The Chancellor of the Exchequer, Rishi Sunak, delivered his first Budget speech yesterday (11 March 2020) and it featured much-welcomed confirmation for the leasehold sector that a new government fund will be established for the remediation of all private and social sector buildings taller than 18m that are deemed to be fitted with ‘unsafe’ cladding materials.
Adam Fotiou of Brady Solicitors takes a look at the announcement and some of the questions it poses for the leasehold sector.
The government had previously announced a £400m fund for social housing tower blocks with Aluminium Composite Material (ACM) cladding in 2018, and a £200m fund for similar buildings in the private sector in 2019. The £1bn announced yesterday is in addition to these existing funds.
Funding extended to other forms of cladding
The new fund also extends financial support to other cladding materials that have a ‘Euroclass Fire Rating’ of ‘C’ or below.
There had been strong criticism of the previous fund as it was limited to ACM, the cladding material deployed at Grenfell Tower. Other materials such as timber and high-pressure laminate were excluded even though they had been assessed as posing as high a fire risk as ACM cladding.
Accessing the funds
Given the widely-reported restrictiveness and difficulties in successfully applying for the previous ACM-only fund, we await with interest the full extent of the conditions attached to accessing this new fund, especially given the Government’s inclination not to let developers and building owners ‘off the hook’ for this predicament.
It will also be key to understand how the funds will be prioritised and distributed. There is consensus within the leasehold sector that £1bn will not be enough to fund all remediation works, so how will the funds be spent? Will it be a case of first come, first served?
Whilst the announcement of the new fund is a very positive step in the right direction for leaseholders, freeholders and management companies, it will be interesting to note how the First-Tier Property Tribunal adopts the existence of this new fund into its assessment of the reasonableness of the costs of cladding replacement.
Freeholders and management companies have been tackling the highly difficult issue of commissioning cladding works that need to be funded via the service charge (ie: where no third-party funding is available). Some have taken the approach of going to the FTT for a determination of whether the costs are indeed payable by leaseholders under their leases prior to those costs being incurred (and service charge contributions being demanded in advance).
As the particulars of the new fund slowly crystallise, it could potentially impact upon whether it would be ‘reasonable’ to demand advance contributions from leaseholders for the cost of cladding replacement if there exists the possibility, although not necessarily the certainty, of funding for the works from this new £1bn fund.
This question arises out of the 2019 Court of Appeal decision in the Avon Ground Rents Limited v Cowley case. This case considered if a freeholder could demand money in advance for major works if he or she knew there was a possibility of the costs being covered by a third party – the NHBC in this instance.
The freeholder argued that the correct approach to be adopted by the FTT when assessing whether a cost was reasonable under Section 19(2) of the Landlord and Tenant Act 1985 was to permit it to demand the cost of the works in advance from leaseholders, even where it knew of the possibility of that cost being indemnified by a third-party, and then to give credit (by way of a later adjustment) for any sums provided by that third-party once those monies were actually received.
The Court of Appeal rejected the landlord’s argument and held that consideration must be given for anticipated third party payments when assessing the reasonable amount to be demanded in advance from leaseholders.
Further details of the Avon v Cowley case can be found here:
Our view at Brady Solicitors
Whilst it would be churlish not to welcome this valuable new fund, we expect the application process will at the very least be lengthy and it could potentially add a further degree of uncertainty and hesitation for freeholders, RMCs and management companies who wish to proceed with commissioning and funding remedial works as quickly as possible.
As always, each case will turn on its individual merits in terms of the relevant factors taken into account by the FTT in assessing if an estimated major works cost demanded in advance is ‘reasonable’ and thus recoverable.