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6th Anniversary of Grenfell – 6th Tabling of a Consumer protection amendment for Buildings

16th June 2023 – The Earl of Lytton has tabled a new version of his consumer protection amendment for buildings in the House of Lords. It protects ALL homeowners from the costs of remediating historic Building Safety Defects (cladding and non cladding) as well as new defects discovered going forward.

This latest legal text clears up issues raised around judicial review risk and applies not just to England. Funding remediations is via an efficient out of court quasi judicial process or from a wide construction industry levy where a freeholder/developer can’t/won’t pay.

The amendment could be put to a vote in the upcoming Report stage of the Levelling Up and Regeneration Bill in the House of Lords September/November 2023.

Amendment text is at the following link: https://bills.parliament.uk/publications/52302/documents/3823

Previous House of Lords vote on earlier version of the amendment at Building Safety Bill Report stage:

It is hoped on the 6th Anniversary of the Grenfell tragedy that the government will implement this 6th tabling of this amendment, which protects all leaseholders from the costs of the #BuildingSafetyCrisis and also protects the future.

The problem (Building Safety Act, 2022 and Developer Remediation Contracts

The Grenfell fire in 2017 exposed a catastrophic failure in fire safety regulation that has left tens of thousands of people living in unsafe buildings. Leaseholders—through no fault of their own—were facing facing bills running into the tens, or even hundreds, of thousands of pounds for the remediation of fire safety defects. The Building Safety Act 2022 provides leaseholders with varying degrees of statutory protection from the costs of cladding and non-cladding remediation costs and interim safety measures (such as waking watches), with funding coming from the taxpayer (Building Safety Fund), developers (Building Safety Levy), and landlords. The UK’s largest developers are being pressed to agree to “voluntarily” fix “life-critical fire-safety defects” affecting buildings they were responsible for, on pain of having planning permission and building control sign-off revoked.

However, significant numbers of leaseholders receive little or no protection from non-cladding remediation costs—buy-to-let (BtL) owners with more than three properties, enfranchised leaseholders and those living in blocks below 11m. Statutory liability for remediation is placed on landlords whose financial interest in a building is generally relatively low, rather than developers. The significant number of unprotected leaseholders and a reliance on, in some cases, thinly capitalised or significantly indebted landlord groups creates a range of new credit risks for ground rent investors (often pension funds) and lenders.

Banks and building societies face increased credit risks, particularly in relation to their BtL portfolios. The threat of lease forfeiture, which has historically been a very rare event, could become a far more common outcome for many BtL and enfranchised owners, wiping out an entire lenders security unless further capital is provided. Pension funds that invested in ground rent funds face significant unanticipated costs. In the worst case a thinly capitalised or significantly indebted landlord group could fail with unknown consequences and costs for hundreds of thousands of people if unsalable freeholds escheat to the Crown.

Also for ‘protected leaseholders’ landlords that do not meet the contribution condition (net wealth below a set threshold) may charge leaseholders up to the £10,000/£15,000 caps before they need to contribute to remediation costs. However, to benefit from this exemption, they need to provide a landlord certificate to leaseholders setting out their net wealth calculation and supporting documents within tight timescales. There is considerable anecdotal evidence that landlords are failing to meet these deadlines or are basing their net worth on a group structure defined on an accounting basis rather than the definition set out in the BSA and secondary legislation. Any error in a landlord certificate means that landlords automatically become liable for remediation costs irrespective of their net wealth, increasing the likelihood of insolvency.

Unless all leaseholders are protected and the correct industry is made to pay for breaking building law, the rotten culture in the construction industry will continue. Full liability is the only way to ensure buildings of all heights are built to the required standards and future Grenfell’s are prevented.

Building a better future (Building Safety Remediation Scheme)

There is an alternative proposal that would substantially reduce the financial stability and public finance risks. An amendment, based on drafting by Daniel Greenberg (former parliamentary counsel and currently Parliamentary Commissioner for Standards) provides for an alternative comprehensive solution to the building safety crisis has already been tabled by the Earl of Lytton for discussion in the House of Lords. The proposed Building Safety Remediation Scheme (BSRS) envisaged under the amendment establishes a statutory scheme that covers all leaseholders. If a building did not comply with regulations in force at the time of construction, joint and several liability for remediation of all material building safety defects is placed on the developer and principal contactor. If neither are able to pay (or the building met the relevant regulations in force at the time of construction but is now, with later information, seen as unsafe), remediation funding would come from a levy on the construction industry rather than just developers as is currently proposed.

The BSRS provides leaseholders and their lenders with certainty that their homes will be fully remediated. But it does not just deal with the present crisis as it enshrines in law a low-cost mechanism to deal with similar situations in the future. With the Government, rightly, encouraging leaseholders to take greater control over the management of their buildings and seeking to reinvigorate commonhold, the BSRS provides a necessary layer of protection as the BSA specifically excludes enfranchised leaseholders and commonhold unit owners from all its protections.

How the BSRS Protects Homeowners

How the BSRS is Funded

Practical operation of the Building Safety Remediation Scheme

1. Block(s) of flats built after 1992, or where building work has occurred after 1992, requires remediation (cladding or non-cladding defects)

2. Freeholder/Building Owner applies to the Building Safety Remediation Scheme for a determination on (a) work required to remediate the building; and (b) whether the building was built to regulations in force at time of construction c) for a grant to remediate the defects identified and pay for waking watch.

3. Building Safety Remediation Scheme determines if the identified defects contravened the stated route to compliance at building control approval (ie BBA Certificates/Approved Document B/Bespoke routes to compliance) looking at basic installation defects such as missing cavity barriers, missing fire breaks, installation defects and internal fire stopping breaches.

4. If building regulation breaches at the time of construction are established then the Building Safety Remediation Scheme makes the developer/principal contractor joint and severally liable (or their parent companies) and the defects are published on a government public register of determinations website.

5. There is an appeals route via the FTT for building regulation breach and funding amount decisions, however as these are egregious cases, appeal risk will be low after a few initial test cases. No builder is going to be able to argue that missing firebreaks met regulations.

6. If building regulation breaches are difficult to prove or the developer/lead contractor group doesn’t exist or the defects are a result of regulatory failure then a wide construction industry levy including the cladding manufacturers funds the remediation and waking watch costs.

7. The Freeholder/Building Owner receives the funding to start the remediation without lengthy court proceedings.

Details

For further information on the Building Safety Remediation Scheme, the Earl of Lytton can be contacted at: [email protected]

Call to Action

If you are caught up in the Building Safety Crisis or want to help build political support for the cause please write to your MP and members of the House of Lords to ensure this once in a generation legislation makes it onto the statute book.

Political and Wider Support

1) Former Chief Executive of the CIOB Mr Blythe

“If this amendment went through it would change the culture of the construction and property industry in the UK and set a precedent for the rest of the world. Time for the UK to do the right thing and lead the world.”

2) Former State Premier of Victoria, Australia and Co-Chair of Cladding Taskforce Mr Baillieu

“This amendment’s going to cover off everything – not just cladding but all defects and all other costs and establish a principle that if you don’t build according to the regulations, it doesn’t matter how long ago you did it, you’ll have to pay to fix it. If that happened, that’s a massive cultural change worldwide… … We urgent every Member of the British Parliament to get behind the only comprehensive and equitable solution – the Polluter Pays amendments being advanced by the Earl of Lytton.”

3) Property Mark

“Current UK Government policy does not go far enough to support leaseholder protections which limits leaseholders by the size of buildings and the property that they own. Fundamentally, individuals who are not responsible for making buildings unsafe should not be charged with remediation costs. Proposals for a Building Safety Remediation Scheme would help lead to greater confidence in the buying and selling of property in high-rise buildings. In order to ensure that impacted property can continue to be bought, sold and rented it is vital that we have a system that holds those directly responsible to account.”

https://www.propertymark.co.uk/resource/greater-support-needed-for-leaseholders.html

4) British Property Federation “We are strongly supportive of the amendment proposed by the Rt Hon Dr Liam Fox MP  [Polluter Pays Amendment].. This is to protect individuals, avoid bankrupting companies, risking the ability of insurers and pension funds to meet their obligations, or seriously affecting charitable institutions.”

https://publications.parliament.uk/pa/cm5802/cmpublic/BuildingSafety/memo/BSB14.htm

5) The Sunday Times “The polluter pays scheme answers a key aim of a Sunday Times campaign to make those responsible pay for the building safety scandal — not innocent homeowners. If an amendment is added … it could be life-changing for the hundreds of thousands of leaseholders who have been trapped for the past four years.”

https://www.thetimes.co.uk/article/the-man-fighting-housebuilders-to-make-them-foot-his-cladding-bill-rcwlt8nmg

6) Association of Mortgage Intermediaries “This proposal to resolve the issues on funding the remediation of buildings with unsafe cladding would be a significant step forward to resolving the problems facing residents.”

7) Intermediary Mortgage Lenders Association “By shifting the balance and making developers front building remediation costs, we can hold those who failed to properly construct these dwellings to account, remove the cost burden currently unfairly placed on individual homeowners, and speed up the process of remedying unsafe homes…it would be a step in the right direction. Any initiative that helps to ease the immediate dilemma for borrowers and gives mortgage providers the reassurance to lend on safe properties, should be welcomed”

8) Association of Residential Managing Agents “Allowing the Government to identify those works and place the responsibility of remediation costs on those who failed to make the grade in terms of materials, workmanship, or construction standards – rather than on leaseholders – is a sensible and practical solution to the current crisis.”

9) David Sawtell – Construction Counsel + Grenfell Inquiry Participant Lead Counsel

Press, awards and backers:

Support from the Church to protect leaseholders from Building Safety Remediation Costs

Support from MPs, former Government Minister of State for Housing and Peers in Parliament:

Video Explainers

Solicitor Alison Hills Explains how the Building Safety Remediation Scheme amendment works

Solicitor Alison Hills fields a Q&A session on the amendment

Daniel Greenberg CB explains legal drafting of amendment

Earl of Lytton’s Grand Committee Presentation of the Amendment (24 Apr 2023)

House of Lords Conference December 2021

Landlord Certificates

The landlord certificate issue is causing absolute chaos within the conveyancing industry- and to the point where many Solicitors are now refusing instructions completely where a landlord certificate may be required.

Landlords who don’t meet the contribution condition (net wealth below a certain threshold) can charge leaseholders up to the £10k/£15k cap before they need to contribute to remediation costs. However, to benefit from this, they need to provide the certificate to leaseholders setting out their net wealth calculation and supporting documents in a tight timeframe. Some of the problems flagged are as follows:

  • There is considerable evidence that landlords cannot comply with the tight deadlines as there is a considerable amount of paperwork required
  • Landlords are struggling to value their net wealth as set out in the BSA/secondary legislation
  • Any error in the certificate means that landlords become automatically liable for remediation costs, irrespective of their net wealth which increases the risk of insolvency
  • Freeholders/superior landlords may forfeit the lease of a non qualifying leaseholder if they cant pay their share of remediation costs
  • Certificates are being asked for in all situations where the cap might apply, regardless of whether or not the developer has agreed to fund remediation, and regardless of whether or not there have actually been any identified building safety defects “just in case” (So even buildings without any identified defects are being asked for this in case any defects might be discovered in the future!!)
  • Leaseholders (and solicitors) are struggling to make sense of all the paperwork required
  • Solicitors are not qualified accountants and cannot verify whether the net wealth calculation is correct and still, they are being asked to confirm whether the net wealth calculation and certificates provided are correct, which they are simply not qualified to do. This is causing issues with professional indemnity insurance, and the reason why Solicitors are now refusing instructions

This issue alone supports the need for the Earl of Lytton’s Building Safety Remediation Scheme given that if ALL leaseholders are protected, there would be no need for the landlord certificates and the conveyancing industry can get moving again.

Articles:

Addressing the issues surrounding the Building Safety Act 2022 | Today’s Conveyancer (todaysconveyancer.co.uk)

Draft PLUK BSA EDITION (propertylawuk.net)

Press Coverage

The amendment has been covered a great deal in the press and backed by The Sunday Times. Former Minister of State for Fire Safety Lord Greenhalgh described it as “heavy weight legal stuff” and it’s been recognised as a global precedent by Australian State premier, Ted Baillieu.

PRESS RELEASES

PRESS COVERAGE

Building Safety Remediation Scheme to be Debated in the House of Lords on September 13th 2023

Business London Press: https://www.businesslondonpress.com/health/uk-building-safety-remediation-scheme-faces-critical-debate-in-house-of-lords/

Business Mole : https://www.businessmole.com/uk-building-safety-remediation-scheme-faces-critical-debate-in-the-house-of-lords/

Business Lancashire: https://www.businesslancashire.co.uk/2023/09/07/house-of-lords-to-debate-building-safety-remediation-scheme-on-september-13-2023/

Business Manchester: https://www.businessmanchester.co.uk/2023/09/07/house-of-lords-to-debate-crucial-building-safety-remediation-scheme/

Business Cheshire: https://www.businesscheshire.co.uk/2023/09/07/uk-government-faces-potential-multibillion-pound-bill-in-building-safety-crisis/

Business Mole: https://www.businessmole.com/uk-building-safety-remediation-scheme-faces-critical-debate-in-the-house-of-lords/

Z News: https://www.znewsservice.com/health/uk-building-safety-crisis-sparks-debate-in-house-of-lords/7205/

Today’s Conveyancer recognising the significant public support for the Earl’s amendment:

https://todaysconveyancer.co.uk/building-safety-petition-protect-leaseholders-gathers-momentum

Today’s Conveyancer recognising the significant public support for the Earl’s amendment:

https://todaysconveyancer.co.uk/building-safety-petition-protect-leaseholders-gathers-momentum

British Safety Council – Earl of Lytton – Why the Building Safety Scheme is still urgently needed

https://www.britsafe.org/publications/safety-management-magazine/safety-management-magazine/2023/why-im-backing-a-new-building-safety-remediation-scheme/

A legacy for the Grenfell Tower Tragedy – Rt Revd Bishop Graham Tomlin (Grenfell Bishop)

https://www.seenandunseen.com/legacy-grenfell

Building Engineer – The Earl’s Amendment to protect all leaseholders – 5 Jun

https://www.buildingengineer.org.uk/news/polluter-pays

Yahoo Finance – Covers House of Lords Debate on 24 April https://finance.yahoo.com/news/amendment-seeks-reform-building-safety-180400452.html

German Financial News – Covers House of Lords Debate on 24 April https://finanznachrichten.de/nachrichten-2023-04/58881527-polluter-pays-policy-team-new-amendment-seeks-to-reform-building-safety-standards-and-deter-banking-crisis-008.htm

Fire Safety Matters – Covers House of Lords Debate on 24 April https://fsmatters.com/Polluter-Pays-Amendment-set-to-be-debated

Todays Conveyancer – Covers House of Lords Debate on 24 April https://todaysconveyancer.co.uk/polluter-pays-solution-building-safety-crisis/

Housing today – Covers House of Lords Debate on 24 April https://housingtoday.co.uk/news/peer-launches-bid-to-force-developers-breaching-building-regulations-to-pay-for-all-defects/5122830.article

News Anyway – Covers House of Lords Debate on 24 April https://newsanyway.com/2023/04/21/new-amendment-plans-to-deter-banking-crisis-and-reform-building-safety-standards/

Press Release Distributor – Covers House of Lords Debate on 24 April https://press.prfire.co.uk/press_releases/new-amendment-seeks-to-reform-building-safety-standards-and-deter-banking-crisis/

Sky News https://linkedin.com/posts/stevemday_deepa-mistry-discusses-the-polluter-pays-activity-7031258717786398721-6BNm

Channel 4 News https://linkedin.com/posts/stevemday_channel-4-news-interviews-deepa-mistry-fcca-activity-7029551409045864448-maOh

BBC Radio 4 Today Programme https://youtube.com/watch?v=SxEAjyju-xg https://youtube.com/watch?v=2z22ULzPncs

Church Times – Bishop of London Calls for Polluter Pays https://churchtimes.co.uk/articles/2021/12-november/news/uk/bishop-of-london-repeats-call-for-government-action-on-cladding-costs-crisis

Compassionate Communities https://compassionatecommunitieslondon.org.uk/conversations/the-polluter-pays-amendment

Financial Review Australia – Ted Baillieu Former State Premier of Victoria, Backs Polluter Pays (Global Precedent) https://afr.com/property/commercial/uk-tells-developers-to-repair-dangerous-cladding-20220111-p59nd1

Big Issue – Polluter Pays Campaign part of Top 2022 Change makers https://bigissue.com/news/housing/changemakers-2022-housing-and-homelessness/

Daniel Greenberg CB – Polluter Pays House of Lords Conference Video addressing legal, policy and moral issues https://danielgreenberg.co.uk/house-of-lords/

The Sunday Times – backs the Polluter Pays Amendment (after reviewing legal text) https://thetimes.co.uk/article/the-man-fighting-housebuilders-to-make-them-foot-his-cladding-bill-rcwlt8nmg

Property Mark – backs the Polluter Pays Amendment https://propertyindustryeye.com/propertymark-backs-calls-for-greater-leaseholder-protections/

Association of Residential Managing Agents – backs the Polluter Pays Amendment https://arma.org.uk/arma-welcomes-the-recovery-potential-of-the-polluter-pays-provision-as-an-amendment-to-the-building-safety-bill-2

Letting agent today https://lettingagenttoday.co.uk/breaking-news/2023/2/agents-back-polluter-pays-concept-to-help-leaseholders

Inside Housing https://insidehousing.co.uk/news/government-looking-very-carefully-at-polluter-pays-proposal-for-building-safety-crisis-72102

Inside Housing – The Earl of Lytton https://insidehousing.co.uk/comment/if-the-government-makes-leaseholders-liable-for-building-safety-costs-it-will-need-to-live-with-the-reputational-consequences-74954

Inside Housing  – Bishop Graham Tomlin https://insidehousing.co.uk/comment/the-grenfell-community-needs-to-see-more-genuine-change-they-have-waited-too-long-73954

The Big Issue https://bigissue.com/news/environment/have-residents-solved-the-building-safety-crisis-with-the-polluter-pays-bill/

Mortgage Solutions https://mortgagesolutions.co.uk/news/2021/11/0

Mondaq https://mondaq.com/uk/landlord-tenant-leases/1115128/government-considers-polluter-pays-principle-for-cladding

Ringly Group https://ringley.co.uk/blogs/why-the-polluter-pays-principle-should-be-applied-to-cladding

HM Lettings

https://hmllettings.com/everything-you-need-to-know-about-the-polluter-pays-bill/

Public Bill Committee and Parliamentary Support

Evidence : https://bills.parliament.uk/publications/42732/documents/687

Videos from Public Committee

The Proposal – https://twitter.com/polluterpaysbsb/status/1438244909295808513

Parent companies – https://twitter.com/polluterpaysbsb/status/1438234382284820485

SPV handling – https://twitter.com/polluterpaysbsb/status/1438227953494765578

International Arbitration Risk – https://twitter.com/polluterpaysbsb/status/1438238756432138240

Judicial Review Concern – https://twitter.com/polluterpaysbsb/status/1438246331617849346

House of Lords backing of amendment during Building Safety Act Passage

Lord Stunell – https://twitter.com/PolluterPayzBSB/status/1456543599726845952

Bishop of London – https://twitter.com/PolluterPayzBSB/status/1456545703992434703

Earl of Lytton 1 – https://twitter.com/PolluterPayzBSB/status/1456547544918597654

Earl of Lytton 2 – https://twitter.com/PolluterPayzBSB/status/1456548131970162705

Baroness Pinnock – https://twitter.com/PolluterPayzBSB/status/1456548863234482191

Lord Greenhalgh – https://twitter.com/PolluterPayzBSB/status/1456550238915805188

Building Safety – Pension Fund Liability?

The Government has—understandably—focused on its success in “persuading” 49 of the UK largest developers to fix all life-critical safety defects in buildings above 11m for which they were responsible. However, rather less attention has been given to the 85% of buildings not covered by the pledge. Landlords are responsible for the remediation of these buildings which could be rather costly for pension funds with ground rent investments. In the worst case one or more landlord groups could become insolvent leaving leaseholders in limbo and pension funds nursing significant losses.

Some landlords, such as Aviva, have the resources to meet their remediation obligations. Other landlord groups will find it difficult to fund remediation works or litigation as well as servicing their lenders. M&G and Rothesay Life have significant exposure to a number of thinly capitalised or significantly indebted landlord groups. M&G appears to have up to £2 billion worth of exposure to the three corporate groups (Boardwalk, Jetty and Promenade) that make up the Long Harbour Fund. Jetty was one of M&G’s four largest counterparties in 2019 and 2020. Rothesay has lent £300 million to E&J Estates and, reportedly, around £750 million to companies linked to the Tchenguiz Family Trust.

It is not clear how much landlords will end up having to pay. The Government’s impact assessment found that “For buildings above 11m that have historical non-cladding fire safety defects, there is no reliable data or even estimates of the prevalence, or extent, of these costs…” An ARMA/IRPM survey put non-cladding costs in blocks above 18m at an average of £25,671 per flat and £38,184 in blocks below 18m.

Whatever the final costs are, it is possible that one or more landlord groups could fail. The cash available to these groups is tiny compared to the liabilities they could face. E&J Estates has £31.5 million in cash and the three Long Harbour corporate groups £45.3 million between them. The bulk of their assets are highly illiquid ground rent income streams that are difficult to sell quickly at the best of times and are highly unlikely to achieve their book value in a fire sale even if a buyer could be found.

Neither Rothesay, M&G or the ratings agencies make any reference to financial risks arising from the BSA but it is likely to move up board agendas as the Government moves to clamp down on landlords that are failing to make their buildings safe. In Rothesay’s case it could fall foul of the extensive BSA anti-avoidance provisions and be deemed liable for remediation costs itself—a point raised by the Earl of Lytton in a recent debate on BSA secondary legislation.

Forced Evacuations due to defective building

Imagine being forced to leave your home due to defective construction and being forced to pay crippling remediation costs. This is happening in the UK – which is why we need the Earl’s Building Safety Remediation Scheme. Only by placing joint and several liability on the developer and lead contractor or their parent companies can we remove the race to the bottom in the construction industry and prevent the below:

Forced Evacuations

  • 1. Jun 2017 – New Lawrence House, Hulme
  • 2. Jun 2017 – Chalcots Estate, London
  • 3. Aug 2017 – Ledbury Estate, London
  • 4. Aug 2018 – Empress Mill, Trafford
  • 5. Feb 2019 – Appleton House, Bradford
  • 6. May 2019 – Merle Court, London
  • 7. July 2019 – Arch Street, London
  • 8. Aug 2019 – Kingfisher Court, Huddersfield
  • 9. Oct 2019 – Citiscape, Croydon
  • 10. Jun 2020 – Childers Street, London
  • 11. Aug 2020 – Aura Court, Manchester
  • 12. Oct 2020 – Paragon, Brentford Nov
  • 13. 2020 – Victory Complex, Oldham
  • 14. Nov 2020 – Clarence House, London
  • 15. Dec 2020 – Wicker Riverside, Sheffield
  • 16. Jun 2021 – Riverside Place, Braintree
  • 17. Oct 2021 – Clare House, Bow
  • 18. Nov 2021 – Old School Court, Blackley
  • 19. Feb 2022 – Cathedral Court, Derby
  • 20. Apr 2022 – Glenalina Lodge, Belfast
  • 21. Dec 2022 – Bracken House, Manchester
  • 22. Jan 2023 – Trend House, Wakefield Feb
  • 23. Feb 2023 – Bedford Road, London March
  • 24. Mar 2023 – Cardinal Lofts, Ipswich
  • 25. June 2023 – Rialto Building, Newcastle (partial)
  • 26. June 2023 – Amleen House, Colchester
  • 14 Nov 2023 – Barton House, Bristol (https://www.bristolpost.co.uk/news/bristol-news/live-bristol-city-council-meeting-8906918)

Further details see the following twitter thread: