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10/01/2022

The Gove Conundrum

Today (Monday) was Michael Gove’s big day. Not the getting stuck in a lift at Broadcasting House for half an hour, but the announcement of his plans to tackle the Building Safety Crisis.

There was a distinct change in rhetoric – with developers and manufacturers the main target – and a welcome statement that leaseholders are the innocent parties in the whole mess and should not have to pay for it, but in terms of what was actually announced, it is fair to say that squaring the circle of solving the crisis without actually spending any Govt money was not clearly achieved. Nonetheless what came out, particularly in response to questions, was rather more serious than the gestural attempt to buy off rebel MPs on the Building Safety Bill that the cynical people here at NL initially suspected.

We’ll go through what was apparently promised today…

The headline is a £4 billion fund for cladding remediation costs for buildings between 11 and 18 metres. This replaces the rightly mocked and loathed idea of loans. However, as the leaked Treasury letter makes clear, there is no new Govt money for this. Instead it is to be raised from developers and manufacturers. If not, it will come from existing DLUHC funds (mostly likely, one suspects, grant funding for social housing). We know from the letter that Gove was permitted to threaten developers etc with new taxes or legislation, but not to actually do either without further Treasury permission. However, Gove does have considerable arm-twisting powers in terms of setting conditions on access to government funding – the most obvious example for developers being cutting them off from the crack cocaine of Help to Buy (as was done with Rydon).

Extracting significant money from developers is not one of the world’s easiest task. It would have been a labour of Hercules, had there been classical Hellene property developers slapping up a dodgy Parthenon or two. We know name and shame etc don’t work. But Gove does have at least some plausible extraction tools, even without further taxes or legislation. The next few months will be interesting.

One of those twists of the arm might be the commitment to extend the retrospective limitation period for Defective Premises Act 1972 claims to 30 years, rather than the current 6 years, or the 15 years originally proposed in the Building Safety Bill. I suspect the impact of this will be limited. The extension is undoubtedly a good thing, but the number of freeholders and/or leaseholders able to take advantage of it will be limited to those where there is still someone left worth suing (as well as the limited number of solicitors able to conduct such claims on a basis affordable to leaseholders).

But this is cladding only, as with the Building Safety Fund for over 18 metre buildings. Non-cladding costs (whether build issues like missing or defective fire breaks etc, or issues arising from the Govt’s consolidated advice note, like kinds of insulation or wooden balconies) are not covered by either the BSF or this new proposed fund. In response to Lisa Nandy, Shadow secretary, Gove said that he wanted developers, manufacturers etc to also pay for remediation of non-cladding issues. Well, so do we all, but there was no further indication of how this was to be brought about (but see below on costs to leaseholders).

There was a further £27 million for the fund for alarms or other measures to remove the need for a waking watch, bringing this to £57 million in total. Probably not sufficient, but a good step.

Gove insisted that a ‘proportionate approach’ to risk should be taken by surveyors and lenders. There were even vague threats to RICS about the status of their charter. The consolidated advice note was withdrawn, to be replaced by guidance PAS-9980 on assessing fire risk. Frankly, whether this will change approaches to risk by assessors/surveyors/lenders is anyone’s guess (particularly lenders). It is an attempt to take a number of buildings out of the building safety crisis, but at this stage, we have to say it is a bit of a punt.

That said, giving an indemnity to fire risk assessors is a necessary step. It won’t magically increase the number of them, but it might at least stop the utter unaffordability of professional indemnity insurance for the role being an obstacle.

There was a sightly odd commitment that shared ownership leaseholders would be able to sub-let affected flats if they were unable to sell. If Housing Associations don’t agree, that will take legislation. I’m also not convinced about opening up sub-letting a potentially risky flat. But it is at least a gesture to the particular problems shared ownership leaseholders have faced.

There was also a trailed, if vague, commitment to protect leaseholders from eviction/forfeiture over fire safety costs. This will certainly require legislation. We will have to see if it emerges as an amendment to the Building Safety Bill, and the detail of it.

In response to questions, some other promises were made. By far the most significant of these was to add an amendment to the Building Safety Bill (possibly developed on a cross party basis) that would stop recovery of fire safety remediation costs (not just cladding) from leaseholders.

“She specifically requested that we provide amendments to the Building Safety Bill in order to ensure that there was statutory protection for leaseholders. That is our intention.

“We intend to bring forward those amendments and I look forward to working with her colleagues across the house in order to provide the most robust legal protection,” he added.

Mr Gove reiterated his commitment in response to a question from Labour MP Clive Betts, during which he said he will “work with people across the house in order to make sure that that statutory protection extends for all of the work required in order to make buildings safe”.

Well now…

First, it appears that this would not extend to costs already paid by some leaseholders, so no repayment.

Secondly, it is not at at clear what would be covered – remediation costs, probably? Interim costs such as waking watch, or hugely hiked insurance premiums, much less certainly.

Thirdly, it is of course unclear when this would come into effect – presumably soon after the Building Safety Bill is passed. In the meantime, there are a lot of leaseholders facing demands, or overdue demands, for charges. What are they supposed to do – delay paying in the hope that they will be covered? What will be the reaction of freeholders and managing agents be? Will they be issuing demands, or commencing proceedings in the hope that they won’t be caught by legislation?

Apparently ARMA and IRPM managing agents are being told that they shouldn’t serve section 20 notices for cladding remediation costs for buildings between 11 and 18 meters in advance of steps on the new £4 billion fund. That doesn’t mean they won’t, but of course it doesn’t cover any non cladding costs anyway. So the next few months might be fraught on charge demands.

And lastly, this is quite the hostage to fortune. The reason such amendments were previously proposed by MPs was precisely to try to bring the Govt to the point where it had to accept it had to act on building safety costs. Gove is attempting to turn that pressure on to the developers etc.. But if it doesn’t work, there are no funds for non-cladding costs. That means work won’t get done. In the meantime, and possibly indefinitely, many leaseholders will remain in the ‘can’t remortgage, can’t sell’ hole.

So, of all the promises made today, I rather think this is potentially the most significant. Depending on the terms of any such proposed amendment, it is Gove lashing himself to the mast after setting the ship on a course he can’t change.

Overall – we are in for some weeks, months and potentially years of uncertainty. What was announced today was, by itself, certainly not enough. But the change in direction is, I think, important, and if some of the promises made come about in the near future, there may well at least be protection from costs for many leaseholders, although a release from the whole situation may take much longer.

 

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts.

3 Comments

  1. J

    The one about ARMA/IRPM agents was really odd. They’re just agents. If their client wants to proceed with a s,20 process then they have to agree (or resign). And they can’t properly advise a client not to serve a s.20 notice just because the SoS doesn’t want them to – there may be a good reason to serve (e.g. threat of local authority enforcement action or, more likely, forming the view that remedial works are required in order to prevent an actionable breach of covenant).

    Reply
  2. Liz Davies

    Really helpful analysis, thank you.

    Reply

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