There has been a lot in the news recently about buildings suffering from defective cladding which may pose a fire risk. Building owners have been left with the high costs of replacement works, and leaseholders are frequently served with substantial service charge demands. So, what is going on? We look to clarify some of the key points with this Q&A.
- What is ACM cladding?
ACM means “aluminium composite material”. ACM cladding is a construction material installed by hanging panels on the external parts of a building. The panels usually comprise two coil-coated aluminium sheets which are fused to both sides of a polyethylene core. They are generally used to prevent significant amounts of water penetrating the structure of the building. They are also decorative and usually not structural parts of the building. Thermal insulation, airtightness and structural stability are provided by the second, inner part of the wall construction.
- Why does ACM cladding need to be replaced?
Paragraph B4(1) of Schedule 1 to the Building Regulations 2010 states that an external wall of the building “shall adequately resist the spread of fire over the walls”. Following the Grenfell fire disaster on 14 June 2017, it became clear that certain types of ACM cladding typically used by the building industry did not meet that requirement.
- Why is this an issue?
The cost of replacing cladding is very expensive. There are also additional costs associated with the replacement works, such as emergency waking-watch charges, the removal of balconies and roofs, the replacement of fire insulation, and redecoration works. While the defective cladding is usually the fault of whoever constructed the building, building owners are being required to meet the initial costs of those works. In many cases, the costs will be recoverable from the leaseholders even though they are not at fault. This can either result in very high service charge demand for leaseholders, or unaffordable expenses for the building owners.
- I have been sent a service charge demand, what should I do?
Whether or not you decide to pay the bill, make it clear that you do not make any admissions as to your liability until you have taken some advice. Legal advice can be expensive, so consider joining forces with other affected leaseholders in order to share the cost. You should also find your lease and any warranty documents because your lawyer will ask for them. There may be important time limits that could mean the difference between being able to take certain courses of action and not.
- Will I have to pay?
Whether you are the building owner or a leaseholder, your liability to contribute towards the replacement costs will depend on a number of things. Parties should check:
- Whether the building owner or its managing agent has applied for financial assistance with a remediation fund. There are two primary private sector options available: the Private Sector ACM Cladding Remediation Fund and the Building Safety Fund for Remediation of Non-ACM Cladding Systems. The deadlines for such applications, however, expired in December 2019 and July 2020 respectively.
- Whether there is a new home warranty in place. If so, it is important to identify: (a) when the policy was issued: (b) whether the policy is still running (c) precisely when it expires and (d) whether that policy covers structural defects including cladding defects. Such policies usually run for 8 to 10 years. Warranties can represent the most cost-effective way of meeting large service charge demands.
- The terms of the residential leases. Much will depend on the drafting of each lease. The content and form of leases vary widely. In the First-tier (Property) Tribunal cases of Citiscape (LON/00AH/LSC/2017/0435) and Green Quarter (MAN/00BR/LSC/2018/0016) the Tribunal concluded that service charge costs relating to replacement of cladding were recoverable from the leaseholders in those instances. However, it is important to read your lease carefully as there may be covenants which prevent a leaseholder from being required to pay towards the works.
- If I have to pay, and there is no warranty cover, what can I do?
Building owners and leaseholders may be able to claim damages from third parties. Typically, they are the architects, building inspectors and developers who failed to comply with the building regulations. However, as time goes on, many third parties are escaping liability because of the Limitation Act 1980. For breach of contract claims, the limitation period is generally 6 years. For negligence claims, the limitation period is generally 6 years or 3 years from the date of knowledge, whichever is later. The Grenfell fire disaster was on 14 June 2017, and the 3-year time limits have probably started to expire. It is important that you take advice quickly.
- What is the EWS1 form?
The EWS1 form is a way for a building owner to confirm that an external wall system on residential buildings has been assessed for safety by a suitable expert.
- Can I sell my property and can I remortgage?
Without an EWS1 certificate it may prove very difficult to sell your property, due to concerns over future costs of remedial works and whether the incoming buyer would need to pay. An incoming buyer might possibly be reassured by a retention fund or indemnity from the seller, but much will depend on the circumstances and costs in issue.
We are also finding that lenders will not issue a mortgage offer unless there is an EWS1 certificate where either Options A1, A2 or B1 have been ticked. Due to the uncertainty, a lender may also be unwilling to remortgage the property until an EWS1 certificate with either Options A1, A2 or B1 ticked has been obtained.
Both cladding and service charge matters involve complex areas of law. There are often important time limits to be alert to, for instance as to the expiry of a warranty. If this is an issue you are facing as a leaseholder, we would strongly suggest you seek advice at the earliest opportunity.
