UK property developers under pressure to fund removal of unsafe cladding

property investment

On 10 January 2022, Michael Gove, the Secretary of State for Levelling up, Housing and Communities, issued a statement regarding the removal of unsafe cladding. Previously announced plans to tackle the cladding problems led to significant gaps in funding. This meant that leaseholders of buildings between 11 m and 12 m in height were being forced to fund their own remedial work. As many could not afford the considerable cost, they have been trapped with properties proving impossible to sell. However, things are changing! 

Michael Gove sets out voluntary scheme 

While the scheme announced by the UK government is “voluntary”, the undertone was different. The industry has to agree on a voluntary scheme, or further regulations would be introduced. In negotiations expected to last until the end of March 2022, the property development industry is being asked to:- 

  • Make voluntary contributions to a dedicated cladding remediation fund which will total £4 billion
  • Self-fund the replacement of cladding and any additional remediation work on properties they have been involved in over the last 30 years, between the height of 11 m and 18 m
  • Provide comprehensive details of all buildings over 11 m in height with historic safety defects, covering the last 30 years 

It appears that the UK government would prefer to introduce a “voluntary” scheme rather than new legislation. The issue will be “debated” via roundtable discussions, bringing together 20 of the largest housebuilders in the UK and associated trade bodies. The property industry is now stuck between a rock and a hard place. 

What will the government do if negotiations fail? 

Already, we have seen a number of the UK’s largest housebuilders announcing funding being put to one side to cover cladding removal and remedial work. However, while this would indicate the industry has accepted the government’s “voluntary” proposals, nothing is yet set in stone. 

If an agreement is not forthcoming, the government has confirmed further action would be taken such as:- 

  • Restricting access to government funding/future procurement for individual companies
  • Greater use of planning powers
  • Pursuing property development companies through the courts
  • Introducing new formal legislation 

The UK government has been under extreme pressure since the Grenfell Tower fire in 2017. Even though funding was made available before the recent announcement, it was nowhere near enough to cover all the remedial work required. Consequently, there has been enormous pressure on the UK government to push property developers to pay for the vital repairs to defective properties they built. As a result, the vast financial burden to replace dangerous cladding has been removed from leaseholders and taxpayers. 

Relationships are now strained 

From the outside looking in, many observers are unsure why the industry is so reluctant to replace substandard cladding. After all, this sector has proved to be hugely profitable and received billions of pounds in government assistance during difficult times. On the flip side of the coin, developers will point to the fact that those buildings requiring remedial work were built within building regulations at the time. 

There are now fears that the industry will not cooperate with the UK government when attempting to achieve ambitious new home build targets. However, it is debatable whether the sector would effectively shoot itself in the foot by not cooperating. 

Conclusion 

The UK government has been under intense pressure to provide more funding to remove unsafe cladding and additional remedial work. The initial funding programme had been welcomed but was well short of that required. After only a few days in his new role, Michael Gove decided it was time to take further action, making property developers’ pay for work required. Unfortunately, his language was incredibly blunt, which has not gone down well with the property development industry. 

Will this, albeit populist, policy come back to bite the UK government on the backside when they next need help from the property development industry?

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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