It is estimated that more than 700,000 people are still living in high-rise tower blocks with flammable cladding more than three and a half years since the Grenfell Tower fire took place in 2017, which killed 72 people. Following that tragedy, the Government announced a number of reforms designed to improve fire safety in high-rise multi-occupied buildings, including introducing the Building (Amendment) Regulations 2018 which prohibit the use of combustible cladding in buildings over 18 metres.
The Government also set up a £1.6 billion Building Safety Fund in 2019 to cover the costs of removing defective cladding from high-rise buildings. The scheme requires applicants, who are usually building owners or managing agents, to sign a contract with the Government when they apply for funding. Concerns have been raised about a clause in the contract which indicates that applicants will be financially liable for any remedial work not covered by the funding scheme. It has become increasingly apparent that the level of funding available is inadequate and this has led to many building owners passing on the funding shortfall to their leaseholder residents. As a result, an increasing number of leaseholders are being faced with large repair bills for implementing fire safety improvements.
A major flaw in the Building Safety Fund scheme is that it does not cover the costs of remedying safety defects in buildings that are not related to cladding, such as missing fire breaks and flammable balconies. Many leaseholders are consequently being forced to pay out large sums of money to rectify defects that may not have been identified in surveys at the time they purchased their properties.
This has regrettably caused a lot of anxiety, distress and fear among innocent leaseholders who now face the risk of bankruptcy, as a result of being unable to pay eye-watering repair bills in order to make their properties safe. The knock-on effect of this is that building insurance costs and service charges have skyrocketed as a result. All of this has created a significant impact on the housing market as many home-owners are being caught up in cladding red tape which prevents them from being able to sell their properties or buy new properties, or even get approvals from mortgage lenders, until defective cladding has been removed and properties have been certified as safe. The reality is that until the situation is resolved, large numbers of leaseholders will find that their properties have become virtually worthless through no fault of their own.
If the Government does not allocate any further funding to leaseholders soon then this will inevitably lead to a flurry of future litigation being commenced. One of the key issues will be to determine who is ultimately responsible for the remedial works. The Government’s position is that the availability of funding should be contingent on building owners being able to demonstrate that they are seeking to recover those sums awarded from their building contractors instead of the financial burden falling on the taxpayer. The problem is identifying the basis upon which building owners can legally recover these sums from building contractors or designers they have contracted with.
Whilst it is common for contracts between building owners and building contractors to contain express obligations on the part of the contractor to exercise reasonable skill and care in performing its contractual requirements, the difficulty lies in demonstrating that a particular safety defect has been caused by a contractor’s negligence in circumstances where a contractor has acted in accordance with the relevant industry standards and applicable building regulations in place at the time. Given that the safety defects that are being identified through current fire-safety inspections are not likely to have been considered as actual defects prior to the Grenfell tragedy, this raises the question of whether any such claim for negligence or breach of contract is capable of being successfully brought against building contractors and it will be interesting to see how this is resolved by the Courts. All of this provides little comfort to present leaseholders who are stuck in the middle of a crisis that is not their own doing.
If you are a leaseholder who has been affected by the cladding crisis or are facing potential bankruptcy and wish to discuss your options, then please do not hesitate to get in touch with us.
Samuel Manok-Sanoian is Head of Commercial Litigation at Monan Gozzett and has extensive experience of litigating a wide range of disputes both domestically and abroad. He acts for a broad range of clients including high-net worth individuals and multi-national corporates.