Written evidence submitted by the Leasehold Knowledge Partnership [BSB 255]
 

A brief summary:

This bill is a dogs dinner, is a car crash for leaseholders, is hopelessly vague, impractical and yet again unfairly passes the cost of past failure to leaseholders.
 

  1. These may be strong words to open our submission, but they are not our words, they are the considered words of leading leasehold lawyers.
     
    1. A leading leasehold solicitor has described the bill a “dogs dinner”.
    2. A leading leasehold barrister has described the bill as a “car crash for leaseholders”.
    3. A leading leasehold Law Professor had described the bill as “hopelessly vague, impractical and yet again unfairly passes costs for past failure to leaseholders”.
       
  2. Our short answer to the questions: “Is the Government right to propose a new Building Safety Charge? Does the bill introduce sufficient protections to ensure that leaseholders do not face excessive charges and that their funds are properly managed?” is clearly no.
     
  3. LKP has a long list of concerns about the bill. The constraints of this written response allow us to explore only some of the most critical problems.
     
  4. The bill is long and technical. In addition, there is also: an explanation document; a complex impact assessment; and explanatory notes to be understood. There has been no formal public consultation by MHCLG. This structure of approach therefore offers limited opportunity for all groups to provide their input, and will result in particular disadvantage to leaseholders, as they are the ones who pay the bills.
     
  5. The problem is made worse because much of the bill will be defined by future regulations. There are 569 references in the bill to “regulations”. Most of these are future regulations which have yet to be produced, hence their impact cannot be assessed. In addition, there are 254 references to “building regulations”, some of which are extant and some of which are likely to change.
     
  6. Everyone, including your committee, is therefore required to make huge guesses at how the bill might work in practice.

    “Will the bill provide strong mechanisms to ensure residents are listened to when they have concerns about their building’s safety?”
     
  7. The much-vaunted term “residents voice” is entirely missing from the bill. The term “residents” appears 223 times, while the word tenant is used 143 times. All residents are tenants: some are rental tenants; some are leasehold tenants. Some leasehold tenants are not residents, but will be liable for the costs. The mixed meaning of the word tenant will inevitably cause confusion.
     
  8. The building safety charge obviously only applies directly to leasehold tenants. As regards other forms of tenants, such as AST or social rental tenants, who would not directly pay a building safety charge, the bill does not make clear how each of these groups’ voices can be fairly heard, or what mechanisms should exist to ensure that rental tenants are not over represented on matters that leaseholders will have to pay for.
     
  9. There is an important lacuna in the bill regarding how residents and or tenants might organise themselves to represent their collective view. The bill simply assumes this will happen, with no mention of any mechanism.
     
  10. There is no reference to residents groups or residents associations in the bill. The term recognised tenants association (RTA), which applies only to long leaseholders, appears just 7 times, but only in reference to the elements of existing leasehold legislation adopted in the bill.
     
  11. The bill is predicated on the belief that the building safety manager (BSM) has the right to decide how to create a forum to engage with residents. This top down approach displays the same arrogance that has haunted the sector for decades. It embodies the belief that it is for suppliers to determine what rights consumers should be granted.
     
  12. With this approach it is perhaps not surprising that Judith Hackitt (JH) in her review of building regulations did not include a single engagement with any group that represented the interests of private leaseholders. Even her subgroup for residents’ voice” did not include any representatives from private leaseholder groups. She did however include groups from the social sector, and social landlords, and groups that represent private landlords but no groups that represent the voices of those who actually pay the bills.[1] However JH does recognise in her report that: “There is particular strength in structured engagement via residents’ associations and tenant panels, and these groups can play a vital role by collaborating with landlords and building owners to assemble the views of residents and raise common concerns.” It is therefore unfortunate that this view is not reflected in the bill.
     
  13. The bill proposes that the regulator sets up a committee to advise on these matters after the bill comes into force: matters which have caused huge customer dissatisfaction and controversy over many years.
  14. We know the existing rules aren’t working. The SI updated in 2018 was supposed to make it easier to form RTAs. It has not worked. According to MoJ there were just 5 Tribunal cases that granted approval to RTAs in the first year of the updated SI’s operation[2].
     
  15. It is believed there is a decline in the number of Tenants and Residents Associations in the social sector (TRAs). This would indicate that these groups also face problems.
     
  16. We know that even on cladding sites in the private sector, landlords have actively been responsible for delaying recognition of RTAs. The assumption seems to be that, if leaseholders organise themselves it is so they can object to the charges the landlord wants to propose. We know of one instance where the “professional” landlord refused to recognise the resident’s group on a site with cladding problems for 18 months.

    LKP has proposed a new approach to resident engagement to the government
  17. Instead of the regulator deciding how things should work, at some point in the future, and the BSM choosing how to engage, we have proposed that the bill requires a residents group to be created on every site. This is a simple and fair approach.
     
  18. The constitution of these groups to replace TRAs and RTAs should be defined in the bill, and allow for the representation of all groups of tenants on any site such that they could democratically represent the interests of each of the subgroups. The subgroups would vary from site to site but include private leasehold tenants who are not residents, private leasehold tenants who are residents, shared ownership tenants, AST tenants and social rental tenants. It should be noted that currently some of these subgroups in the social and private sectors have no right to be members of a representative group.
     
  19. The Impact Assessment for the bill envisages that £250 per flat may be spent annually by the BSM on engaging with the residents. This figure seems very high. Why should this funding sit with the BSM? Why not give 25% or 50% of this charge to the residents group to help them disseminate building safety information and co-ordinate the residents’ feedback?
     
  20. An effectively organised residents engagement group provides many advantages that the policy makers do not seem to have considered.
     
  21. The residents’ group will be in a far better to position to co-ordinate tenant and resident engagement with safety issues. The residents’ group will be able to use its resources to better understand the detail of the issues concerned. The groups would be in a much better position to make collective decisions. They would also be in a much better position if they did need to object to a building safety cost and challenge it at the Tribunal.
     
  22. Another example of the benefit of organised residents groups is in regard to technical documents which the bill proposes to make available, such as the Fire Risk Assessment. Many residents may not understand the technical detail of the content of these reports, but inevitably some of the residents will have relevant skills to help explain what the FRA means.
     
  23. At the moment the bill provides very weak mechanisms to ensure the residents voice is heard. It places all the control with the landlord and their agent. The change we propose would provide for some balance, and a chance to hear the strong democratic “residents’ voice” that JH called for.
     

Is the Government right to propose a new Building Safety Charge? Does the bill introduce sufficient protections to ensure that leaseholders do not face excessive charges and that their funds are properly managed?
 

  1. The short answer is again no”. The protections are not sufficient. The leaseholders have just 28 days to pay. There is also no mechanism for them to challenge these costs until after they’ve been paid. The bill removes many of the existing, albeit weak, protections under existing leasehold law.
     
  2. It is far from clear whether the bill correctly allocates building safety charges to the commercial element of the building. In mixed use sites it might be perfectly possible that the bulk of building safety issues relate to the wall system on the commercial element of the building, but these could now be billed to the residential leaseholders.
     
  3. There is a lack of clarity in the definition of a building safety matter. The bill seems to give landlords much leeway to make improvements to the building on the basis of claiming some link to building safety. These “improvements” are normally excluded under most leases in the private sector but the bill does not differentiate between those matters allowed in the lease and those items the landlord may now seek to charge for outside the terms of the lease.
     
  4. The bill replicates many of the existing sections of leasehold law from the 1985 and 1987 Acts. In doing so the bill duplicates many of the known and serious failings in this legislation, which is over 30 years old.
     
  5. S20 of the Landlord and Tenant Act 1985 was meant to be updated following the CMA report on property management, as long ago as 2014[3]. This has not happened.
  6. Other sections of the 1985 and 1987 legislation were intended to be updated by s152 to s156 of the Commonhold and Leasehold Reform Act 2002. Despite an impact assessment recommending implementation in 2009, these sections have still not been applied. They are of particular importance for the improved protection of leaseholders’ funds and disclosure of financial information.
     
  7. A number of sections in the bill seek to supplement elements of leasehold law. A number of these changes may cause difficulties.
     
  8. In the supporting documentation to the bill it states that a separate building safety charge provides “transparency”.
  9. However, under the terms of the charge the landlord is given very strong powers with very limited controls. There are a cluster of issues in this section of the bill.
     
  10. Most critically, the bill overrides the lease and allows the landlord to charge for items which are not permitted under the lease.
     
  11. The bill overturns statements by Ministers that “the leaseholder should not pay for historic building safety defects.  The bill now enshrines the right to charge leaseholders for these defects. The leaseholders did not create the defective regulations that may have cause the defects. They did not build the defective building. They could not be in a position to know that the building was defective when they purchased it. They do not own the building and yet they are being made to pay.
     
  12. The bill creates an environment which designates an accountable person (AP) and a responsible person (RP) and a building safety manager (BSM), who are all held accountable for the building’s safety. But none of them is responsible for paying the costs.
     
  13. The terminology and structures proposed in the bill seem more appropriate for dangerous manufacturing industries, such as the refineries where JH used to work, i.e. environments where production processes create constant and ever-changing risks. By comparison, once completed, buildings spend most of their time in a static state. Once constructed to a safe standard it is far from clear that any substantial change will occur that impacts the safety of the building, until the once in 25 or 30 or even 50 year refurbishment.
     
  14. JH’s approach mirrors industry’s AP and RP who take ultimate responsibility. She seems not to consider that the AP and RP do so in industry in an environment where they have to cost-justify their actions, as well as ensuring the plant remains viable. By contrast, in such an industrial scenario, the AP and RP will have to justify themselves to those who pay the bills.
     
  15. Under this bill the AP and RP and the regulator sit in a cost environment where the leaseholders rights to challenge are: after the event; at their own expense; with no chance of recovering their costs if the AP and RP overspend. As we have seen from existing cladding sites, when we get to the point of needing to challenge the landlords costs, very often leaseholders have spent all their money. They have few funds to take matters to court while the landlord will have access to the service charge fund, because most leases allow them recovery of their legal costs, even when they’ve done something wrong.

    Is it right that the new Building Safety Regulator be established under the Health and Safety Executive, and how should it be funded?
     
  16. This decision has already been made, but whether it is the right decision is another matter. Many of the processes proposed seem overly complicated.
     
  17. The role of the AP and the RP should, on completed sites, be a much less complex role than is suggested. A number of sites are leaseholder run, and in the future, these may become commonhold. The roles must be ones that resident directors are empowered to take on or there must be the ability to employ relevant staff to take on these roles. The assertion that only “professional” landlords are competent has been shown to be demonstrably untrue. 3 years after Grenfell government data evidences that 85% of over 18 metre ACM cladding sites have yet to be remediated.
     
  18. As JH made clear throughout her work she is not interested in tenure types, only safety matters. However, without a deep understanding of leasehold law the regulator will have no means of understanding whether their decisions are fair, or even correct.

     
  19. The bill proposed making the regulator responsible for some issues and leaving others with the Tribunal. This seems a recipe for disaster, with the regulator and Tribunal both reaching potentially conflicting views at different times.

 

Explanation of the bill[4]

 

  1. Leaseholders will have every right to feel that they have been entirely misled by the 8 government Ministers who have said that “the leaseholder should not pay”.
     
  2. The government’s online explanation of the bill now very specifically states that they will pay. The note states:

“We are committed to making sure that leaseholders won’t pay unaffordable costs for historic repairs to their buildings. We will continue to engage with stakeholders, including leaseholders, on this issue while the draft bill is being scrutinised.


We will be speeding up work with the finance and insurance industries, to protect leaseholders from unaffordable costs of fixing historic defects, but without relying on taxpayers’ money.”

  1. The bill looks to pass on to the leaseholders the costs of fixing historic defects. There is no cap on costs and the Impact Assessment suggests it could be as much as £78,000 per flat. It does so without any evidence of how it reaches this the quantum. Now the government’s wording states it is looking to the “finance and insurance industries” to make these costs affordable by leaseholders by providing some sort of long-term funding. Those suppliers will only do so if they to make a profit from the process.
     
  2. At the recent Public Accounts Select Committee, MHCLG permanent secretary, Jeremy Pocklington, stated that they believe there are an estimated 11,300 relevant buildings over 18 metres, of which 2,155 have some form of cladding problems, and hence building safety issues[5].
     
  3. LKPs recent survey results on EWS indicate that the problem could be much bigger. RICS suggest that a total of 860 surveys have been conducted. Our results from 100 sites that have had these surveys shows that 86% of these blocks have cladding problems and in total 90% require some form of remediation.
     
  4. The implication of the online explanation is that the flat or the leaseholder will somehow choose, or perhaps be forced, to accept long term funding. However, nobody knows how this will work, or what interest might be charged, because none of this is detailed in the bill and it presumably will appear in future regulations after the statutory obligation has been created. It seems inevitable that this approach will have a negative impact on
    property values.

 

  1. The draftsman for the bill does not even seem to have considered how this might impact the shared owner, who may only own 25% of their lease but would be liable for 100% of building safety costs. A long-term loan to rectify defects could easily be more than that 25% of their equity.

Conclusions

  1. Following Grenfell is was inevitable and essential that there would be a need for fundamental change. This bill should therefore be welcomed by those who live in these buildings, but it is not.
     
  2. It is far from clear whether the bill will deliver the benefits to consumers that the government asserts.

 

  1. It is clear that every consumer who has read the bill and is liable for the costs is unhappy.
     
  2. It is clear that those leasehold lawyers who have reviewed the bill have fundamental concerns.
     
  3. It is clear that the managing agents and landlords in the sector also have worries.
     
  4. It is not clear why this bill is moving forward before the Grenfell inquiry is complete, given that their recommendations may require further reform.
  5. There is a concern that government is looking to pass on the cost of building defects to leaseholders, rather than passing those costs onto those who are responsible for the defects.
     
  6. The bill makes fundamental changes to the contract signed by the leaseholders in their lease. It will potentially burden them unilaterally with long term debts and it will make them liable for rectifying historic defects and comply with new regulations made after their building was completed.
     
  7. There appears to be nothing in the supporting documents to confirm that the govenment has taken advice on Human Rights legislation in making these fundamental changes.
     
  8. Conversely, the bill makes no comparable proposals for actions to be taken against developers for their responsibility for historic defects. Further, it remains far from clear that leaseholders will have effective redress on future defects. Although the bill seeks to extend the time period for action on certain matters, the time limit of 6 years that applies in the defective premises act would still apply on a number of issues.
     
  9. There is a huge concern that the new building safety charge adds to the leaseholder burden rather than improving their position. The argument that the charge somehow gives more “transparency” seems designed to misdirect from the fact that it reduces the leaseholders rights and burdens them with potentially enormous bills.
     
  10. There must also be concern that this bill only applies to buildings over 18 metres. We have seen a number of fires in buildings below this height. The old rules on cladding materials still apply on buildings up to 18 metres. The bill does allow for the government to change the criteria for buildings in scope at a future date under secondary legislation. Again, this leaves buildings currently out of scope in the position that they may suddenly be in breach of regulations at some point in the future. This will inevitably impact property values.
     
  11. Given that HSE and the BRE were a core part of the systems that have failed, there has to be a question as to whether they are an appropriate body.
     
  12. Although the JH report produces friendly terms like golden threads and produces diagrams to show their new model is much simpler, it remains far from clear that the proposed changes are of benefit to buildings post completion. Now that the rules mandate that the outside of an over 18 metre building must be non-combustible, and that there is a clear recognition that the inspection system must be independent of the developer, is there actually a need for change to impose this new regulatory model?
     
  13. The part of the bill relating to resident engagement is evidently dysfunctional. It needs redrafting so that the people who pay the bills, either directly as leaseholders or indirectly as rental tenants, are allowed to properly and collectively represent their interests in dealing with organisations who’s focus is to make a profit from the management of the building.
     
  14. The bill points to some sort of developer levy on new build homes. This proposal is not detailed and we do not know if it will follow the Australian type model. It is disappointing that the government continues not to look at the £6 billion fund in the pool re: system to help kick start the process to help fund historic issues
     
  15. It has been a common thread over many decades that, while government is quick to implement legislation to help themselves or suppliers in the sector, it is much slower to implement legislation to protect consumers.
     
  16. The fact that government thinks it is acceptable for leaseholders to live under a system where they have no chance of recovering their legal costs, even when the landlord has totally failed to do their job, makes clear there is a fundamental lack of balance in this bill.


 

September 2020

 

 


[1] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/707785/Building_a_Safer_Future_-_web.pdf page 146

 

[2] https://questions-statements.parliament.uk/written-questions/detail/2020-02-10/14817

 

[3] https://assets.publishing.service.gov.uk/media/547d99b8e5274a42900001e1/Property_management_market_study.pdf page 157

 

[4] https://www.gov.uk/government/news/explained-the-draft-building-safety-bill

 

[5] https://committees.parliament.uk/oralevidence/639/html/ q 23+ q 28