Gove sets March deadline for developers to plan cladding fix

Jake Carter

January 10, 2022

Michael Gove

Secretary of State for Levelling Up, Housing and Communities Michael Gove (pictured) has warned developers that they must pay to fix the cladding crisis, agreeing to a plan by early March.

Gove wrote to the industry, introducing a deadline of early March to agree a fully funded plan of action, including remediating unsafe cladding on 11 to 18-metre buildings, currently estimated to be £4bn.

He warned that the government will take any steps necessary, including restricting access to government funding and future procurements, the use of planning powers and the pursuit of companies through the courts.

Gove added that if the industry fails to take responsibility for the cladding crisis, the government may impose a solution in law.

Later today, Gove is due to make an oral statement to the House of Commons announcing plans to protect leaseholders trapped in unsellable homes due to cladding issues.

He will also unveil a package of further measures to address the issue.

In the letter, Gove said: “Our home should be a source of security and pride.

“For too many of the people living in properties your industry has built in recent years, their home has become a source of misery. This must change.”

He added: “It is neither fair nor decent that innocent leaseholders, many of whom have worked hard and made sacrifices to get a foot on the housing ladder, should be landed with bills they cannot afford to fix problems they did not cause.

“Government has accepted its share of responsibility and made significant financial provision through its ACM remediation programme and the Building Safety Fund.

“Some developers have already done the right thing and funded remedial works and I commend them for those actions.

“But too many others have failed to live up to their responsibilities.”

In the letter, Gove asked companies to agree to: make financial contributions to a dedicated fund; fund and undertake all necessary remediation of buildings over 11 metres that they have played a role in developing; and provide comprehensive information on all buildings over 11 metres which have historic safety defects and which they have played a part in constructing in the last 30 years.

Gove said developers must take forward all necessary remediation work at pace – prioritising those with greatest risks first and in all cases finding the quickest and most proportionate solution to make buildings safe.

He has called on the industry to enter an open and transparent dialogue with the government to hear their proposals, starting with a roundtable with the largest residential developers and trade bodies.

The government will invite leaseholders and those affected by the Grenfell Tower tragedy to discuss solutions at appropriate junctures to ensure discussions are not taking place behind closed doors.

The government will announce a decision on which companies are in scope for funding contributions following discussions with industry, but it expects to cover all firms with annual profits from housebuilding at or above £10m.

The statement follows the Secretary of State ordering the suspension of Rydon Homes, linked to a company responsible for the refurbishment of the Grenfell Tower, from the government’s Help to Buy scheme.

The announcement has seen the value of the five largest listed builders fall by at least 3% in early trading in London today, with Persimmon at one point more than 4% down on its closing price last Friday.

The decline has removed in the region of £1bn of the value of major listed builders, with Persimmon’s value dropping by more than £300m alone.

David Renard, housing spokesperson for the Local Government Association, said: “No leaseholder should have to pay the costs of making their homes safe and the secretary of state’s threat to use the legal system to ensure developers meet their responsibilities to leaseholders is a positive step in the right direction.

“However, leaseholders are not the only innocent victims of the construction industry’s failure to build safe homes.

“The construction industry must also be made to fix the fire safety defects it has built into blocks owned by councils and housing associations.

“Unless the government forces the industry to act – or provides funding – we are concerned that the costs of fixing social housing blocks will fall on council housing revenue accounts and housing associations.

“This will reduce the funding available to meet the government’s ambitions for improvements to social housing, net zero and the provision of new social housing, leaving tenants and those on the waiting list to suffer the consequences of decades of industry failure and poor regulation.

“Like leaseholders, council tenants and those on the waiting list are innocent victims and the government needs to help them too.”

Oli Creasey, head of property research at Quilter Cheviot, added: “Following leaks on Friday and over the weekend, Michael Gove is set to unveil a plan this afternoon asking property developers to contribute a further £4bn to the cost of cladding removal in the wake of the Grenfell fire in 2017.

“Progress on this issue is extremely welcome. Far too many leaseholders remain trapped in flats that are potentially unsafe and which they are unable to sell or borrow against.

“There will be little public sympathy for housebuilders, which have made exceptional profits during the pandemic and will be unable to push responsibility back on the government.

“Property developers are already expected to pay a 4% residential property developer tax from 2023 onwards, which will aim to raise around £2bn over the next decade to cover the cost of re-cladding buildings over 18 metres tall.

“Gove’s new policy is aimed at remedying problems in lower rise buildings between 11 and 18 metres high.

“This could either be in the same form as the RPDT, which would be a further 8% tax on top of the existing bill, taking the total tax bill to around 37%, or it could be a one-off hit equating to around 10% of the house building industry’s current market cap.

“Despite the government admitting some fault in the run up to the events of 2017, they will not be contributing any further funds to the work required and all costs unaccounted for will be covered by industry.

“It is understood at this stage that the £4bn cost will be put to the house building sector as a ‘voluntary’ expense, so it remains to be seen how effective this will be.

“A number of house builders have made provisions to cover such costs, for example Persimmon and Taylor Wimpey have provisions of £75m and £125m respectively for these lower-rise buildings, but their willingness to pay a substantially higher amount on a voluntary basis is probably very low.

“We would expect this to evolve into a more enforceable tax or similar in due course.

“Publicly traded house builders are not the only companies on the hook. They represent around 40% of the residential development market, with the remainder being built by privately help businesses, large and small.

“The indication is that large private businesses will be held accountable, although smaller businesses may slip through the net.

“The other players are the material manufacturers, who have so far not been discussed as on the hook for these additional costs.

“If existing provisions or other sectors are in scope the impact on the housebuilders could reduce substantially.

“There may also be unintended consequences for the government’s own housebuilding targets, should the higher tax reduce the output of housebuilders, particularly at lower margin sites.

“All else being equal, this could put further upward pressure on property price. However, the government will no doubt consider this a price worth paying.

“Ultimately, we expect this additional cost to stay with the housebuilders, though the government may need to enforce contributions rather than ask for volunteers.

“However, the entire £4bn cost should be spread across private and public companies, and we would expect the publicly-traded companies to cover around half of this sum between them.

“The sector is down c. 5% year-to-date, which is a broadly fair response.”

Jeremy Raj, national head of Irwin Mitchell, said: “The sentiments and ambition of Gove’s statement today were praiseworthy and long overdue. The reality of his proposals are however as yet of questionable efficacy and breadth.

“The truth is that the fifth anniversary of Building Safety reaching its current level of crisis for leaseholders in taller blocks of flats in particular, is fast approaching.

“The acknowledgement today that reaction to date has been slow and ineffective will be cold comfort, particularly in relation to those with non-cladding issues that affect their properties. Government must indeed accept when its own performance has not been acceptable and ensure a rapid improvement.

“The cladding on Grenfell had nothing to do with current or historic developers of new build homes, having been retro-fitted many years after the original build, using materials that were clearly dangerous that seem to have been ignored or waved through by the regulatory authorities.

“The idea that responsibility for resolving the cladding scandal – which has now widened to become a general building safety scandal – should be laid solely at the doors of developers asked to voluntarily cough up more cash, is likely to lead only to further delay and heartbreak for leaseholders caught in dangerous or un-sellable properties.

“Many will be puzzled as to how and to what extent they can justify such expenditure on a ‘voluntary’ basis in the context of their obligations to shareholders, and a lack of direct responsibility, particularly given clear evidence of contributory negligence by others.

“As Irwin Mitchell have been saying from the outset, fixing dangerous buildings (of whatever height) should be dealt with as a priority using up-front government money, with clawback provisions activated as soon as the extent and identity of all liable parties has been established under due legal process.

“In the context of an acute national shortage of safe, suitable and environmentally sound housing stock, it will not help to demonise and threaten all developers if they can clearly see that the manufacturers and suppliers of those dangerous materials, the poorly resourced regulators and the industry as a whole, seem to be being let off the hook.

“It now seems clear that the Treasury has firmly shut the door to further funds being made available and that, along with planning reform, a full upgrade and proper funding of Building Control remains a distant hope for the future.

“Nobody wants the leaseholders caught up in the post-Grenfell nightmare to continue to suffer, and it is right that they should be absolved of financial responsibility for making their buildings safe.

“However, significant issues relating to building safety remain in addition to the cladding problems and many of our clients do not appear to be helped by today’s announcement in resolving the problems with the homes they bought in good faith, expecting them to be safe to live in and easy to sell on.”

Andrew Rimmer, partner at JMW Solicitors, added: “While today’s announcement will be welcomed by the owners of affected homes, developers will be fearing the financial impact, which for some could be colossal.

“March is an extremely ambitious timeline in which to expect the industry to have collaborated and be singing from the same hymn sheet, and there is a great deal of ambiguity in the new approach which still needs to be clarified; such as the part that contractors will play in the ongoing negotiations, along with other parties involved in the construction of the affected buildings.

“The government is, unfortunately, unlikely to see a speedy resolution – it is an extremely complicated issue which in some cases involves buildings built more than a decade ago. We can expect a lot of finger pointing as parties try to determine where liability now lies.”

Kate Davies, executive director of IMLA, said: “Today’s announcement on the cladding crisis will be welcomed by beleaguered leaseholders, but there are still points that need urgent clarification for both renters and developers.

“Gove’s mention of ‘commercial consequences’ and the statement that leaseholders will be able to sue builders for up to 30 years, provide punchy headlines but few specific details.

“The question of enforcement is one that will loom over the sector, as taking builders to court will require time, money and courage from already-exhausted leaseholders and, if undertaken by the government, gives little relief to leaseholders in the interim.

“The statement that the government will seek a ‘solution in law’ for slow-moving developers is promising, but also suggests further delays and a timescale that is of little reassurance to leaseholders here and now.

“Withdrawal of the consolidated advice note is also welcome but, again, we have questions around how long it will take the BSI to draw up the promised new proportionate guidance.

“Even where the government provides a timeframe, this vagueness persists. Developers have been given two months to create a plan for resolving the growing cladding costs crisis but, without a sense of the time required for the government Apex taskforce to identify and contact recalcitrant developers, leaseholders have been given little more of a promise than ‘trust us and wait.’

“Today’s news also avoids discussing the other non-cladding issues and building defects that have been uncovered whilst cladding has been reviewed across the UK.

“Many freeholders and management companies are passing these costs onto leaseholders, and we need to see a proposed solution that encompasses all these problems in addition to addressing the primary concern of cladding.”

“In July 2019 the House of Commons Committee on Housing, Communities and Local Government published an excoriating report into Leasehold reform which called for numerous measures to be taken to protect leaseholders.

“The government has responded positively to some of the recommendations, but new legislation will be required to give effect to many others. And as we know, legislation takes time…

“Announcements on how we are to remedy the cladding crisis are always welcome and today’s news goes some way to reassuring leaseholders; however, we urgently need specific details of processes and timeframes to ensure that these gains do not dwindle into unfulfilled promises to leaseholders and idle threats for those developers that are not dealing with the issues in a timely fashion.”

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