Leasehold flat ownership in England: when will we see an end to unsafe cladding?

It is fair to say that the cladding crisis in the UK in 2021 is an ongoing legal, financial and social emergency that has followed the tragic Grenfell Tower fire in 2017.

The Grenfell tragedy has highlighted the issue of the existence of large numbers of buildings which had been clad in dangerously combustible materials, comprising a combination of flammable cladding and flammable insulation.  In addition to dangerous cladding, many buildings have also been found to be non-compliant with other fire-safety building requirements, such as missing cavity barriers around windows or lack of fire barriers, which are designed to prevent fires from spreading into neighbouring flats.

This prompted the Ministry of Housing, Communities and Local Government (MHCLG) to establish the Building Safety Programme which, in the short term, was a scheme which sought to urgently identify and remediate buildings with unsafe cladding, and in the long term, led to a draft Building Safety Bill, published in July 2020.  For further details please see: https://www.gov.uk/guidance/building-safety-programme

For the owners of flats in buildings which have been found to pose a real and immediate fire risk to their occupants, it has meant they have had to face extensive and costly remedial works and increasing buildings insurance costs. This has soon impacted their properties’ values and saleability.  This problem was further compounded by mortgage lenders who were struggling to quantify the fire risks posed by different buildings.  The upshot of this was that mortgage lenders for the most part decided to cease to lend money for the purchase of many properties in England, unless their owners could prove the building is safe by providing the EWS1 form.

What is a EWS1 form?

The EWS1 form is designed to be used for residential properties such as blocks of flats and includes flats of social housing providers as well as privately owned, student accommodation (including houses in multiple occupation), dormitories, care homes and assisted living.

The EWS (External Wall System) process, and the resulting EWS1 form, is a prescribed way for a building owner to confirm that an external wall system on residential buildings has been assessed for safety by a suitable expert and in line with government guidance.

The EWS1 process delivers assurance for lenders, valuers, residents, buyers and sellers.

The form was originally created to ensure residential buildings over 18m tall could be assessed for safety to allow lenders to offer mortgages. 

However, further changes in Government advice in January 2020, brought all residential buildings potentially within scope, which created more worry and uncertainty for flat owners.  

March 2021 RICS Guidance

A further call for clarity from property industry professionals has led to the RICS (The Royal Institution of Chartered Surveyors) publishing further guidance for valuers on 8 March 2021. This guidance is expected to be implemented as soon as possible and by 5 April 2021 and further details can be found here:

https://www.rics.org/globalassets/rics-website/media/news/news–opinion/fire-safety/valuation-of-properties-in-multi-storey_-multi-occupancy-residential-buildings-with-cladding.pdf?domain=rics.org

This guidance includes set of criteria which are intended to be used to assist with the assessment decision as to whether a particular building should need an EWS1 form. Amongst others, the criteria considers the height of the building, the type of cladding and (in some circumstances) how much of it there is on the building. There are also additional criteria relating to balconies and combustible materials.  

The main point is that a valuer should always have a rationale to justify the request for the EWS1 form and the criteria should hopefully assist with that.

The Government’s initiative – what’s next?

On 31 January 2021, the Government opened a Waking Watch Relief Fund of £30 million. This is aimed to pay for buildings to install alarm systems consistent with evacuating residents in the event of a fire rather than them staying in place.

On 10 February 2021, the Government has announced a five point plan and £3.5 billion cladding replacement fund which would pay to remove unsafe cladding from buildings over 18 metres. 

For the lower buildings of 11-18 metres high, there will be no equivalent fund, but instead, the Government plans to provide a long term, low interest, government-backed loan-scheme which would enable the flat owners to pay to replace their cladding.

Regrettably, there has been no similar provision made or help offered for the owners of the lower buildings of 11 meters or under, which are affected by the remediation of expensive fire safety problems.

For more details see: https://www.gov.uk/government/news/government-to-bring-an-end-to-unsafe-cladding-with-multi-billion-pound-intervention

Summary

Whilst it is clear that the gravity of the situation post-Grenfell has not been underestimated by the Government, many believe that the steps taken so far are somewhat too little and too late…

Many leaseholders argue that this status quo has rendered their flats unsellable or even forced them into negative equity for many years to come.

Even for those who qualify for the Government aid, the problem is far from over as the process takes a long time i.e. the affected buildings must be assessed, plans drawn up for remediation and repairs,  applications for funding must be processed, planning permissions must be granted and appropriate contractors found to carry out the specialist  works.

This is still a very much developing situation where we appear to have only scraped the surface of what is undeniably an ongoing and a very vast problem.

Buying your first home can be a confusing and possibly a little daunting.

So our property team at Ferbrache & Farrell has put together this guide that will hopefully help you on your way to getting on that first rung of the property ladder.

Click here to read or download the guide.

Residential Leasehold Property in England and Wales – Proposed Leasehold Reform in 2021

On 7 January 2021, the Secretary of State for Housing, Communities and Local Government, Robert Jenrick, announced that the Government is planning new legislation which would overhaul the residential leasehold sector in England and Wales.

The Government believes that the changes to law are required to make leasehold ownership less bureaucratic, burdensome and expensive and wants to provide a fair system to some 4.5m leaseholders.

When implemented, the changes should not only make it easier and cheaper for leaseholders to buy their homes but also prepare homeowners and the market for the widespread take-up of commonhold.

In particular, the issues of spiralling ground rents have been facing the leasehold sector for some time now. Some escalating lease clauses meant that freeholders would increase ground rent significantly, including doubling every 10 years. For some leaseholders, these costs increased so drastically that they were trapped, struggling to sell their property.

Furthermore, under the current law, leaseholders of houses can only extend their lease once for 50 years with a ground rent, but leaseholders of flats can extend as often as they wish at a zero ground rent for 90 years.

The proposed reforms remove the disparity and will allow both leaseholders of houses and flats to extend their leases to a new standard of 990 years with zero ground rent, thus providing much needed financial and legal certainty.

In addition to zero ground rent and new term of 990 years, the most recent proposals also include:

• Abolishing costs such as “marriage value” – a fee based on the increase in the value of the property once the lease has been extended.

• Fairness and transparency of rates for calculating the costs of a lease extension or freehold purchase.

• A straightforward online calculator for leaseholders to work out how much it will cost them to extend their lease or buy their freehold.

• A cap on the ground rent which is payable when a leaseholder becomes the freeholder. 

• The Government is also keen to afford further protection for those buying leasehold retirement properties.

• The reforms also include recommendations for commonhold to become a standard alternative to leasehold, allowing flat owners to own their properties on a freehold basis and give them the right to joint ownership and management of a block of flats. 

How was the proposal received?

The Leasehold Group has warned that Government’s leasehold reform proposals fell well short of what was needed to reform the sector and described the proposed reforms as window dressing.

The retirement home sector argued the decision would push up purchase prices to fund the extensive communal areas required in retirement developments and was very disappointed on the Government’s U-turn to afford the retirement housing sector an exemption from the ground rent ban.

The Law Commission, on the other hand, fully supports the recent proposals which follow the recommendations they have made last year in their report on leasehold in England and Wales which included reinvigorating commonhold and leasehold enfranchisement i.e. buying your freehold or extending your lease.

In conveyancing practice, we may now see more prospective buyers being reassured by the proposals and open to purchasing properties with much shorter leases. This could in turn lead to fewer properties being left empty with short leases or high ground rents in place, thus saving money and improving investors’ yields in the long term.

It is also likely that many leaseholders who were considering a lease extension or freehold purchase are going to wait and delay the process to benefit from a new standard of 990 years extended term and zero ground rent.

Whilst jury is still out, overall, it appears this is welcome news from many in the property industry, with a caveat that these changes are implemented quickly, efficiently and with clarity as to detail and timescales of the process.

For more information on the reforms, you can read the Ministry of Housing, Communities and Local Government press release here:

https://www.gov.uk/government/news/government-reforms-make-it-easier-and-cheaper-for-leaseholders-to-buy-their-homes

For many in our Bailiwick community, 2020 has been forgettable and unforgettable in equal measure.  We have all had to adapt to great change, with further adjustments likely to follow in the months to come.

All business sectors have experienced new ways of working, and the Development and Planning Authority (“DPA”) is no different. 

Successfully delivering a planning service whilst working remotely has no doubt had its challenges, and combined with a new States’ composition following this year’s election, there has been much for the island planners to deal with.

Despite that backdrop, the DPA has produced an interesting infographic (most recently for quarter 2 of 2020) setting out some key statistics. Although slightly historic, since it does not capture activity over the last six months, it is nevertheless informative and likely indicative of settled trends.

We know that by the end of June 2020, the DPA had granted 5,294 permissions since November 2016 (excluding pre-applications, al frescos, curtilage applications, development frameworks and certificates of lawful use), and over that same period there were 161 refusals. Whether those permissions were more routine and uncomplicated is not known, but a permission rate of 97% is indicative of an Island Development Plan which is flexible, and which is broadly working.

It is also noteworthy that by the end of June 2020, there have only been 21 planning appeals since November 2016.  In the days of the Rural Area Plan and the Urban Area Plan it is likely that the figure was higher, and again this figure of 21 appeals may be due to the collaborative approach and pre-application emphasis placed by the DPA.

Pre-covid, target times for decisions to be made were generally eight weeks for domestic and other minor applications and 13 weeks for major applications. Back in June this year, 83% of decisions were issued in 13 weeks.  A report in the Guernsey Press published in late September has identified that a backlog of planning applications has seen decision times increase to above 16 weeks, and which in the context of this year is hardly surprising.  In response to that, the Director of Planning has indicated additional resourcing is being provided, and certain straightforward applications will be determined by a fast-track system quicker than the previous eight weeks.

In 2019, most permissions were granted in the St Peter Port Main Centre, followed next by permissions in the Outside Centres.  Predictably, the significant majority of permissions relate to private housing, nearly double those granted for affordable housing.  It would be surprising of the 2020 figures were materially different to those trends.

With the welcome news of two vaccines now being available, 2021 is certain to be a different year again, but perhaps with some legacy ways of working from this year.  In planning terms, it is likely to be a busy 2021 (due to a very active property market) and which in turn will contribute to economic activity.

Community spirit has been tangible in the Bailiwick in 2020 and no doubt the public-private partnership between the planning service and the private sector will assist in our ambitious recovery plans.