this case.

(a) The first is that the Building Safety Bill hasn’t even been introduced to Parliament yet.

(b) The second is that this Bill creates a route by which freeholders can recover the costs of the necessary remedial works. And it will likely be in force before the Building Safety Bill. So you need to deal with funding as part of this Bill.

(c) The third is that the Building Safety Bill provides very little hope for leaseholders. We had a draft version over the summer and, frankly, it stank. The single biggest failing in the draft was that it proposed amending all residential long leases (whenever granted) so as to authorise the recovery of costs associated with relevant safety work. In effect, the Government said that the response to the fire safety scandal was to create a statutory requirement that leaseholders pay to fix it. That is just ludicrous. Leaving aside questions of fairness and morality (why on earth should the leaseholder pay to fix a design defect that she had no role in creating?), it won’t work. If you plan to make buildings safe by requiring the leaseholders to pay, then you need all of them to pay 100% of their shares. If one person can’t pay or doesn’t pay, then the work doesn’t get done. To put it bluntly, you can’t procure 90% of a new cladding system.

Now, I agree that this issue (who pays) will likely need to be revisited in the Building Safety Bill. But that doesn’t mean that you don’t need at least an interim solution now.

The second objection is that the amendment might protect leaseholders, but it doesn’t do anything to identifiy who should pay. That is correct. But I’m not sure how good a point that is. After all, if the amendment had said that the tax payer should pay in the first instance (subject to recovery from developers or from litigation or whatever) then I can see the government objecting (with some force) that a backbench amendment which spends £15bn of tax payer money isn’t *really* how things are supposed to work. But the “who pays” issue is the big one. We all know the answer. There is only one entitiy which can pay upfront and that is the tax payer. The sooner the government accepts this, the better. There are legitimate disputes about who should ultimately pay and how they should pay, but everyone can surely agree it isn’t the leaseholder.

The third is that the amendment has some loopholes. In particular, it doesn’t help leaseholders where the fire safety duty rests with a lessee-owned  company (e.g. an enfranchisement company). That is true. Absent government funding (see previous point) there is no real answer to this problem. But the MPs who oppose the amendment for this reason are, with respect, missing the point. This is a criticism that the amendment does not go far enough; it is a reason to craft something more ambitious, not a reason to object this as a necessary first step.

So, where does this leave us? We know that the government are working on alternative funding plans (a 30-year loan to the leaseholder to cover the costs seems to be the leading proposal, but that just creates other problems that I can try and write about once we have the full proposal), and I imagine we will get those as part of the response to this amendment. But there is no good reason for an MP to oppose this amendment. Without costs protection, leaseholders will continue to lose their homes. The only way to solve this problem, at least in the immediate short term, is for the tax payer to forward fund the works.

In the interests of full disclosure, two members of the NL team have played a role in drafting the amendment (together with others). But the credit for the amendment should go entirely to the UK Cladding Action Group, which is coordinating the work of affected leaseholders. They are remarkable people.

 

 

J is a barrister. He considers housing law to be the single greatest kind of law known to humankind and finds it very odd that so few people share this view.

10 Comments

  1. Jane H

    Agree with this. But beyond sorting the existing cladding crisis we need to be creating consumer protection legislation covering new builds. NHBC guarantees pretty worthless. There needs to be a system like ABTA for travel, into which manufacturers of building materials and house builders all have to pay as a condition of operating. It cannot be right that the buyer of a new home has less protection proportionately than if they were buying a kettle. Clearly it’s a hugely complex subject but it needs people like you, J, thinking about how it might work.

    Reply
    • Giles Peaker

      Something like that is major legislation that only the government could bring forward, I’m afraid.

      Reply
  2. Rose

    Why can’t a combination of the government, freeholders and developers (that actually chose to use the unsafe materials) be liable to pay? If the government don’t protect leaseholders on this it will not only cause the obvious problems to leaseholders but will create less confidence in people buying leasehold property’s in the future.

    Reply
    • Giles Peaker

      Because, apart from in some specific circumstances, mostly within the first 6 years of the building, there is currently no legal mechanism to hold the developers liable. It will take a change in the law, and this may not work retrospectively.

      The suggestion that the Govt pays, then puts a levy on developers, is probably the most functional way to get developers to pay in the end.

      Reply
      • Tim

        Thanks for putting together such a clear and concise blog post on the issues around this. I agree that retrospective changes in the law (to get developers to pay directly) probably wouldn’t work – although it’s a bit odd that the government would then do the same thing by retrospectively changing leases. Getting developers to pay directly also wouldn’t help in cases like ours, where the developer has gone out of business.

        I think a levy on developers is the way forward – it wouldn’t even need to cover the full cost of the work either as the government would be in line for a huge amount of tax revenue from the work being carried out as well which could pay for part of it.

        Reply
        • Giles Peaker

          Changes to leases wouldn’t be retrospective. But would likely have the effect of making leaseholders liable to pay for existing (so previous) defects. This has to be morally and politically wrong, even if legally achievable.

  3. dermot anthony mckibbin

    The Greater London Assembly intend to require housing associations to provide ” shared ownership ” leases in future for 999 years. Does this mean that such leases will not fall therefore within the definition of the 1988 Housing Act and that therefore ground 8 will not apply ?

    Reply
  4. Sarah

    Few people might share your view but we should be forever grateful that there are some people like you who do – thank you from a cladding scandal victim for such a clear commentary.

    Reply
  5. Janet Knowles

    Who would have thaought that helping my grand daughter get her foot on the home ownership ladder, would become such a millstone around her neck. It’s a scandal.

    Reply

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