Third time’s the charm? Version 2 of Form EWS1 fails to make the grade

On 8 March 2021, the Royal Institute of Chartered Surveyors (“RICS”) published the second version of its Form EWS1 (“Revised Form EWS1”).

First published in December 2019, Form EWS1 is designed to provide building owners with the assurances needed to satisfy valuers and lenders that their property is fire safety compliant. However, despite its commendable aims, the first edition of Form EWS1 was met with significant criticism from consultancy professionals, particularly with regard to the potential liability of consultants taking on work under its terms. Our previous article discussing these concerns can be found here. We also consider some of these issues in our webinar on the ongoing industry challenges surrounding external fire safety on buildings over 18m in height, a recording of which may be viewed here.

With the Revised Form EWS1, there was an opportunity to take the industry’s feedback into account and to provide a pragmatic solution to an issue that continues to have an impact on the property market. Unfortunately, whilst this latest update does take some strides towards a more ‘consultant-friendly’ EWS1 regime, it still falls short of the rework needed to allay the concerns that have been expressed previously by consultants.

How does the Revised Form EWS1 impact pre-existing EWS1 Forms?

As a preliminary point, and perhaps as a sign of just how little the Revised EWS1 Form differs from its predecessor, consultants should be aware that the publication of the Revised Form EWS1 does not render EWS1 Forms completed under the previous regime as obsolete. RICS has stated that existing completed EWS1 Forms will remain valid until the date on which a new Revised Form EWS1 is completed. This is a positive for consultants, suggesting that they will not be subject to concurrent obligations where both versions of Form EWS1 have been requested on a project. Instead, in those circumstances it appears that Revised Form EWS1 will supersede its predecessor. However, whilst not expressly dealt with in either version of Form EWS1, it is unlikely that this would debar claims from being made against consultants for issues associated with their completion of the original Form EWS1. Consultants that have completed an original Form EWS1 should still be mindful of potential negligence claims being brought against them under its (unfavourable) terms.

What has changed?

Height

Possibly the most notable change in the Revised Form EWS1 is the omission (in setting out its objective) of any reference to the height of the building that is to be assessed by the consultant.

In its original guise, Form EWS1 was very much targeted at buildings above 18 metres in height, where property owners had faced difficulties in obtaining secured loans in the wake of the Grenfell fire in June 2017. However, in light of revised Government guidance published in January 2020 (the “Government Guidance”), which made it clear that there was a need for fire risk assessments (similar to those described in Form EWS1) to be carried out in buildings of any height, we saw an increasing number of lenders requiring that Form EWS1s be completed in all transactions. This broad-church approach exacerbated concerns surrounding the original Form EWS1, with those in the industry already wary about using them due to the previous issues that we have discussed in our other thought leadership pieces.

In response to this growing ‘over-use’ of Form EWS1, in November 2020, the Government, RICS, UK Finance and the Building Societies Association struck an agreement which provides that owners of flats in blocks with no cladding will not require a Form EWS1 to sell or re-mortgage their property.

Whilst this was a step in the right direction, the position that has been adopted by RICS in its latest guidance note on the “Valuation of properties in multi-storey, multi-occupancy residential buildings with cladding” (the “RICS Guidance”), which was published in tandem with the Revised Form EWS1 and formally came into effect early last month, takes this ‘scaling back’ of the Government Guidance a step further.

Although the Revised Form EWS1 foregoes any mention of an 18 metre ‘qualifier’, the RICS Guidance suggests that a more subjective approach should be taken to the use of the EWS1 process, with properties where it is less likely that expensive remediation work affecting value will be required.

In addition, crucially, the RICS Guidance also offers advice as to the specific circumstances in which a Form EWS1 should be requested. It provides that, where the valuer / lender cannot establish (within their competency) that the building owner has met the advice in the Government Guidance, or that a building over 18 metres has a valid building control certificate, and where no specific instructions have been received from the client, the following circumstances would indicate that a Revised Form EWS1 should be requested:

Buildings over six storeys

• The building has cladding or curtain wall glazing; or
• there are balconies which stack vertically above each other and either both the balustrades and decking are constructed with combustible materials or the decking is constructed with combustible materials and the balconies are directly linked by combustible material.

For buildings of five or six storeys

• The building has a significant amount of cladding (approx. one quarter of the whole elevation estimated from what is visible standing at ground level); or
• The building has ACM, MCM or HPL panels; or
• there are balconies which stack vertically above each other and either both the balustrades and decking are constructed with combustible materials, or the decking is constructed with combustible materials and the balconies are directly linked by combustible materials.

For buildings of four storeys or fewer, only (ii) above (presence of ACM, MCM or HPL panels) is applicable.

RICS notes that, visually, metal cladding and ACM/MCM are very similar. Therefore, if metal panel cladding is present, the valuer should ask for written confirmation from the building owner / managing agent that they are not ACM/MCM. Otherwise, a Form EWS1 should be requested.

Whilst the assessment strategy laid out in the RICS Guidance should help to prevent the prospect of lenders and buyers requesting that a Form EWS1 is produced on every occasion, it remains only guidance and subject to professional judgement. Therefore, there is nothing to stop over-zealous lenders from continuing to make universal requests for a Form EWS1.

In this respect, we anticipate that RICS will continue to promote objective, bright-line tests for determining when to use Form EWS1. Otherwise, it seems likely that things will revert to a situation where valuers take the decision regarding its use as a matter of “professional judgement” only, despite such judgements already tending to air on the side of caution, leading to unnecessary requests for completed Form EWS1s.

Liability – the important bit!

One of our biggest concerns with the first version of Form EWS1 was the potentially unlimited liability that it imposed on consultants. The original Form EWS1 gives no comment on the consultant’s liability position, save for at Note 11 (repeated near identically at Note 10 of the Revised Form EWS1), which provides that the form is valid for “…up to 5 years from the date at which it was signed”. However, even this statement is of little use to consultants as it is a limit on the period of time for which the Form EWS1 is valid, as opposed to a limitation on the period of time in which claims (e.g. for negligence) can be made against consultants under its provisions. Instead, under the original Form EWS1, such claims will be subject to the usual statutory limitation periods and / or those provided for in any relevant appointment.

Despite retaining the same statement as to its five-year term, the Revised Form EWS1 is much more explicit in its addressal of liability.

In the introductory paragraphs to Revised Form EWS1, it is stated that “[i]t [Revised Form EWS1] is provided subject to those terms and conditions including any exclusions and/or limits of liability included therein.” (emphasis added). This, on the face of it, is a positive amendment for consultants. It provides the previously absent ‘link’ between any underlying appointment between the consultant and its client, and the consultant’s obligations under the Revised Form EWS1. The intention of this drafting is that unless otherwise stated, the consultant will have no greater or longer lasting liability under Revised Form EWS1 than that which arises under its underlying appointment – a reasonable position for consultants.

The positive arising from this drafting is that it clearly links Revised Form EWS1 to a related appointment, and therefore the duties and liabilities in the appointment should apply to the provision of Revised Form EWS1. It will be vital, amongst other things, for Revised Form EWS1 to be referred to in the scope of the related appointment and for the terms and conditions to make clear that the duty of care and cap of liability, for example, apply to Revised Form EWS1. The drafting in Revised Form EWS1 could obviously be improved but the reference to the terms and conditions and exclusions / limits of liability is a positive.

It is important to note that this revision is only going to be of comfort in circumstances where: (a) there is an underlying appointment; (b) the underlying appointment contains a limit of liability; and (c) that limit of liability is reasonable and proportionate for the services provided by the consultant. Otherwise, the consultant will still find themselves exposed to potentially unlimited liability.

Further, given the drafting of Revised Form EWS1, the liability position is not satisfactory if it is provided to a third party who is not the client. There is a real risk that the exclusions / limits of liability in the related appointment will not stand up. However, this may be less of an issue as the form anticipates it being provided to the client / building owner only.

Comment

The Revised Form EWS1 is a step in the right direction for consultants. However, it still leaves much to be desired. It is encouraging to see that RICS has recognised the need to improve the position with regards to consultants’ liability, but other concerns have not received the same attention.

For example, there has been no substantial change in the statements that the consultant is required to give under either Option A or B of Form EWS1, save for some minor adjustment to the wording of statement B2. As we have previously explained, these statements could be incredibly dangerous to consultants, who could find themselves walking into a professional indemnity insurance claim as a result of their responses in Form EWS1, if not properly advised.

These issues, amongst others, could have been addressed in the Revised Form EWS1. The fact that they have not, means that we must maintain that the Revised Form EWS1 should still be avoided by consultants. For now, we can only hope that it will be third time’s the charm for Form EWS1.