Nothing but a sticking plaster on the building cladding wound

property investment

The UK government is under attack for what many see as a substandard response to the growing problem of unsafe cladding on the side of high rise buildings. The announcement of an additional £3.5 billion, to go with an earlier £1.5 billion commitment, creates a substantial fund of £5 billion. However, this only relates to buildings over 18 m in height. 

Is £5 billion enough to rectify the problem? 

In a staggering reminder to all of us, the Grenfell Tower disaster happened more than three years ago, on 14 June 2017. Yet here we are, in the first quarter of 2021 and the problem has still not been rectified for numerous home owners. Indeed, many people are living in buildings with cladding deemed dangerous and substandard fire protection. They can neither move out as their homes are unsellable, nor afford to replace cladding and improve fire protection. Where do these people go from here? 

Who should foot the bill for the replacement of cladding?

 We have already heard stories of freeholders looking to pass on the cost of replacement cladding/fire break work to leaseholders. Despite attempts to hold original builders liable for the costs of correcting these problems, there is absolute confusion about who is liable and who should pay. There is even confusion as to why the buildings in question either failed to abide by fire restrictions at the time, or why fire restrictions were substandard (in hindsight) at the time. 

A recent article in the Standard highlighted the fact that, contrary to popular belief, some of the buildings caught up in the cladding row were built after the turn-of-the-century. As a consequence, leaseholders are asking how these properties were built in a manner which is now, less than 20 years later, deemed unsafe? 

There have also been suggestions that the UK government will introduce some kind of property developer’s tax. Funds raised would be used to assist with the cost of replacing dangerous cladding and improving fire protection. However, this has the potential to penalise parties who have never been involved in high-rise properties before. Unfortunately, there is no simple solution! 

When height means everything 

Buildings over 18 m in height, with any of the unlawful types of cladding, will qualify for assistance from the government’s £5 billion fund. Those living in buildings of between 11 m and 18 m may be eligible for additional government loans. This additional funding is in the form of a long-term low interest loan which the government insists would not cost leaseholders any more than £50 a month. It is unclear at this moment in time what level of funding freeholders would be expected to contribute to the repairs. 

Quite rightly, many leaseholders are seriously concerned about having to pay for remedial work, when they acquired their homes in good faith. Many are expecting a huge increase in their service charges which won’t help when they try to sell their property. However, at this moment in time leaseholders and freeholders are stuck between a rock and a hard place. If they do nothing, the properties are effectively worthless and unsellable, so they need to find funding for repairs. 

Scrapping External Wall Fire Review safety certificates 

It would appear that the UK government is currently in talks with lenders regarding issues such as the External Wall Fire Review (EWSI).This was a requirement introduced in 2019 which has stopped many people from selling their properties. The suggestion is that either many perfectly safe properties were caught up in the EWSI form problem or the government is potentially compromising safety? 

All those who found it impossible to sell their leasehold property after the building failed the External Wall Fire Review, may welcome this news, but will it really put potential buyers at ease? There is an argument to suggest that it could actually cause more problems than it could solve, bypassing this particular safety regulation. 

Back to the drawing board 

While the additional £3.5 billion of funding made available by the government has been welcomed, the overall cost of works required could be as high as £15 billion. The focus on buildings over 18 m high may address the more dangerous elements of the problem, but there is more work to be done. Those living in buildings between 11 m and 18 m in height may be forced to take out government backed long-term low interest loans to make the necessary repairs. 

When you consider that an asset is only worth what buyers are willing to pay, will potential buyers look to negotiate reduced prices for homes caught up in the dangerous cladding scandal?

Written by Julie Hanson

Julie is passionate about property – development, investment and portfolio planning. Along with husband Alec, Julie is actively building a property portfolio while helping others to do the same.


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