When the UK Government initially announced its plans to tackle the 'unsafe cladding' issue with its £5.1bn Building Safety Fund (BSF), a sizable proportion of 'unsafe' buildings were left behind. The BSF was created solely to address buildings over 18 metres in height, clad with aluminium composite material (ACM). Critics have pointed out that this left those living in buildings below 18 metres, in the same position as they were previously – their properties could not be sold, and they were liable to pay for the necessary and expensive remediation works.

A new UK Government policy announced on 10 January, has sought to increase the scope of the buildings where remedial works will be funded. The Secretary of State for Housing, Communities and Local Government of the United Kingdom, Michael Gove MP stated that “no leaseholder living in a building above 11 metres will ever face the costs for fixing dangerous cladding”.

Policy headlines

In Mr Gove's open letter to the industry, the key points include requirements that developers:

  1. Agree to make financial contributions (expected to total £4 billion) to a dedicated fund that will cover the full cost to remediate cladding on buildings between 11-18 metres.
  2. Fund and carry out the necessary works to remediate all buildings that they have played a part in developing.
  3. Provide comprehensive information on all buildings over 11m that they have been involved in constructing in the last 30 years, and which have issues with fire safety.

The letter goes on to threaten that if companies do not comply with the above list of demands, future government work and funding may be withheld, and that if the industry does not accede to his requests, then they will be enforced by further legislation.

The letter also requests that organisations provide a public commitment to the agenda by the beginning of March. While there appears to be universal agreement that (i) these issues need to be remediated; and (ii) individual property owners should not be made to pay for the cost, there are voices raising issues on both sides of the debate.

A step too far?

The Government's decision on how to deal with these issues is not an easy one. The innocent parties are the leaseholders of these properties. However, it is not as simple as stating that because those living in the properties are innocent, then those who built them must be in the wrong. For example:

  • Builders and developers have, for the most part, followed the Government's own guidelines in terms of materials. A large number of materials used were deemed safe at the time of installation, but are now known not to be so;
  • The materials purchased were often sold by suppliers with certification to support their use;
  • On a number of buildings, cladding has been retrospectively installed, long after the original developer completed their work.

Developers have also already been hit by the Residential Property Developers Tax, which is going to be levied at 4% on all profits over £25 million. This tax is expected to contribute around £2billion towards the BSF. Understandably, there is a good deal of anger in the industry, particularly when the Government, who set the standards, later contractors who carried out refurbishment works to install cladding on existing buildings and the companies who produced the combustible materials are not being felt to be taking their share of liability for their role in creating these problems.

A number of housebuilders can also point to the fact that they have already agreed to remedy any issues within their historic portfolios and will understandably feel aggrieved that they are now being made to pay for problems in others' works.

This has the potential to be a significant issue for the housebuilding industry as markets have reacted swiftly – and poorly – with more than £1billion wiped off the value of FTSE-listed housing developers on the morning of the Government's announcement.

Or not far enough?

While those in affected properties will clearly be glad about this announcement, it does not cover everything that they would, in an ideal world, have seen addressed. In many cases other safety problems exist, such as missing, defective or inadequate fire breaks, flammable balconies and insulation defects. Property owners have also had to bear the high costs of interim measures, such as waking watches, until issues have been remedied.

However, HM Treasury has made it clear that there is no new money available for affected properties. It is for this reason that Mr Gove is turning to the industry to pay for the costs (although he has confirmed that any costs not recovered from the industry will be underwritten by the Department for Levelling Up, Housing and Communities’ budget). Given that the announcement makes it clear these funds are to pay for cladding remediation, it seems likely that leaseholders will need to pay for all other costs.

What comes next?

Details of the plans and how the impacted firms have responded will hopefully become clear in the coming weeks as a series of roundtable meetings between the Government, leaseholders and the UK's 20 biggest housebuilders are proposed to take place.

However, until then, there is going to be a lingering air of uncertainty, which both the housebuilding industry already battered by Brexit related issues, supply chain problems and Covid across the last couple of years – and leaseholders do not need.


Eric Johnstone

Legal Director

Louise Shiels

Head of Dispute Resolution and Risk & Partner