Developers are ‘compelled’ to pay for cladding remediation. What now?

Brady Solicitors reflect on Michael Gove’s open letter to residential developers compelling them to pay to remove unsafe cladding on shorter buildings, and what this means for managing agents, freeholders, and leaseholders.

On 10 January 2022, the government set out its plan to secure funding for cladding remediation work from the developers that built the unsafe buildings. The full text of the letter can be found here, but the key requirements from developers are that they should:

  • Agree to make financial contributions this year (2022) and in subsequent years to a £4bn fund to cover the full outstanding cost to remediate unsafe cladding on buildings between 11m and 18m in height.
  • Fund and undertake all necessary remediation of all buildings taller than 11m that they have played a role in developing.
  • Provide comprehensive information on all buildings taller than 11m that have historic fire safety defects and that the developer has played a part in constructing in the last 30 years.

Developers have until early March to commit to the proposals. Sanctions for non-compliance include “restricting access to government funding and future procurements, the use of planning powers, the pursuit of companies through the courts and… the imposition of a solution in law if needs be.”

Additionally, there will be new statutory protections for leaseholders within the Building Safety Bill, and changes to how buildings are assessed. Assessments will become more common-sense (and so potentially catching fewer buildings in the ‘unsafe’ net) and building assessors will be protected from being sued.

So, it’s clear that the government is finally serious that leaseholders should not have to pay to fix cladding remediation. However, getting from intent to reality is not a straightforward path and there is much to be clarified for freeholders, managing agents, and leaseholders alike – not least the tangled web of service charge liabilities and fire safety projects that are already ongoing.

Here are some of the issues that we believe need further consideration for blocks where fire safety issues have been identified:

  • There is no compensation for leaseholders who have already paid for cladding removal. Will we see retrospective claims against developers in this area?
  • What about other fire safety projects such as safety doors, balcony issues, and so forth? The proposals are vague beyond cladding remediation.
  • How should freeholders and their agents and advisers deal with situations where service charge demands have already been issued to leaseholders for urgent fire safety works?
  • How should service charge budgets deal with the situation in the short-term, until funding is confirmed?

Arguably, the biggest question is around how the government will deal with developers that no longer exist.

It is common practice for developers to create a short-term SPV (or special purpose vehicle) for a development. We understand that ‘Operation Apex’ will draw on the skills of forensic accountants to unpick “corporate webs woven to evade responsibilities”. Sounds promising but it will perhaps not be the fastest solution for those living in and managing developments that are desperately awaiting the removal of unsafe cladding, with all the attendant costs in the meantime.

So, for now, it continues to be a situation of watch and wait – until early March at least.

We will continue to monitor the situation closely and provide our clients with up-to-date and commercially astute advice.  For help with your development – including how to deal with current and imminent service charge demands for fire safety works, please do get in touch.

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