Government issued warning over post-Grenfell building safety crisis

The crisis arises because the Government’s leaseholder protection legislation introduced last year, with the aim of tackling the fall-out across Britain from the Grenfell Tower fire in June 2017, does not cover three groups of people: those living in low-rise flats, those who have enfranchised and those who own more than three flats.

Unless this situation is rectified, up to 1.7 million individuals could find themselves in an impossible position until all buildings have been assessed for fire safety issues.

Not all buildings will have fire safety issues, but the entire flats market has been hit as no-one yet knows which buildings are affected. Those in buildings found to be unsafe are either left with a flat they cannot sell or otherwise forced to pay thousands – or even tens of thousands – of pounds in costs they simply cannot afford in order to remediate a range of building safety defects (including Grenfell-type external wall cladding). They may even be living in potentially dangerous flats that need to be urgently made safe.

Partial protections

The Government implemented partial leaseholder protections last year, duly protecting only a proportion of the financial victims from ruinous building safety remediation costs.

However, this has created a problematic three-tier flat market comprising those fully protected, partially protected and not protected at all. This is causing difficulties for conveyancers obtaining professional indemnity insurance as they have to determine a buyer’s potential liability by analysing complex information relating to the status of the seller and building owner. This risks a significant percentage of conveyancers declining fresh instructions on flats, in turn running the risk of stalling a significant element of the UK’s housing market.

The crisis could deepen next year when new banking rules take effect. The Bank of England is due to say how it will implement Basel 3.1 standards from the beginning of 2025. These will force landlords to re-value a loan if “an event occurs that results in a likely permanent reduction in the property’s value.”

With the current legislation creating a three-tier flat market, widespread re-valuations would appear to be unavoidable. Leaseholders who are partially or wholly unprotected will suffer, while the banks that have forwarded funds to them could find that their mortgages turn into bad debts that cannot be repaid.

Tabled amendment

The crisis is addressed by an amendment to the Government’s Parliamentary Bill tabled by the Earl of Lytton, a crossbench peer, and which is scheduled for debate in the House Lords 13 September.

The amendment seeks to make the developer or lead contractor permanently liable for building defects at the time of construction or otherwise recover the money from a wide building industry levy if the builder no longer exists. This amendment would work alongside the existing Government schemes, but crucially aims to fund the remediation of every financial victim of the building safety crisis, in turn protecting the 1.7 million currently excluded ‘victims’ and removing the three-tier flat market.

The amendment is widely supported by 48,000 signatories, the National Residential Landlords Association and, most recently, by Property Mark (who represent 17,500 property agents).

Property Mark has stated: “We believe that the amendments proposed by the Earl of Lytton provide greater protections for leaseholders, removing loopholes and establishing an independent body that would enforce liability, while also expanding the types of buildings where leaseholders would qualify for protections.”

Potential for change

The amendment is also backed by Ted Baillieu (former State Premier of Victoria, Australia and former co-chair of its cladding task force). Baillieu commented: “Lord Lytton’s [Building Safety Remediation] scheme has the potential to change the building industry for the better, forever and across the world. It’s the only comprehensive and equitable solution on the table. It’s not just a ‘one-off’ remediation, either. It’s permanent.”

If this proposed amendment is rejected, the Chancellor faces the difficult choice of residential valuation write downs and even people losing their homes with all the negative repercussions that will exert on the banking system or the Government having to step in to bail out up to 1.7 million people and continue with the problematic three-tier flat market.

*Further detail concerning the Earl of Lytton’s amendment is available online at buildingsafetyscheme.org