“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.“
“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.”
3) 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.”
4) 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.”
5) 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.”
6) 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.”
7) 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.”
8) 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”
9) 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.”
Lord Lytton has released a statement detailing his views on Commonhold and Leasehold reform as well as his key aim of establishing consumer protection for blocks of flats (via the Building Safety Scheme) which will enable Commonhold to thrive.
The Earl of Lytton makes the case for the Building Safety Remediation Scheme to ensure all leaseholders are protected from the ruinous costs caused by the Building Safety Crisis.
A message of support from Rev Richard Coles for consumer protection for buildings as tabled by the Earl of Lytton in the House of Lords.
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.
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.
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.
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.
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.
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:
One of the consequences of not addressing #BuildingSafetyCrisis issues in a block is a forced closure of a building by Fire Service or Local Authority. This thread shows some post #Grenfell prohibitions. 👇 @team_greenhalgh we need to get funding and a plan in place to avoid more
— Building Safety Register (@BldgSafetyReg) April 10, 2021
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.
HOUSE OF LORDS SPEECH 29 APR 2024
My Lords, I move Amendment 82C and will speak to Amendments 82D to 82M standing in my name. These draw on good practice in the management of multiunit developments in Australia, Europe and North America and seek to replicate best practice here. They are also designed to address some of the concerns raised in earlier debates, particularly in the context of the proposed change to the threshold for enfranchisement in mixed-use developments from 25% to 50%. I suggest that similar amendments to a future commonhold Bill would go some way to meeting concerns that have been expressed about the risks associated with a wholesale move to that tenure.
The amendments provide for the appointment of a building trustee. It is proposed that this should apply in the largest and most complex developments. Building trustees might also be appointed at the request of a recognised tenants association or by the courts. The building trustee will be an independent and impartial figure whose primary role of auditing performance would ensure that interest rights, responsibilities and performance of the landlord were properly balanced with those of leaseholders and, more importantly, that the building is properly maintained and the service charge provides value for money. I noted in our earlier discussions the Minister’s comments to me about value for money, but it is the benchmark used by the National Audit Office for local authority finance, I believe—I eyeball noble Lords who have experience in that line of business.
Amendment 82C sets out the buildings this would apply to, and Amendment 82D outlines the trustee duties—I will rattle through the amendments at some speed. Amendment 82E is about the appointment process of the building trustee. Amendment 82F sets out the trustee entitlement to documents and information.
There is, of course, the question of who pays for the building trustee. It would be unreasonable—particularly during a cost of living crisis—to burden leaseholders, especially as many of the buildings covered by Amendment 82C are already facing increased service charges owing to the new safety requirements under the Building Safety Act. Instead, Amendment 82G provides that the costs of building trustees would be covered by a levy on providers of commercial and residential mortgages and block landlords, excluding enfranchised building and tenant right-to-manage companies.
Amendment 82H sets out what would be the baseline value-for-money benchmark. This is necessary because there is a risk of inevitable bias in the management under the auspices of a party to the leasehold arrangements. This might be perfectly reasonable in terms of the person instructing the management, but still fall well short of the optimal.
One of the Bill’s key aims is to make it cheaper and easier for leaseholders to enfranchise. I welcome that. My amendments are designed to augment these plans by providing a light-touch oversight to ensure effective, efficient and economic management of a building. This backstop would require reassurance to lenders, leaseholders and other stakeholders that a freeholder-managed or resident-managed building will be properly looked after.
The reassurance offered by the building trustee is needed, as there is strong evidence that, monetising policies by a few freeholders apart, leaseholders themselves are often reluctant, unable or lack the skills to take on the responsibility and liabilities for the management of increasingly complex buildings, or to direct the professional managers adequately. Indeed, some complaints reaching my mailbox are about residents’ own management companies, and the Government’s own research found that leaseholders were concerned about issues of working with neighbours, lack of time and reluctance to take on additional responsibilities beyond those necessary as a home owner.
That touches on a point raised by the noble Lord, Lord Moylan, in a previous group, because although most leaseholders will appoint a managing agent to undertake the day-to-day running of a building, they themselves remain responsible for key decisions and setting priorities, such as service charge levels, authorising maintenance schedules and dealing with arrears. It can be difficult to get collective agreement on these issues, with resultant detriment to the management of the building fabric. According to data from the Scottish House Condition Survey, half of all housing is in what it describes as “critical disrepair”, and almost half demands “urgent attention”. The situation is most acute in tenements, so I appreciate that this probably relates to older buildings, but paying for common repairs or maintenance was the most frequent cause of disputes in these buildings.
By taking a whole-life view of the building, the building trustee can seek to avoid that Scottish experience by providing an independent assessment of maintenance needs and condition, and ensuring sufficient provision is put aside to maintain the building properly. Amendments 82I and 82J would require landlords to provide a 10-year plan of anticipated expenditure on capital works and building maintenance, and to establish a sinking fund to avoid leaseholders facing large, unanticipated bills. The plan and the fund would be subject to an independent audit and assessment by the building trustee to ensure that necessary works, and only necessary works, were planned for and adequately funded.
In an open letter to lenders on taking commonhold as a security, dated 21 July 2020, the Law Commission recognised that:
“the value of a lender’s security is inherently linked to the management and maintenance of the building in which a flat is located. A failure to keep the building in repair, to insure it properly, or to keep sound finances all have significant potential to jeopardise the value of a lender’s security”.
The same is, of course, true for leasehold buildings. That is why I believe that professional landlords and lenders should cover the cost. It is the banks and the building societies whose capital is at risk. The building trustee should provide a cost-effective way of reassuring them that the flats they have lent on are being properly managed, and of maintaining the value of the security. The same is true of commercial lenders on mixed-use developments. I envisage that the Secretary of State would outsource the appointing of building trustees to an external body, as provided for in Amendment 82E.
Two significant further powers would be conferred on the building trustee through Amendments 82H and 82K. Amendment 82H would allow the building trustee to apply to the tribunal on behalf of leaseholders to seek refunds of expenditure that does not provide value for money. Amendment 82K would allow the building trustee to adjudicate in disputes between landlord and leaseholder, and between leaseholders. One of the main areas where I see this provision being used is service charge arrears. It is particularly important in leaseholder-managed blocks that do not have the wider financial resources of the major landlord groups that service charges are paid promptly. Failure to do so prevents a building being managed properly, and in extreme cases places all residents at unnecessary risk. If essential safety works could not be undertaken or building insurance obtained, that would create real problems.
Evidence from other parts of the world suggests that condominium statutes do not have sharp enough teeth to recoup outstanding contributions efficiently and effectively. In England and Wales, we currently fall between two extremes. I have sympathy with those noble Lords who argued in a previous debate that forfeiture, with the exorbitant windfall that it can offer landlords, is inherently unreasonable. Equally, I recognise the point the Minister made in previous discussions that civil debt recovery proceedings can be lengthy. The building trustee’s power to adjudicate offers a faster and less formal route of dispute resolution than the court, and supports the building’s cash flow.
Amendment 82L would provide for the building trustee to take over the management of a building if its landlord becomes insolvent. Historically, this has happened to very few landlords. However, the Committee will recall that I have previously raised concerns that not all landlord groups have the funds needed to meet the building safety remediation liabilities and could therefore become insolvent. The financial position of these groups may get significantly worse, depending on the Government’s decision on ground rents. Some of the country’s largest landlord groups—I refer to E&J Estates, which is landlord to around 40,000 homes, Long Harbour, which is landlord to around 193,000 homes, and Regis Group, which is landlord to around 30,000 homes—have significant borrowings that are due to be repaid from ground rent income over the next 40 to 60 years.
To the best of my knowledge, the Government’s final position is still unknown but, based on press comments on the Secretary of State’s own preference, it is reasonable to assume that the finances of landlord groups dependent on ground rent income to repay their borrowings will come under further, if not fatal, stress. This is not just my view; it is also that of the Government, whose own impact assessment states that
“there may be potential insolvencies/forfeiture and associated costs where the freeholder defaults on contractual obligations as a result of the cap”.
However, it does not seem that there has been further assessment of just exactly what this would mean in practice.
The collapse of a major landlord group would be without precedent and could cause tens of thousands of leaseholders in hundreds of buildings to be in serious trouble. In blocks subject to intermediate leases, it is likely that contracts covering everyday management and maintenance would be at risk because there would be no landlord to provide instructions. Conveyancing and lending transactions, which are already under stress, would be paused as there would be no one to process essential documents such as notices, deeds of covenant, landlord certificates and leaseholder deeds of certificate. The ability of the building trustee to assume the management of a building in such circumstances, and prevention of possible management contract termination, is an essential backstop that prevents leaseholders being left in limbo for months while they try to set up an alternative arrangement for managing their buildings and/or await the outcome of the administration or liquidation.
Finally, Amendment 82M would simply ensure that the building trustee has relevant qualifications for the task.
I hope your Lordships will see the merit in these arrangements, and that the Minister will be able to agree that measures such as this are a necessary complement to the Bill’s intentions. While I commend these amendments to the Committee, I simply say that I am not set on this particular structure, but the principle needs further examination to provide the point that I have constantly been on about—namely, consumer protection. On that basis, I beg to move.
