Leasehold high-rise flats: who pays for fire safety work?

Briefing Paper (Number 8244)

This Briefing Paper, which is available in the House of Commons Library, considers the debate about where the costs of the necessary fire safety improvement works for high rise residential buildings, might fall.

The Briefing Paper considers the following:

  1. Who owns the affected blocks?
  2. Blocks owned by social landlords.
  3. Privately owned blocks.

 

This QNote focusses on privately owned blocks and we recommend you read the full briefing paper which is available from:

https://commonslibrary.parliament.uk/?s=Leasehold+high-rise+flats%3A+who+pays+for+fire+safety+work%3F

  1. Privately owned blocks

There are around 130 privately owned residential blocks, including hotels and student accommodation, with ACM cladding.

 

Flats in the affected residential blocks will be owned on a long leasehold basis. As with long leaseholders in blocks owned by social landlords, long leaseholders could be liable to pay a contribution towards the cost of the remedial works depending on the wording of their lease agreements. The Government funded Leasehold Advisory Service has posted the following response to the question of who pays for fire safety measures, such as changing cladding on blocks of flats, on its website:

It depends on the terms of the lease between the building owner (the freeholder) and the leaseholders.

 

Sweeping-up clauses

Even if the lease doesn’t say anything about passing on fire safety costs to leaseholders, the freeholder might still be able to.

Freeholders might use something called a ‘sweeping-up’ clause. This could allow freeholders to get leaseholders to pay for a range of unexpected costs.

These costs could include:  

  • money spent for the ‘benefit of the building’ 
  • money spent to enable ‘good estate management’

 

The Association of Residential Managing Agents (ARMA) has warned that leaseholders could face fire safety bills “in the tens of thousands”. ARMA has proposed that the Government should provide interest-free loans to leaseholders to cover the cost of the work to avoid safety being compromised by delays in removing ACM cladding.

During the aforementioned Westminster Hall debate on 21 December 2017, the Shadow Secretary of State for Housing also suggested the establishment of a Government-backed loans scheme for private landlords:

They could consider, for instance, a Government-backed loans scheme for private landlords who genuinely struggle to cover the costs themselves. The Government could also consider a similar condition that might help to address the concerns the Minister has heard from some of my hon. Friends about the position of leaseholders in private high-rise blocks. In any case, I ask the Minister to reflect carefully on the points that have emerged in the debate, linked to the work required after Grenfell Tower, and early in the new year to make a clear statement on what the Government will do to try to deal with the concerns for leaseholders with both private landlords and social landlords.

 

During the debate on 6 March 2018, Robert Neill made the point that interest-free loans would still place a burden on leaseholders:

I understand that interest-free loans have been suggested, but a lot of these people are already suffering, so how will they repay the capital? I am glad that additional funding has been made available to the Leasehold Advisory Service, but again, that does not address the underlying situation. A failure of regulation is a failure of governance, whoever was in government at the time, so ultimately the Government need to stand behind those affected, rather than expecting the costs to be picked up by individuals who did nothing and had no control over what happened.

One block that has attracted media attention is Citiscape in Croydon which is managed by FirstPort on behalf of Proxima Properties. The estimated cost of removing and replacing the cladding on this block is reported to be between £1.8 and £2 million. Reports have said that this could result in leaseholders facing average bills of £21,000 depending on the size of their flats. Firstport referred the question of the recoverability of the cost from leaseholders to a First-Tier Tribunal (Property Chamber) – on 13 March 2018 the Tribunal ruled that the cost is recoverable from the block’s leaseholders.

 

However, the leaseholders were told that they can appeal the judgment and the judge reportedly said:

It is foreseeable that the tenants may have claims against a number of parties: against the manufacturer of the cladding in particular if any warranties were given as to its suitability; against Barratt Homes if they were negligent as to the selection and installation of the cladding: against the local authority if there were errors in the certification process: against the DCLG if, as has been suggested elsewhere, the relevant building regulations were not fit for purpose.

 

Inside Housing has reported that the property management company in charge of New Capital Quay in Greenwich, a block which has similar cladding to that of Grenfell Tower, has launched a legal challenge against the National House-Building Council (NHBC) on the basis that the cladding complied with the building regulations in force at the time of construction and was signed off by the NHBC in their building control role.

 

The question of who might be responsible for the cost of remedial works is further complicated where defects are identified with the installation of cladding. For example, Inside Housing has reported on a block in Salford where surveys have revealed inadequate fire breaks in cladding panels, which may mean that insurers have a liability under the leaseholders’ warranties.

 

Leaseholders are also being asked to meet the cost of ‘waking watch’ fire marshals. These marshals have been installed in affected blocks to provide additional fire safety protection pending the removal and replacement of ACM cladding. Costs for this service are reported to be around £4,000 per week. A First-Tier Tribunal decision concerning the recoverability of these costs from long leaseholders was issued on 24 January 2018. The Tribunal in this case found that the costs were recoverable based on the wording in the lease agreements. Giles Peaker of the specialist housing law website, Nearly Legal, commented:

The wording of similar clauses will be stress tested in a manner that these usually uncontroversial and untested clauses have not seen before.

 

As mentioned above, this QNote focusses on privately owned blocks and we recommend you read the full briefing paper which is available from:

https://commonslibrary.parliament.uk/?s=Leasehold+high-rise+flats%3A+who+pays+for+fire+safety+work%3F

 

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