We need legislative change to make it crystal clear who should pay for fire safety defects

by Mary-Anne Bowring/Inside Housing

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The use of special purpose vehicles in building blocks has left leaseholders with nowhere to turn for remediation work. It is clear that change is required, writes Mary-Anne Bowring

Housing secretary Michael Gove has put developers who use special purpose vehicles (SPVs) to “evade their responsibilities” firmly in his sights as he looks to finally bring an end to Britain’s cladding crisis.

A common instrument across property, and by no means an always dodgy tool, these entities are often closed once a development is completed, meaning there is often no legally liable body leaseholders can hold to account, especially as the much-needed, long-muted New Homes Ombudsman never formed.

This additional complication has generated several issues around accountability that warrant more discussion.

The first and most obvious outcome from new fire safety legislation is that the process of both applying for compensation and acquiring potential remuneration from landlords is made more uncertain by multiple parties taking ownership over a single asset.

The recourse for many indebted leaseholders has been to default to managing agents which, of course, neither built the blocks nor have access to the developer’s funds to reimburse for remediation costs associated with new fire safety protocols.

A second, consequential effect of this complication of liability for leaseholders is a loss of confidence in secured lending over affected residential flats. With fewer traditional lenders willing to lend against affected high-rise residential real estate, insurance premiums skyrocketing, valuers leaving the market and more leaseholders find themselves ‘imprisoned’ by their mortgage and unable to sell or relinquish ownership over their title.

The reality is that the presence of SPVs only serve to complicate and confuse the process of remuneration. Many of these SPVs were also dissolved immediately after Grenfell when blocks were sold.

As a result, leaseholders have been left falling between two stools. A blanket tax in the form of a residential property developers tax will prove to be a blunt instrument when many of these developers abided by existing fire safety legislation and did not cut corners.

What we really need is the promised New Homes Ombudsman, which can take up issues collectively for all, even if only instigated by the few. In the interim, the Building Safety Fund should be expanded considerably, with the government recouping remediation costs further down the line from responsible parties.

This is a fraction of the day-to-day struggle for affected parties facing seismic remediation costs, as the countless newspaper articles about the devastating impact the building safety crisis has had on flatowners’ mental and financial health.

Issues of accountability are only further compounded by conflicting public-private sector guidance regarding External Wall System 1 (EWS1) forms and other fire safety measures, such as compartmentation inspections to ensure compliance, unsuitable or altogether unadopted sinking funds that could assist with payments for remediation, mortgageability, and signposting.

Further confidence has been destroyed with some leaseholders having paid for three EWS1 certificates due to the government not knowing what it was doing.

The echo-chamber calls for accountability to rest with those who failed to observe the potential hazards of unsafe cladding and paid for those errors in lives then and livelihoods now.

We need legislative change to make it crystal clear who needs to pay for mistakes in the future and open up the obvious avenues that provide a valuable safety net to affected leaseholders, such as by making sinking funds mandatory.

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https://www.insidehousing.co.uk/comment/comment/we-need-legislative-change-to-make-it-crystal-clear-who-should-pay-for-fire-safety-defects-73955