Leaseholders face ‘years of misery’ despite cladding fund, claims legal expert

26 February 2021 | Investment

It was a policy intended to support the hundreds of thousands of leaseholders who have been left unable to sell or re-mortgage their properties in the wake of the Grenfell Tower fire tragedy in June 2017. 

“While the direction of the government’s intervention is to be welcomed, there are some notable gaps in the policy, not least the fact that leaseholders living in low-rise buildings (below 18 metres) will have to pay for the removal of unsafe cladding themselves,” Chick, who heads up the Landlord & Tenant team at London law firm Bishop & Sewell LLP, said.

“As a result of the cladding scandal, and through no fault of their own, many leaseholders are facing increased service charge costs and the very significant worry brought about by being unable to sell or re-mortgage their home.” 

Unfortunately, he adds, leaseholders in smaller blocks face ‘years of misery’ and are likely to need to take out long-term loans to pay for remediation works to remove unsafe cladding that was fitted by developers and construction firms. The government has insisted that repayments on the loans will be capped at a maximum of £50 per month, but many fear the true costs will be much higher for already financially compromised individuals.  

“Leaseholders urgently require more clarity on how these loans will work in practice, including how they will be repaid and over what timeframe, and what will happen to the debt in the event that they sell the property,” Chick continued. 

He says the government’s support is not means tested, so poorer leaseholders in low-rise blocks will not receive support, while affluent owners of high-rise properties would be eligible for assistance. 

In addition, the policy announced by government is only concentrated on the removal of cladding from high-rise blocks, but it does not address other fire safety defects, for example inflammable materials used in the internal structure of the building, or the cost of installing additional fire retardant materials. 

“The problem at the moment for leaseholders is that it is not clear what help (if any) will eventually come from the government and what form this will take for them. The Building Safety Bill is not yet law and its provisions are being debated,” Chick said.    

“It seems rather perverse that defective construction practices will likely be paid for by leaseholders, probably through increases in service charges.”

He added: “Although the Housing Secretary has set out plans for a new tax on developers to raise around £2 billion, this is a small contribution to a massive and costly problem. I have heard estimates from industry experts that the cost of removing unsafe cladding could be as high as £50 billion, so the support announced to date falls far short of what is required.” 

Chick went on: “Unfortunately, the government only has itself to blame for this unholy mess, as it has presided over major failings in the construction sector and insufficiently robust policing of building regulations which were clearly not fit for purpose.” 

Chick recommends that in the first instance any leaseholder affected by the cladding scandal should find out whether they have grounds to make a claim against the construction company or developer for breach of warranty. 

“It is likely that leaseholders who are eligible for government support will need to show evidence that the cost of remediation works cannot be covered by a claim brought against the developer before they can apply for funding,” Chick warned. “Meanwhile, leaseholders who are not eligible for support should also explore whether they can bring a claim for breach of warranty.” 

The government’s policy also has potential ramifications for freeholders, Chick adds, in the event that service charges increase to cover the cost of remediation works. 

“If service charges rise to a point where leaseholders struggle to make payments, there is a risk that buildings cannot be maintained properly, which will have a knock-on effect on their safety and value,” Chick explained. 

“Assuming the worst-case scenario, which is that the costs of removing unsafe cladding will have to be met via the service charge, there is going to be a short-term impact, as flat values will be depressed by the need to find significant sums to contribute to the service charge. However, in the medium to long-term (say, 15-20 years), it can probably be assumed that these issues will have been resolved.” 

Chick says that if you are thinking of buying a leasehold property, or if you already own a leasehold property and you have a question about obtaining a consent to alterations that you are planning, you should call 020 7631 4141 and ask for a member of the property team, or email leasehold@bishopandsewell.co.uk for more assistance and information.

<!– LinkedIn –> This post has originally been featured in Property Investor Today.