Government support for unsafe cladding: welcome news for leaseholders

17th February 2022

The UK Government has announced a cap on the cost leaseholders face to fix dangerous cladding issues. But this is only the tip of the iceberg. For those suffering from and working to resolve cladding issues, this is just the latest announcement which sounds all embracing, but the devil is in the detail.

That detail is contained in draft amendments to the proposed Building Safety Bill (BSB) currently before parliament. Therefore the announcement immediately raises many questions and has an element of uncertainty about it. Will it be passed in to law as currently drafted? The detailed amendments appear to challenge established legal concepts like the corporate veil and retrospective responsibility: some industry players have already made known that they are taking high level legal advice on Mr Gove’s proposals.

Take the reported caps of £15,000 for leaseholders in London and £10,000 in the rest of the UK. This is not quite the whole story – in fact these are minimums but there is an increasing scale of caps reflecting property value (i.e. ability as Government sees it to contribute).

Let's look at some of the immediate issues for leaseholders:

  • 1. First, is the issue of scope.

The expression in the press release is other than dangerous cladding. However, the draft legislation is much wider and includes all defects causing a risk arising from spread of fire. This presumably includes fire safety defects stretching much wider than just cladding. The suggestion is that it is likely to include internal building defects such as missing fire breaks or defective insulation, and possibly fire patrols. Compartmentalisation defects are another possible aspect.

  • 2. The cap will only apply to leaseholders where building owners do not have the resources to pay to fix any defects.

The term ‘building owners’ has caused problems before. Government has used this expression to mean ‘freeholders’ although often freeholds are not owned by a party with involvement in the original build or are owned by the leaseholders themselves on a share of freehold basis. Here the expression is finally subject to an attempt at definition in the proposed legislation.

  • 3. But this definition is limited to residential owner occupiers.

This means the cap will not assist Buy to Let landlords, commercial investors or leaseholders who have fallen foul of the subsidy caps though. It is of course difficult to see how a cap is not a state subsidy in itself and the Government clearly view “economic actors” who own multiple units as able to pay their way.

  • 4. Fourth is the question of parties who have already paid out.

If you had already paid before the Building Safety Fund (BSF) came in, you could not claim on the Fund. But this appears to be different as any money paid out by leaseholders since the Grenfell Tower fire will count towards the cap amount. The proposal seems to be that Government will now retrospectively allow recovery of any spend over the cap by way of repayment or reductions on future service charge, with further detail to be published in regulations that will follow the Bill being brought in.

  • 5. Finally, there could be more involved issues around the recovery actions that the Government and BSF want leaseholders to take.

Capping leaseholders’ liability is also possible, if not handled with considerable care, capping what they can recover from defendant parties in Civil actions because the claims lie in the hands of leaseholders. There are also some measures to protect leaseholders against substantial legal bills making recoveries coming through service charge demands. But the detail of that needs careful consideration given the obligation under the BSF on leaseholders to take such recovery action or risk being required to repay their BSF Grant.

In many ways this announcement is creating yet more uncertainty. It is another wave of change, itself uncertain because it may be amended on its passage through Parliament. It may also be subject to Court reviews. Arguably a lot of this could have been put in place at the beginning of Government intervention in the crisis and not progressively layered on year after year.

If you impacted by the cladding crisis and need legal support, get in touch with our expert construction lawyers.

If you need advice on anything in this article

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