Written evidence submitted by Consensus Business Group [CPR 026]
Overview
Consensus Business Group welcomes the Housing, Communities and Local Government Committee’s inquiry into progress on cladding remediation. Since these problems have emerged in the sector, we have engaged with all relevant stakeholders and worked hard to ensure the necessary works are undertaken on all affected buildings so that residents are safe.
We firmly believe that neither leaseholders nor freeholders should have to pay the price for what is, ultimately, a failure of building and fire safety regulations. Similar to the Government’s cladding remediation fund, there are solutions that should be considered to ensure all affected buildings in the UK are fixed as quickly and safely as possible. It is clear that the scale of the problem is significantly larger than initially thought – including at the time when the fund was first introduced, meaning the new solution must go much further to ensure that we tackle this challenge effectively.
Company Background
Consensus Business Group Residential (CBG) owns the freeholds of c.239,000 residential units financed by UK institutions and asset manages a further c.75,000 units owned by institutional freeholders. Estates and Management Limited (E&M), a specialist asset manager, is owned by CBG and manages its portfolio. E&M provides long-term stewardship to the properties it manages and has the safety and wellbeing of residents as their primary concern and responsibility.
Covid-19
During this difficult period, our primary concern is the safety of our residents. As responsible and professional freeholders, we have, and will continue to, maintain close dialogues with managing agents in all of our blocks to ensure that appropriate health and safety measures are in place and adhered to.
However, the restrictions imposed as a result of Covid-19, including social distancing measures, have had a drastic impact on remediation project timelines and there is a risk that residents will be forced to live in unsafe buildings for longer. As part of the exit strategy, the Government must ensure it stimulates activity in the construction sector and focusses on diverting the expertise available to remedial works.
Role of the Freeholder
Professional freeholders have a long-term interest in the building and it is their role to protect the interests of leaseholders and mitigate these costs as far as possible. Leaseholders could be liable to pay a contribution towards the cost of the remedial works, depending on the wording of their lease agreements, but it is patently unfair that leaseholders should have to pay for such works.
In the absence of funding, freeholders who are responsible for coordinating the remediation work have looked for other solutions that protect homeowners from the cost. In some cases, there have been successful insurance and warrantee claims and in other cases the original developers have stepped in to fund the repairs.
Where remediation has been completed more quickly and saved residents from suffering costs, it has often been because a responsible and professional freeholder has applied the necessary pressure and resolve to find a bespoke solution.
Case Study: South London
Following the Government’s request for building owners to carry out tests to identify unsafe cladding, E&M undertook an audit of its client’s portfolio and suspected aluminium composite material (ACM) on three blocks at a large riverside development. E&M acted swiftly, instructing its client’s managing agent, to submit cladding samples to the Building Research Establishment (BRE), who confirmed that it was ACM Category 3 cladding.
From there, E&M liaised with the developer, which retains the freehold interest on the blocks and the managing agent, to understand the plans for remediation of the blocks it had developed. At the time, and after several meetings, the developer decided that it was unwilling to remediate the blocks as the Government’s guidance remained unclear on which materials were safe.
Following the introduction of the private sector ACM cladding remediation fund, E&M instructed the managing agent to prepare for the fund application by starting the s.20 leaseholder consultation process, arranging surveys and collecting State Aid Declarations. The developer then advised it would remediate the ACM on its own blocks but not the blocks owned by E&M’s client, which would have posed a huge risk to the leaseholders that occupied the building.
E&M then reaffirmed its instructions to the managing agent to press on with the fund application and to advise the developer that it would be writing to leaseholders informing of the developer’s stance. Consequently, it is believed that this caused the developer to immediately reassess its position, which then confirmed its willingness to meet the same costs of removing ACM from E&M’s client’s buildings. Even more successfully, the developer also agreed to remediate the construction defects identified in the non-ACM blocks and any found in the three ACM blocks.
E&M and the developer are now close to finalising a formal development agreement to enable initial scoping/tendering of the ACM works to start as soon as possible. This demonstrates the importance of professional oversight, as E&M acted on behalf of the leaseholders’ interests over a sustained period of time, and in working closely with the developer to bring about a much more positive outcome for the homeowners.
External Wall Fire Review
Will the new External Wall Fire Review process for the valuation of high-rise properties be effective in improving access to buildings insurance and mortgage finance for leaseholders?
The new External Wall Fire Review process will only be helpful if a building receives a clean bill of health. Otherwise, it will likely have issues that have been identified which require remediation, making financing problematic.
Limitations with Current Fund
Administration: What lessons should be learned from the administration of previous funding mechanisms?
Scope of funding: Is the Government’s new £1 billion remediation fund sufficient to address all remaining concerns in high-rise and high-risk buildings?
Along with various resident groups, managing agents and campaigners, we called on the Government to extend its remediation fund at the last Budget and were delighted that they responded by providing an additional £1bn in funding. However, there are still a number of major concerns, shared by residents and building owners, over the safety of high-rise buildings. In the longer term, much more funding will be required to remediate all unsafe buildings in the UK.
Remediating a building of any size is complex; it requires a breadth and depth of resources and expertise to complete such projects. The slow progress on some buildings with ACM cladding exemplifies this and financial injections alone are not enough.
With remediation projects already in motion on buildings clad with ACM, HPL, other unsafe materials and combinations of them all, clarity and assurance are required immediately regarding whether the additional funding announced by the Government will cover remedial works already underway.
Despite multiple reviews and recognition that fire does not discriminate, Government support is still only available for buildings over 18 metres. This clearly contradicts the Government’s own consolidated advice note which recommends buildings clad with HPL and ACM of all heights should be covered by the new building safety regime.
Further, the scale of the problem is far greater than the Government initially expected. The Association of Residential Managing Agents (ARMA) estimates half a million people could be living with unsafe cladding.
Solution: “Building RE”
Freeholders have been working hard to fix these buildings as quickly as possible but central funding is essential for the acceleration of this process and to make these buildings safe as quickly as possible.
Whilst the expansion of the fund is welcome, the Government must introduce a longer-term funding solution that will spread the burden of these costs as widely as possible. To that end, the industry is calling for a single, centralised and ring-fenced “Building RE” fund that will serve as a long-term solution. This would be initially resourced by the Government but would be repaid by industry over time. There are a number of ways this could be achieved:
The levy would be charged on both flats and houses, notwithstanding that only 20% of all new-builds are flats. This is to ensure adequate funds are raised and avoid shifting of development from flats to houses to avoid the levy.
The cladding levy would be paid on all flats and houses built and/or sold after the inception date in both the private and public sector. This would include all private and public housing developed and held for rent without being sold (i.e. build to rent).
The total annual funding raised is estimated at £450m [based on 2020 estimate of 180,000 new-builds x £250k average sales value x 1% levy]. Over 10 years the fund would raise approximately £5bn.