Developer levy and tax to help fund removal of unsafe cladding

The Housing Secretary, Robert Jenrick, has announced plans to introduce a new levy and tax on the UK residential property development sector as part of a range of funding measures designed to pay for the costs of removal of unsafe cladding in residential buildings in England. 

What is the developer levy and tax?

The proposed developer tax and levy forms part of a "comprehensive" plan to deal with the funding and removal of unsafe cladding. In brief, the package of measures includes:

• an additional £3.5 billion of funding for residential buildings in England of 18 metres (6 storeys) and above. Leaseholders in those dwellings will not have to pay for the cost of replacing unsafe cladding. This funding is in addition to the £1.6 billion previously announced and the waking watch fund of £30 m to help pay for the installation of fire alarm systems
• a long-term, low-interest, government backed loan scheme for leaseholders of residential buildings of between 11 – 18 metres (4-6 storeys) in height. This will be designed to ensure that the leaseholders do not pay more than £50 a month for cladding repairs
• a new "Gateway 2" developer levy to apply when developers seek permission to develop certain high-rise buildings in England
• a new tax for the UK residential property development sector to help pay for cladding remediation costs. This is expected to be introduced from 2022 and to raise £2 billion over the next ten years
• a commitment to work towards a government-backed indemnity scheme for consultants who carry out and complete EWS1 forms where a consultant is unable to secure professional indemnity insurance.  This commitment will be welcomed by consultants and lenders alike given the concerns of the professional indemnity insurance market in relation to the issue of such forms and the consequent effect on the speed of securing EWS1 certificates.

How will the developer levy and tax operate?

There is scant detail around how these proposals are intended to operate. The Government is to consult "in due course" on the developer levy and tax but the intent is for largest property developers make a fair contribution to the remediation programme.  

The "Gateway 2" levy is likely to be implemented through the proposed gateway system under the Draft Building Safety Bill. The type of high-rise building to which the levy is to apply has not yet been specified.

How will the Government funding be accessed?

Details about the application process for the government funding and the way in which the loans are intended to work still need to be published. For the loans, it is anticipated that these are likely to be taken out by the building owner and will then be re-charged to the leaseholders through service charges.

For both the loans and the new funds, in addition to details about the application process, more clarity around what works will be covered is needed. The announcement refers to the "cost of replacing unsafe cladding" which suggests that other fire safety remediation works not directly related to the unsafe cladding, such as work to defective balconies, are excluded from the available funds. This will leave open the issue of whether leaseholders will bear these other costs through service charge payments, or whether amendments to the Fire Safety Bill as currently tabled in Parliament will prevent owners from seeking to recover any historic remediation costs from leaseholders.