Grateful to the National Residential Landlords Association for renewing their backing for the Earl of Lytton’s Building Safety Remediation Scheme tabled in the Leasehold and Freehold Reform Bill.
They write:
“A key change that the NRLA is seeking to achieve concerns building safety. The Earl of Lytton has re-tabled his amendment to introduce a Building Safety Remediation Scheme which would ensure that building safety failures are fixed, irrespective of a building’s ownership or height.
The scheme would overcome the shortcomings of the Building Safety Act (and mitigate the issues linked to any ground ban) to fix historic safety defects via grants funded either by the developer responsible for the building works or through a levy on the construction industry where the developer is dissolved or insolvent.“
An investigation by The Sunday Times found that since the Grenfell Fire of 2017 more than 15,000 residents have been forced to leave homes due to fire or fire safety defects. The Earl’s amendments are needed now as a matter of urgency.
The Earl of Lytton has tabled a set of amendments to the Leasehold and Freehold Reform Bill aimed at protecting all leaseholders from building safety remediation costs, ending service charge abuses in leasehold and introducing the concept of a building trustee to improve leasehold and ensure the transition to enfranchisement and commonhold works in practice.
Currently 1.7 million leaseholders are excluded by the Building Safety Act leaseholder protections and are liable to pay all costs of fixing building safety defects if found in their blocks of flats. We believe these innocent homeowners and also the taxpayer should not have to bail out the construction industry for bad practice. However the required extra funding has got to come from somewhere. We say the money has to come from the industry that built the defective buildings in the first place, the construction industry.
Other issues introduced by the Building Safety Act include:
stalling conveyancing by creating a three tier flat market and needless complixity
substandard developer contracts condemning some leaseholders to permanently high insurance
disregarding freeholder insolvency risk (by recent group rent cap proposals) putting the leaseholder protections under the Building Safety Act also at risk and leaving leaseholders in limbo
ignoring Basel 3.1 (new banking standards coming in 2025) extra lending cost risk due to permanent impairment caused by the Building Safety Act (partial and no protections).
ignoring the need for consumer protection against Building Safety defects without the need of going through the courts.
The building trustee would be appointed for higher-risk buildings and large mixed-use developments. He or she would be an impartial figure whose role would be to ensure that the interests, rights, responsibilities of the landlord (if any) and leaseholders are balanced and, more importantly, that the building is properly maintained and the service charge provides value for money. In this way, the concerns raised in relation to leaseholder management of larger mixed use estates can be mitigated.
In the event of insolvency of the landlord, the building trustee would step in to ensure the ongoing management of the building. Provision is made in the relevant amendment to prevent the termination of service contracts or insurance policies if a landlord becomes insolvent.
This group of amendments are wholly in line with existing provisions in the Bill to increase the transparency of costs passed on to leaseholders and to protect them from exploitative behaviour by landlords.
In this group there are amendments to:
define when a landlord incurs costs to prevent manipulation of the 18 month rule under which costs incurred before then cannot be charged unless leaseholders have been given notice;
a new tighter test of “value for money” to replace current test of “reasonably incurred” in relation to service charge costs;
go further than the Government on the automatic provision of information to leaseholders;
prevent landlords from placing contracts with related parties or connected persons;
limit the duration of contracts that a landlord may enter into;
provide a definition of “cosmetic works” that may be undertaken without the consent of a landlord, and
measures to prevent the assignment or payment of insurance payouts by landlords to third parties, such as their lenders or bondholders.
These amendments are consistent with the overarching aims of consumer protection in leasehold matters and which would be applicable whatever form of legal construct emerges as between block control and management and unit ownership and occupation.
The 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 contractor. 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 Building Safety Act, 2022 specifically excludes enfranchised leaseholders and commonhold unit owners from all its protections.
An alternative to the Building Safety Remediation Scheme to give the government another way of protecting all leaseholders.
1) Removes leaseholder exclusions and protects ALL leaseholders from building safety remediation costs with funding from a construction industry levy.
2) Fix the flawed developer remediation contracts to cover all building safety defects and not just life safety critical, so no one is condemned to permanently high insurance due to the remediations not eliminating all building safety risks.
DEBATE TIMINGS
Due for debate week commencing 29/01/2024 (Monday and Wednesday) at Committee.
The Earl of Lytton has tabled amendments to the Leasehold and Freehold Reform Bill to end service charge abuse, prevent insurance assignments and introduce the concept of a Building Trustee to ensure leasehold abuse ends and commonholdthrives.
The building trustee concept is designed as a backstop in relation to the expansion of enfranchisement rights in the Bill and the possibility of the insolvency of a major landlord group.
The government assumes good management will automatically follow enfranchisement or resident management. Leaseholders are not necessarily equipped to direct the management of their blocks especially those with up to 50% non-residential floorspace.
The Government is yet to announce its proposals to abolish or restrict ground rent. However, if recent press speculation is correct then, as you can see from the following table, a 20-year rundown period runs the risk of some of the UK’s largest landlord groups becoming insolvent as their liabilities extend well beyond that period.
The building trustee would be appointed for higher-risk buildings and large mixed-use developments. He or she would be an impartial figure whose role would be to ensure that the interests, rights, responsibilities of the landlord (if any) and leaseholders are balanced and, more importantly that the building is properly maintained and the service charge provides value for money. In this way, the concerns raised in relation to leaseholder management of larger mixed use estates can be mitigated.
In the event of insolvency of the landlord, the building trustee would step in to ensure the ongoing management of the building. Provision is made in the relevant amendment to prevent the termination of service contracts or insurance policies if a landlord becomes insolvent.
SERVICE CHARGEAMENDMENTS
This group of amendments are wholly in line with existing provisions in the Bill to increase the transparency of costs passed on to leaseholders and to protect them from exploitative behaviour by landlords.
In this group there are amendments to:
define when a landlord incurs costs to prevent manipulation of the 18 month rule under which costs incurred before then cannot be charged unless leaseholders have been given notice;
a new tighter test of “value for money” to replace current test of “reasonably incurred” in relation to service charge costs;
go further than the Government on the automatic provision of information to leaseholders;
prevent landlords from placing contracts with related parties or connected persons;
limit the duration of contracts that a landlord may enter into;
provide a definition of “cosmetic works” that may be undertaken without the consent of a landlord, and
measures to prevent the assignment or payment of insurance payouts by landlords to third parties, such as their lenders or bondholders.
These amendments are consistent with the overarching aims of consumer protection in leasehold matters and which would be applicable whatever form of legal construct emerges as between block control and management and unit ownership and occupation.
