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Who pays for Grenfell-style cladding? The government plan

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Various UK government ministers have insisted that those living in flats with flammable Grenfell-style cladding should not have to pay for it to be stripped from their blocks and replaced. The latest view was given by Dominic Raab, Minister of State for Housing and Planning, who told a CIH Housing conference that “leaseholders should not pay those costs. And the private sector should not be let off the hook.”

The legal stituation as it stands is that cost of recladding will very much fall on leaseholders (the people who have bought their flats), as suggested by the Citiscape case (judgment here – not binding but indicative of where we are). So does the Government have a plan? Apparently it does, and Raab’s comments give clues to what it is. In broad terms, this seems to be it:

• The main thrust of the plan will be for those leaseholders who have bought their flats from local authorities or through housing association schemes (such as right to acquire or shared ownership). As the law stands, one would expect the LAs and housing associations to get the recladding done and bill the leaseholders for their share. (Note that other tenants may be in those flats who would never have faced such costs.) Instead:

• The Government will dip into its affordable housing budget and will use it to fund 50% (according to rumours) of the costs of recladding for leaseholders in the above categories. The implication of Raab’s words at the conference is that the local authorities and housing associations will fund the rest of the cost on behalf of leaseholders (as well as the full cost for the rest of their flats in the blocks ie those with tenants rather than leaseholders).

• That leaves out private leaseholders in purely private blocks such as those in Citiscape, Croydon. Although a property tribunal ruled in that case that the leaseholders must pay, in fact Barratt Developments, which built the blocks, agreed to take on the £2m cost – after a doubtless bruising encounter with then Housing Secretary Sajid Javid. The Government is expecting similar deals elsewhere in the private sector. Javid said at the time:

“Other building owners and house builders in the private sector should follow the example set by Barratt Developments to protect leaseholders from costs and begin essential fire safety works. I want to see all leaseholders in this position get the peace of mind they deserve and I am keeping this under review.”

Such agreements by private sector players come, less out of the goodness of their heart, and more with a heavy laying on of carrot and stick. Thus Raab told the CIH conference:

“I have to say that I hugely welcome the lead taken by Taylor Wimpey, Barratt Developments and Legal & General in shouldering the costs of remediation. They are doing the right thing. I urge others to follow their lead. And the government has made clear that if nothing happens we rule nothing out.”

The carrot comprises the many reasons developers have to be grateful to the Government – not least for the subsidised schemes such as Help-to-Buy and subsidised starter homes focused solely on new-build. Add to that the juicy possibilities of the “target of delivering 300,000 new homes per year by the mid-2020s” also referred to in Raab’s speech.

The stick, “ruling nothing out”, is … well, who knows? Doubtless Parliament would adopt with alacrity any legislation that shifted costs from hard-pressed leaseholders faced with bills for tens of thousands of pounds to the developers who put the buildings up in the first place or to the freeholders – albeit their links with their properties may be tenuous.

There seems no rule of thumb as to who will pick up bills in the private sector, assuming leaseholders are to be exempted (despite their legal responsibility). Barratt Developments is not the freeholder at Citiscape (Proxima GR is – and that is controlled by a Virgin Islands-based trust), but Barratt has accepted the cost; Barratt also built the Reflexion flats above the Blenheim Centre, Hounslow. But there the freeholder, Legal and General, has agreed to pay the cladding bill. Some buildings less than 10 years old may be covered by NHBC insurance (see this announcement about New Capital Quay in West Greenwich).

And there is an annoying glitch for some leaseholders who may have bought from a housing association but whose block has some other entity – a private company or trust – as a freeholder. This can happen if a housing association, rather than building its own blocks or taking on freeholds, instead buys a head lease from a freeholder. In that scenario there will be no government money for the recladding. And the freeholder is unlikely to feel very strongly that it has a duty to some flat dweller far down the line of tenures.

The whole plan offers no certainty of outcome. It is likely that offshore entities that are freeholders (possibly with freeholds in their portfolios for no particular reason other than creative financial engineering) will not give a damn about the cladding issue. But household names such as Barratt and L&G will have a reputational interest in “doing the right thing”, as Raab put it. It is a messy solution which potentially leaves the private developers in a strong position to demand a quid pro quo in the future.

Among losers in all this, of course, may be people desperate for an affordable home, especially if they want one in the social sector. Fortuitously, perhaps, the government affordable home budget has a kind of surplus in the sense that £817m of it was left unspent at the end of the last financial year and returned to the Treasury. This, even though the budget had been cut by 50% since 2010 – and the appetite for affordable homes remains undiminished.

If a chunk of this year’s money is now to be channelled into cladding (apparently to the tune of £400m), and the local authorities or housing associations are indeed going to foot half the leaseholders’ bill – as well as the rest of the bill for blocks where flats have not all been sold on – that raises questions about the government commitment to building affordable homes via social providers in future.

So the private sector may not be “off the hook” – but there may be a big juicy carrot on the end of that hook for its future delectation.

Twitter: alrich0660

Note: Since this piece, according to the Guardian (May 2019), the Government has abandoned its plan to persuade freeholders to fund cladding and will produce state money for such work: Government to fund re-cladding

• A report of the Citiscape Tribunal ruling is here
• A report on the Citiscape hearing is here
• This piece has all sorts of material on the regulatory framework for cladding: Was Grenfell cladding banned?



About alrich

Journalist and blogger on legal and financial/economics issues

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