Unsafe cladding: developers self-remediation contracts

The New Housing Secretary, Greg Clark, appears as eager as his predecessor to ensure that leaseholders living in buildings of 11 metres and above with unsafe cladding should not be left footing the bill for costs associated with remediation works. The UK Government will soon enter into contracts with developers who are signatories to the "Developers Pledge" in order to legally compel developers to carry out life-critical fire safety remediation works.

Earlier this year we published an article following (the former Housing Secretary) Michael Gove's policy announcement on 10 January 2022 promising to hold the industry - and in particular, developers - responsible for funding remedial works connected with unsafe cladding on all buildings in England between 11 – 18 metres in height.

Update

Since publishing our article in January this year, the UK Government made quick headway in its promise when, in March, he approached the major residential property developers in the UK and the Home Builders Federation inviting them to sign a pledge agreeing that "leaseholders should not have to pay for any costs associated with life-critical fire-safety remediation work" in respect of buildings of 11 meters and above ("the Developers Pledge").

In signing the Developers Pledge, each developer confirmed that they would (amongst other things):

1. take responsibility for funding self-remediation and/or mitigation works to address life-critical fire-safety issues on buildings above 11 metres in England that the Developer has developed or refurbished; and
2. withdraw any Buildings forms and/or reimburse the Building Safety (BSF) Fund and Aluminium Composite Material (ACM) Fund (if applicable).

Despite initial concerns that developers might not voluntarily commit to remediate the defects covered by the pledge, as at today's date, the majority of major UK housebuilders (49 in total) have, signed up.

Greg Clark, the new Housing Secretary, released a statement on 13 July 2022 commending developers who had already signed up to the Developers Pledge. However, he also confirmed the Government's view was that "it is time these commitments are put into force".

The proposed contract between UK Government and participating developers, reflecting the terms of the pledge has been published and can be accessed via the Government website for comment until 10 August 2022. It will then be finalised for developers' signature.

The Contract

Under the proposed contract, developers will have a range of obligations to ensure the remediation works are completed in accordance with the government's standards and expectations. These obligations include (but are not limited to):

1. identifying all buildings which may require cladding remediation works under the contract.
2. assessing the fire risk of all buildings identified by obtaining copies of the most recent fire risk documentation and / or carry out necessary fire risk assessments, including fire risk appraisal of external walls.
3. carry out the remediation works.
4. engage with third parties.
5. report on the assessments undertaken to identify the fire risks and the works generally.
6. carry out Qualifying Assessments post PC to confirm the works have met the requirements of the contract and applicable law.

Once developers have identified the relevant buildings requiring works, the contract anticipates that separate agreements will be entered into with each Responsible Entity (the owner or manager of the affected building) in order to carry out and complete the works.

Cost Implications for Participating Developers

Developers are being subjected to fairly burdensome cost implications as a result of the terms of the proposed contract. The obligation on the developer to "undertake or procure at its own cost all necessary works…to ensure any and all Defects are remediated or fully mitigated" includes the costs of: (i) obtaining alternative accommodation for any residents unable to continue living in their properties as a result of the remedial works; (ii) reasonable costs incurred by the Responsible Entity (and all (residents in taking advice in relation to the works; and (iii) their own costs of advice taken in relation to the contracts to be entered into with the Responsible Entity for the works.

These are not insignificant costs for developers, who are already feeling stretched in light of the troubles the industry has faced in recent years. Given the majority of the obligations under the contract requires the developer to carry out activities under the contract within a "reasonable time" or "as soon as reasonably possible" it is not inconceivable that developers will seek to recover costs elsewhere.

Only time will tell whether we will see an increase in costs of new developments in an attempt to mitigate the impact that these contracts are likely to have.