Cladding Remediation – where are we?
September 2021Up and down the country buildings clad in ACM are in various stages of ‘repair’ as the process of stripping and replacing non-compliant ACM is undertaken. Some buildings have been fully remediated, others are being remediated and no doubt that process in respect of some premises has not even started. Cladding remediation data continues to be produced and placed into the public domain. The situation is complex and evolving. We examine the current position with an eye towards the reported criticisms against the Government’s ‘Building Safety Programme’. We also comment on potential insurance implications.
Following the Grenfell Tower tragedy in 2017, the Fire Safety Bill was introduced in March 2020 as part of a series of proposed changes to fire and building safety (as discussed further in our previous article that is accessible here).
The Fire Safety Bill has now passed through Parliament and is an Act of Parliament – The Fire Safety Act (“the Act”). The Act allows for a total of £5.1 billion in funding to pay for ACM remedial works on buildings taller than 18m and plans to introduce a low-interest loan scheme for building owners in respect of buildings between 11m and 18m, with the costs then being passed onto leaseholders with a monthly repayment cap of £50 (“the Loan Scheme”).
This funding stream forms part of the Government’s wider ‘Building Safety Programme’ (an overview of which is accessible here).
Breakdown of the £5.1 billion fund
Social Sector ACM Cladding Remediation Fund
On 16 May 2018, the government announced that it will fully fund the “removal and replacement of unsafe ACM cladding on social residential buildings 18 metres or over” with an estimated cost of £400m.
Private Sector ACM Cladding Remediation Fund
On 9 May 2019, the Secretary of State announced that the government will ‘fully fund’ the “removal and replacement of unsafe ACM cladding on private sector residential buildings 18 metres or over”, with an estimated cost of £200m.
The Government has produced guidance material setting out the scope and eligibility criteria for the fund (“the Funding Guidance”, accessible here).
The fund is available for “the benefit of leaseholders in residential buildings over 18m in height…” “…who would otherwise have an obligation to meet the cost of cladding remediation by virtue of provisions in their leases”. In addition, “applicants will need to confirm that they are replacing unsafe ACM cladding with materials of combustibility” that have been classified in accordance with the relevant European ‘class’ standards.
Applications can only be made by ‘responsible entitles’, who “may be the building freeholder or head leaseholder or a management company who has primary responsibility for the repair of the property”. Funding applies to “works directly related to the replacement of unsafe cladding systems”.
The Funding Guidance defines ‘unsafe’ as those ‘Cladding Systems’ that have been “identified as containing combustible materials…” “…and which failed the series of BS8414 tests commissioned by the Government” (which are large-scale system tests that mimics a fire breakout of a window and exposes a cladding system to a severe fire). ‘Cladding Systems’ are defined as “the components that are attached to the primary structure of a building to form a non-structural external surface”, which includes cavity barriers, flashing, fixings, gaskets and sealants.
Funding does not cover “works which are not directly related to the remediation of unsafe cladding systems…” or “…other necessary fire safety works which are not related to an unsafe cladding system”.
Non-ACM Cladding
On 11 March 2020, the Chancellor announced that the government will provide an additional £1bn to fund the “removal and replacement of unsafe non-ACM cladding systems installed on high-rise residential buildings” both in the private and social housing sectors.
Fund Intervention
In February 2021, the Housing Secretary confirmed that £3.5bn will be committed to pay for the removal of unsafe cladding, adding to the c£1.6bn already invested, as part a wider ‘5-Point Plan’ to tackle the cladding crisis.
The Housing Secretary commented “this is a comprehensive plan to remove unsafe cladding, support leaseholders, restore confidence to this part of the housing market and ensure this situation never arises again”.
Latest Data in respect of remediation
The Ministry of Housing, Communities & Local Government (“MHCLG”) collects building data with a view to “helping the Building Safety Programme make buildings safe and to make people safe from the risk of fire, now and in the future”.
Data is derived from various sources, including discussions with local authorities and responsible stakeholders (including building owners and developers) plus information derived from Building Research Establishment (BRE) tests.
MHCLG’s latest ‘Data Release’, issued on 12 August 2021, identifies that “the total number of buildings identified with ACM cladding systems unlikely to meet Building Regulations is 473”, which includes social sector residential, private sector residential, student accommodation, hotels and publicly owned buildings.
Notably, as of July 2021 93% of identified buildings had either completed or started remediation work to remove and replace unsafe ACM (with 81% deemed to “no longer have unsafe cladding systems”).
The remaining 7% accounts for 33 buildings, 7 of which are understood to be vacant and so do not represent a risk to resident safety.
In respect of funding, MHCLG confirm that 247 buildings are receiving or have received funding in respect of social and private sector ACM cladding remediation. MHCLG “estimate that 13,000 leaseholder dwellings will receive support” through the total £600m allocated by the Social and Private Section ACM Cladding Remediation Funds.
Further, as of 30 June 2021 the Social Sector ACM Remediation Fund’s expenditure stood at £160m, whereas the private sector fund expenditure is £58m. We also note that “enforcement action has been, or is being, taken against at least 62 buildings with ACM cladding”.
Commentary
Whilst the Data Release provides a snapshot of the ACM cladding remediation landscape, it by no means reveals the full picture.
Notably, the data does not provide information on buildings between 11m and 18m which might present a fire safety risk and/or might be subject to the proposed Loan Scheme.
This ‘gap’ in information can only add to the anxiety shared by many leaseholders, who already harbour concern that the Loan Scheme will require legislation before being introduced (with the ‘knock-on’ effect being that any remedial scheme might not be implemented for a matter of years).
As has been widely reported, the CEO of the British Safety Council has commented “…It’s indefensible that the Government has not protected all leaseholders of properties with unsafe cladding from paying the cost of its removal when the fire safety problem was not of their making”.
MHCLG Committee
Stark concerns have been raised by the MHCLG Committee (“the Committee”), who were appointed by the House of Commons to examine the ‘expenditure, administration and policy’ of MHCLG, and who are in part guided by MHCLG’s data.
In addition to highlighting the apparent slow pace of remediation work, particularly in privately owned blocks, the Committee warned within its ‘Cladding Remediation – Follow Up’ report of 26 April 2021 that “…the total cost of full remediation works on all affected buildings could be up to £15bn”.
This is clearly far in excess of the £5.1bn currently allocated and it remains to be seen how such a shortfall might (or could) be addressed by the government.
Other Issues
In addition, wider (but connected) issues of fire-safety should not be a blind spot. For instance, once defective cladding components are investigated and removed from buildings, additional ‘non-cladding system related fire issues’ are often, if not invariably, encountered. This can include – by way of example only – defective design/installation relating to fire-stopping, smoke ventilation systems and timber decking installed on balconies (which are not integral to the Cladding System), which in turn require replacement and/or upgrading to comply with current building regulations.
Whilst these issues are fundamental to fire safety, the government funding does not cover the costs of remediating them, leading to additional concerns that associated remediation costs could be ‘passed on’ to leaseholders.
Looking Forward
We wait with anticipation to see how the government will react to the Committee’s recommendations, including its call to abolish the Loan Scheme and implement a more “comprehensive building safety fund, paid for by the government and the industry”.
From an insurance perspective, the way that matters are developing in relation to cladding fire-safety could well see the trend for claims to be more actively pursued to continue.
For instance, the Government “will expect building owners to actively identify and pursue all reasonable claims against those involved in the original cladding installations, and to pursue insurance and warranty claims where possible”. Indeed, this is a requirement of the Funding Guidance. Building owners are also expected to “secure and retain documentary evidence that could support such claims” and “successful claims will require some or all the proceeds returned to government”.
Whilst the phrase “all reasonable claims” may be open to some debate, the requirements will mean that building owners pursue ‘recovery’ claims where they have received remediation funding from the government. The same will apply to Housing Association owners (in respect of the social sector fund), who may have additional incentive from a compliance and reputational perspective.
Furthermore, to the extent that building owners might be encouraged (and/or required) to cover “the costs of repairs without passing them on to leaseholders” as recommended by MHCLG (for instance, if the Loan Scheme is abolished in respect of buildings below 18m), building owners will again be incentivised to consider alternative avenues of recovery, possible via building warranty schemes and/or by pursuing claims against developers and/or contractors deemed responsible.
In the case of the latter, developers and/or contractors will invariably attempt to ‘pass down’ liability onto other members of the project supply chain (such as architects, engineers and specialist consultants), which will potentially result in further claim notifications.
It remains to be seen with what vigour ‘recovery’ actions will be pursued in circumstances where remediation work has been funded ‘up front’ by the government. It is also not entirely clear how the costs of recovery actions will be funded. These issues should be monitored as the claims landscape develops.
Finally, the recently published the Building Safety Bill (“the Bill”) proposes to extend limitation periods for claims arising under Section 1 of the Defective Premises Act 1972 (“DPA”) from 6 years to 15 years. The proposed changes are intended to apply both prospectively and retrospectively, meaning that proceedings could be brought for claims under the DPA that were previously deemed statute-barred under the previous 6-year limitation rule. Further information can be found here.
We have already seen cases whereby claimants have applied for a Stay of legal proceedings whilst they wait for the Bill to achieve Royal Assent.
Conclusion
With claims set to continue to rise, there are no signs to suggest that the ‘hard’ insurance market might ‘soften’, particularly whilst we await the outcome of the Grenfell Inquiry (set to conclude in 2022) and UK courts to provide an indication of potential contractor/consultant responsibility in cladding claims generally.
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