Building safety: new plans for funding cladding remediation announced

In a change of direction, Michael Gove, the Secretary of State for Levelling Up, has given residential property developers a deadline of early March 2022 to agree a fully funded plan of action to remedy unsafe cladding for medium-rise residential buildings of between 11-18 metres in height. 

Mr Gove also reset the government's approach to tackling the fire safety crisis with reference to leaseholder protection.

What is the background?

In February 2021, the then Housing Secretary announced a 'comprehensive' package of measures to deal with the funding and removal of unsafe cladding. These measures included:

• an additional £3.5 billion of government funding for residential buildings in England of 18 metres and above. This was on top of the £1.6bn previously announced, making a total fund of £5.1bn.
• a new Residential Property Developer Tax to help pay for cladding remediation costs. RDPT is being introduced from 1 April 2022 at a rate of 4% on developers' profits derived from UK residential development which exceed £25 million per annum. This tax is expected to raise £2bn over the next 10 years.
• a new gateway two developer levy when developers seek permission to develop certain high-rise buildings. Provision for this levy is included in the Building Safety Bill.
• a government backed loan scheme for leaseholders of residential buildings of between 11 – 18 metres in height. There has been concern about the costs involved in remedying unsafe cladding for these buildings. As a result of Mr Gove's announcements, this loan scheme has now been scrapped. 

A new approach

The government has made it clear that developers are to make a greater contribution to fixing the cladding crisis. In his letter to the residential property developer industry of 10 January 2022, Mr Gove sets out the clear commitments that developers are expected to make to 'ensure the industry that caused the cladding problem pays to fix it'. By early March 2022, the industry must agree a fully funded plan of action or run the risk of a legal solution being imposed.

Developers will be expected to agree a clear, fully funded commitment to:

• make financial contributions this year and in subsequent years to a dedicated fund to cover the full outstanding cost to remediate unsafe cladding on 11-18 metre residential buildings (currently estimated to be £4bn).
• fund and undertake all necessary remedial work to the buildings over 11 metres that they have played a role in developing (both 11 – 18 m and 18m +). 
• provide comprehensive information on all buildings over 11 metres which have historic safety defects and which they have played a part in constructing over the last 30 years. 

Restriction on developers' access to government funding and future procurements, the use of planning powers, the pursuit of companies through the courts, or if necessary, imposition of a legal solution are all threatened actions should the industry fail to take responsibility.

Significant other announcements

Other important changes noted by Mr Gove in his statement on 10 January 2022 include:

Dedicated team 

A dedicated team is being set up in the Department of Levelling Up to 'pursue and expose [those] responsible'. Despite criticism from the government, product manufacturers are, at least for now, not being asked to contribute proposals for funding cladding remediation.

A more proportionate approach for building assessments

The government is advocating a return to a proportionate approach to fire safety, with Mr Gove suggesting that the vast majority of buildings 11 – 18 metres high are safe or can be made safe by the use of sprinklers and alarms.

The government has withdrawn the Consolidated Advice Note (January 2020) which they considered to have been wrongly interpreted and resulted in too many buildings of any height requiring remediation of cladding. In its place, a new Code of Practice developed by the British Standards Institute for the fire risk appraisal of external wall construction and cladding for multistorey and multi-occupied residential buildings, which introduces a new proportionate approach for assessors.

To support the new Code, the government will adopt a scheme to indemnify building assessors against negligence claims in conducting external wall assessments. The government plans to audit those assessments to ensure that expensive remediation is advised only where necessary to remove a threat to life. It remains to be seen how the government will go about trying to persuade assessors to scale down advice on remediation. There is also an issue with how the industry will react in relation to those buildings where experts have already advised that cladding remediation work is required.

The RICS is considering the impact of these announcements on valuation practice and this is likely to include updated guidance on when an EWS1 form will be required to reflect the withdrawal of the Consolidated Advice Note.

Opening up the next phase of the Building Safety Fund: to speed up and focus on buildings at the highest risk

The government plans to push ahead with the Building Safety Fund adapting it so that it is consistent with this new proportionate approach. This will involve 'a higher expectation that developers' will need to fix their own buildings.

Protections for leaseholders

New statutory protections are to be introduced under amendments to the Building Safety Bill to protect leaseholders against having costs of cladding remediation passed on by the freehold owners of buildings.

Amendments will also be made in the Building Safety Bill to ensure leaseholders are protected from forfeiture and eviction due to historic fire safety costs. 

Additionally, a £27 million fund is to be introduced to enable the installation of sprinklers and alarms which should reduce the need for expensive waking watches.

A significant statement regarding leaseholder protections is a stated intention to introduce amendments to the Building Safety Bill to retrospectively extend the right of leaseholders to claim compensation from those who caused the safety defects for up to 30 years. The Building Safety Bill currently seeks to extend the limitation period to bring claims under the Defective Premises Act from 6 years to 15 years so any additional retrospective change to the limitation period would amount to a significant increase in developer liability and bring challenges with regard to retrieval/retention of documents.

It is unclear how this proposal will be introduced to the Building Safety Bill; or whether this is part of the legal solution that Mr Gove spoke about if the industry fails to come up with the requisite funding plan. Nevertheless, this will be an area of significant concern for the industry.

Remediation costs

Some have doubted whether a fund of £4 billion is enough to remedy the unsafe cladding for medium-rise buildings. The proposed fund covers only costs to 'remediate unsafe cladding' as opposed to wider fire safety remediation measures. But, Mr Gove was clear that leaseholders of any building over 11 m should not have to pay for cladding rectification. This suggests that non-cladding costs, such as fire doors and external wall insulation, will need to be picked up by owners/developers outside of the fund.

We will keep you updated on any future developments.