UK government announces £200m fund to speed up cladding replacement – some answers, still lots of questions

Following the Grenfell Tower disaster, and the subsequent revelation that hundreds of high-rise buildings in the UK are clad in unsafe aluminium composite material (ACM) cladding, the question of who will pay for necessary remedial works has been a live but unanswered question. On 9 May 2019, the UK Prime Minister, the Rt Hon Theresa May MP, and the Minister for Housing, Communities and Local Government, the Rt Hon James Brokenshire MP, made an important announcement in respect of privately-owned high-rise buildings.

It was announced that around £200 million will be made available to remove and replace unsafe ACM cladding from around 170 high-rise privately-owned buildings. The announcement stated that

[t]his step has been taken after private building owners failed to take action and tried to offload costs onto leaseholders. . . . The government appreciates the work of Grenfell United and the UK Cladding Action Group who have campaigned prominently, outlining the challenges in getting private building owners to fund the replacement of cladding on their homes.

Certainly, figures released by the Ministry of Housing, Communities and Local Government on 11 April through its Building Safe Programme: Monthly Data Release showed that there was a pressing need for action:

Of the 267 private sector buildings identified with ACM cladding systems unlikely to meet Building Regulations, as at 31 March 2019 remediation is complete (including building control sign-off) for 41 buildings (15%) – an increase of three buildings since 28 February. This leaves 226 private sector buildings yet to be remediated.

The problem is assumed to be one of funding. After all, 22 private sector residential buildings have been remedied where there was a building warranty in place, such as one provided by NHBC. The same statistics show that the social residential sector is much further forward. 46 buildings have been completed already; of the 112 remaining, 89 have seen remediation started and 22 have a plan in place but works have not yet started. The rest of the statistics make for interesting reading, however: the figures for affected student accommodation shows that 29 have been remediated, whereas of the remaining 29, 4 have seen remediation started and 20 have a remediation plan in place. The pattern for hotels does not show such rapid advancement, but again, of 31 identified, 2 have seen remediation started and 21 have a plan in place. This is not a simple picture of ‘private’ versus ‘public’ sectors: instead, it is the private residential sector that falls far behind other sectors for which we have data.

What else, then, could be contributing to the problem? The answer might well lie in the governance and ownership structures involved in multi-owned private sector residential buildings. James Brokenshire MP stated in the announcement that “[a]lthough temporary measures are in place to ensure people living in these buildings are safe, too many owners are treating this as a permanent fix. Others are trying to pass on the costs to residents by threatening them with bills running to thousands of pounds.” Who, however, comprises this class of ‘owners’? In some cases, the block might be owned by a nominee purchaser following leasehold enfranchisement, or the individual leaseholders might own proportionate shares in the freeholder. There might be a separate management company, leaving the ‘owner’ with little more than a freehold reversion with almost no economic interest in the building at all. Sarah Blandy’s analysis of the legal framework through which decisions can be made in multi-owned housing demonstrates the difficulty in making generalisations about this sector. Ultimately, her conclusion is that “[i]ndividual owners find themselves in the weakest position of the key actors in multi-owned residential developments, as a result of early critical legal events which are under the developer’s control.”

It is also important to note the letter written to James Brokenshire MP by Melanie Dawes, permanent secretary of the Ministry of Housing, Communities and Local Government, the day before the announcement. She concluded her letter by writing that, “[t]here are strong public policy reasons for your proposed course of action, which you have decided following comprehensive official advice.” At the same time, she cautioned that the proposed scheme was “not in line with the rules of Managing Public Money”. The body of the letter gives an insight into the options that have been considered by the government. At paragraph 10, it is noted that

You have concluded, based on the Department’s analysis and advice, that the only option that will meet these aims is for the Government to offer grant support to building owners to pay for remediation in the private sector, as it has already done in the social sector. As for the social sector scheme, this grant would be conditional on building owners, wherever possible, seeking compensation from those who were responsible as the building was erected.

The concern for Ms Dawes, however, was that a transfer from the general taxpayer to private individuals and companies did not meet the normal test for Value for Money. She urged that the scheme should not become a precedent for leaseholders or freeholders to expect the government to “stand behind failures in the construction or maintenance of residential buildings in future” (paragraph 17).

Looking into the medium term, it is paragraph 18 that distils the likely response of the government:

You are clear that the grant fund for remediation of ACM cladding will not be repeated in other circumstances. The Government is also taking very significant steps to reform the system for the future. These include:

• the implementation of reforms to the entire building safety system, as recommended by Dame Judith Hackitt which, when introduced, will significantly increase transparency for residents and enforcing authorities;
• exploration of options to increase the prevalence of insurance and warranties, as part of the implementation of the Hackitt reforms;
• reinvigorating commonhold as an alternative tenure to leasehold, including additional provisions to ensure that commonhold associations have the appropriate financial plans to respond to an emergency; and
• exploration of reforms to service charges to include consideration of mandatory sinking funds so that unforeseen costs of maintaining a building are accounted for and are transparent to leaseholders.

It has been surmised that this is a non-repeatable scheme. It is likely that it will be limited in its scope to ACM cladding, as opposed to including all cladding that does not comply with building standards.

Looking beyond the announcement, the issue of how to ensure that residential occupiers are not affected by construction defects, and if they are, how they obtain rapid remediation, is one that has been repeated time and again in a number of different countries. To take some brief examples: the Republic of Ireland has faced its own construction defects crisis for a number of years. Following a close analysis of the regulation of the Irish construction industry, Deirdre Ní Fhloinn has opined that “[t]he regulatory model for Irish residential construction has a number of anomalies and fault lines.” In New Zealand, the ‘leaky homes crisis’ led to a review of joint and several liability by the New Zealand Law Commission. Dame Judith Hackitt’s report into the Grenfell Tower disaster, Building a Safer Future, has prompted a debate on how collaborative construction procurement can be used in the UK to support improved safety.

The government’s announcement is very welcome. It does not go far enough to help all of those affected by defective cladding, however. What we also see is that the Department for Housing, Communities and Local Government is aware that there are a range of problems to be resolved both with the governance of residential multi-owned buildings and current building safety.

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How to cite this blog post (Harvard style) 

Sawtell, D. The Lacrosse Apartment Fire: Liability for Using Grenfell Style Cladding. Available at: https://www.law.ox.ac.uk/housing-after-grenfell/blog/2019/05/uk-government-announces-fund (Accessed [date]).