Gove’s new proposals on the cladding crisis

• United Kingdom

• Construction and engineering
• Construction and engineering - Articles
• ESG

12-01-2022

Background

The Building Safety Bill 2021 deals with “higher risk buildings”, which are defined as being either 7 storeys or 18 metres high. There had been ongoing concern over residential buildings that are 11-18m high, which may also have unsafe combustible cladding.

The government had made some financial provision for this by way of their ACM remediation programme and Building Safety Fund. Some developers had voluntarily assisted with the funding of remedial works. Nevertheless, the cost of remedying premises falling within the 11-18m height range was mainly falling upon leasehold residents (payable through their service charge).

Gove’s announcement on 10 January 2022

On 10 January 2022 Michael Gove, the Secretary of State for Levelling Up, Housing and Communities, made an announcement to the House of Commons and wrote to the “Residential Property Developer Industry”. He announced that he is giving the industry until March 2022 to conduct negotiations and reach a settlement to resolve how cladding for properties between 11-18m will be resolved. Gove expects the industry to:

• make annual financial contributions to a dedicated fund to cover the full outstanding cost of unsafe cladding (estimated currently to be £4bn);
• directly fund and undertake all necessary remediation work to buildings over 11m high (which also includes those buildings over 18m high), which they have played a role in developing. (Such input may reduce the amount of contribution that the developer is expected to make to the £4bn fund); and
• provide comprehensive information on all buildings over 11m high which have historic fire safety defects and which the developer has played a part constructing within the past 30 years.

Gove has confirmed that further steps will be taken if necessary to enforce this action. This could include restricting access to government funding and future procurements, the use of planning powers, the pursuit of companies through the courts, and imposition of further legal measures if necessary. 

The proposed fund is in addition to a 4% property developer tax which recently came into force and is set to raise a further £2bn over 10 years.

A copy of Gove’s letter to the industry can be found here for reference.

Industry reaction

Gove’s request for comprehensive information for developments constructed within the last 30 years has raised widespread concern that the Government intends to retrospectively change the limitation period for historic claims further than originally anticipated. In the current version of the Building Safety Bill, the limitation period for claims under the Defective Premises Act 1972 was amended from 6 years to 15 years. The Bill is currently at the Report Stage of the House of Commons and may be subject to further change before it becomes law. It could be that the next version of the Bill contains this reference to 30 years. This would considerably widen the liability of developers, as well as exacerbating problems for them regarding document retention and retrieval, and their ability to flow down claims.

There are calls that the government’s plans to fix the cladding crisis must hit others in the supply chain. A spokesperson for Taylor Wimpey said in response to Gove’s announcement, “There are many organisations involved in the issue of fire safety, including large businesses in our supply chain, and indeed government themselves”.

The request for a fund at £4bn has also been criticised, as recently speaking to LBC radio Gove admitted he did not know how many buildings were affected by the cladding crisis and that he was relying upon building owners coming forward to say that their buildings need work. As this will require expensive investigation it is clear that leasehold owners will still be responsible financially for these costs.

The proposals have also come under criticism from leaseholders for simply providing a plan of action (i.e. the industry has two months in which to hold talks), without taking any further active steps to resolve the ongoing issues for leaseholders. Gove’s proposed threat of increasing the property developer tax to ensure that developers engage with these discussions was undermined by a leaked letter from the Treasury to Gove saying that new or increased taxes were “not a given at this point”. The proposed remedy of pursuing developers in the court could be costly, time consuming and uncertain for many leaseholders.

Following Gove’s announcement, £1.3bn was wiped off the stock market valuations of the UK’s major housebuilders.

Eversheds Sutherland commentary

The Government’s announcement will give great comfort to leaseholders otherwise concerned they would have to foot the bill to have unsafe cladding removed. However, there are a number of issues behind the Government’s threats which are far less clear such as: who will ultimately end up footing the bill; how will those within the construction industry who “caused the problem” be identified; and once identified, how will any legal process oblige those entities to pay?

Nick Pinder, Partner at Eversheds Sutherland commented 'I don’t think anyone can deny that the problems with fire safety in residential buildings are ones the construction industry as a whole has to take responsibility for. Indeed the Government openly accepts its “share of responsibility” given it is a part of the UK’s construction industry in its widest sense. However, the public inquiry into Grenfell has demonstrated the complexities in trying to drill down into which entities, within that industry, actually caused the problem.'

The Government appears to be focussing on residential property developers, a relatively small number of players when viewed in the context of what the Government acknowledges is a complex supply chain. However just as the lack of fairness in leaseholders having to pay seemed palpable, one can sympathise with the hypothetical developer who engaged with a reputable and sophisticated supply chain of specialists to design and build a property which would, amongst other things, be safe for those who would live there. In that case, making a developer pay simply on grounds of relative affordability could be unfair.