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Cladding – A rethink..

17 February 2022

Mark Klimt considers the implications of the government's 'new plan to protect leaseholders and make industry pay for the cladding crisis' for design consultants and their professional indemnity insurers and he suggests that an approach that fails to recognise the interrelationship of all the parties and continues to seek to pass responsibility on to the next person will simply deepen the problems and create widespread problems across the financial sector. 

The recent government announcement making developers responsible for removing dangerous cladding from their buildings is designed to alleviate the burden on leaseholders who are trapped with unsaleable properties. However, as with many of the recent initiatives and intended legislative responses to the issues thrown up by the Grenfell tragedy, this is likely to increase the pressure in particular on design consultants and therefore also to undermine any emerging inclination of professional indemnity Insurers to provide the fire protection that is needed for projects to proceed in a responsible manner

EWS1 certification exclusions

The government has previously championed a loan scheme for leaseholders having responsibility to remove cladding from buildings between 11 and 18 metres. Under the scheme, repayments would have been capped at £50 per month but would have obliged leaseholders to take on a significant and prolonged level of debt. It was, anyway, fraught with difficulties; the debt would have attached to the property, prejudicing its marketability. Meanwhile, the EWS1 Form of certification, introduced post-Grenfell, for residential buildings (initially those over 18 metres in height, and subsequently also used for sub-18 metre residential blocks) introduced as a way of satisfying mortgagees that the fire risk is sufficiently low as not to require any remedial work, suffers from such certification being excluded from many professionals' insurance protection.

The new proposals – design consultants in the line of fire

The present anticipated proposal from the Secretary of State for Levelling Up, Housing and Communities is to assist the estimated 1.1 million householders affected by potentially non-compliant residences by placing responsibility for remedial safety work on the blocks' developers, and for there to be a naming and shaming of defaulting companies. The proposal does not appear to provide any guidance on how to navigate through the numerous claims that are currently at various stages in their gestation and to establish with sureness whether a particular system is compliant.

These claims are likely to proliferate if developers are under increased pressure to fund remedial works that are estimated to total in excess of £15 billion; they will be looking to off-load these costs onto the most accessible target and shape their claims accordingly. This in turn is unlikely to assist the efforts of various design consultants and their professional bodies to encourage Insurers to review their current blanket exclusion of any liability for fire safety, which has been the (understandable) reaction to the uncertainty generated post-Grenfell.

Insurers will see it as another government edict (of which the Building Safety Bill is a further example) likely to put the design consultants in the line of fire, regardless almost of the influence those consultants in fact may have had.  The spectre, though, of the prejudicial effect on the housing market and beyond, does indeed need to be addressed- and in a way that is not going simply to add to the number of internecine and insoluble legal disputes. 

The solution..

The solution would seem to be to suspend the blame culture that suffuses the construction industry and for each interested party to accept the least- worst solution. The starting point logically would be the principle that ought to unite all parties - that safety is paramount and the risk of a repeat of the Grenfell tragedy must be minimised.

A streamlined process of determining whether buildings are compliant  or not needs to be established, with duly accredited professionals - backed by insurance - inspecting, testing and certifying compliance.  Where a remedial scheme is needed, and save in the cases of gross negligence or wilful default, blame should be irrelevant and the priority should be to implement an affordable, objectively-approved remedial scheme.

The public funds that have been pledged (but which are clearly insufficient) could be joined by monies made available by the key protagonists, whose resources would otherwise need to be expended in promoting or defending claims.  The leaseholders should, where feasible, make a contribution, to reflect the benefit to them of their property being freed from its unwelcome encumbrance.

Mortgagees, rather than treating the affected properties as un-mortgageable pariahs, should provide concessions or mortgage holidays for those property owners who are proactively addressing the problem so that repairs are more readily affordable and realisable. Insurers, meanwhile, need to have sufficient confidence that the insurance industry is not being expected to fund the entire process, enabling sensible protection parameters once again to be available, to allow construction projects to proceed. 

Comment

An approach that fails to recognise the interrelationship of all the parties and continues to seek to pass responsibility on to the next person will simply deepen the problems and create widespread problems across the financial sector.

An owner of a property on which a mortgage will not be advanced is unlikely to be able to proceed along the property ladder, creating a downturn in their lending. Meanwhile the value of the security that the mortgagee holds will have fallen, posing a further threat to the housing market and creating a potential negative equity crisis. 

Where consultants are denied insurance protection and as a result are unable to fulfil their professional and legal obligation to have adequate protection for the services they are providing, construction activity (a cornerstone of the government's plan to rejuvenate the economy) will anyway eventually grind to a halt.  These are new problems (emerging against a backdrop of unprecedented global upheaval) and a new approach is urgently needed. A headline worthy announcement of calling the developers to account is not it- at least not without the co-operation and enlightened response of others.    

Further Reading