Cladding scandal: government sets out plan to make industry pay for the crisis

On 14 February, Secretary of State for Levelling Up Michael Gove announced tough new measures that will force the industry to pay to remove cladding and protect leaseholders from excessive costs.

The government will block planning permission and building control sign-off on developments, effectively preventing developers from building and selling new homes unless they comply.

If passed by parliament, the amendments to the Building Safety Bill will be brought into law.

Summary of the proposals:

• Developers and product manufacturers who do not help fix the cladding scandal could be blocked from the housing market.
   
• The government will also be able to apply its new building safety levy to more developments, with the scope for higher rates for those who do not participate in finding a workable solution.
   
• The government will put into law its guarantee that no leaseholder living in medium or high-rise buildings will have to pay for the removal of cladding.
   
• New powers will allow cladding companies to be sued and subject to fines for defective products.
   
• Protections for leaseholders extended to cover other fire safety defects.

Protecting leaseholders

Amendments to the Building Safety Bill will allow landlords and building owners to take legal action against suppliers who used defective products on a property that has since been found unfit for habitation. The power will stretch back 30 years and allow recovery where costs have already been paid out.

New clauses will also enshrine in law the commitment that no leaseholder living in their own home, or sub-letting in a building over 11m, pays for the removal of dangerous cladding.

If passed by parliament, these clauses will hugely reduce the invoices that have been sent to leaseholders for taking down dangerous cladding, in some cases for over £100,000.

Property developers that still own a building over 11m that they built or refurbished – or landlords linked to an original developer – will be required to pay in full to fix historic building safety issues in their property.

Building owners who are not linked to the property developer but can afford to pay in full will also be required to put up the money.

In the small number of cases where building owners do not have the resources to pay, leaseholders will be protected by a cap. The cap will be set at similar levels to 'Florrie's Law' which applies to some repairs to social housing: £10,000 for homes outside London and £15,000 for homes in the capital. 

The measures will limit how much leaseholders in this scenario can be asked to pay for non-cladding costs, including waking watch charges.

Any costs paid out by leaseholders over the past five years will count towards the cap, meaning some leaseholders will pay nothing more. 

The government says the provisions will protect leaseholders and encourage a more proportionate approach to fixing buildings. 

For further information, see the full DLUHC announcement. 

Plans to make property developers pay

The latest announcement comes following a long stand-off with UK property developers - who believe the cladding burden should be shared. 

In January, Michael Gove wrote an open letter to industry and publicly warned that those responsible for the crisis were "put on notice". Those who missold dangerous building products warned they would have to "pay to put things right". 

Developers in response accused the government of taking a disproportionate approach. Industry body the Home Builders Federation (HB) said it was considering its position on the legality of its initial proposals, including making developers pay for properties they did not build. 

Last week, before the latest announcement, the CEO of Redrow, became the first to speak out, calling the measures unrealistic and inequitable.

Highlighting the issues, he said, "We share the government's desire to resolve this issue and are committed to being part of the solution. As we are predominantly a builder of detached family houses, we have historically only developed a relatively small number of high-rise apartment schemes. We do believe the whole industry should play its part in tackling the cladding issue but in a fair and proportionate way." 

Years of uncertainty

The latest development in the cladding scandal follows years of uncertainty, with many leaseholders left facing cladding bills greater than the value of their properties. Tens of thousands have been left with an effectively worthless property until the issues are fixed.

The plan to make developers pay will be cautiously welcomed by affected leaseholders who have been prevented from selling, or re-mortgaging, through no fault of their own.

However, it remains to be seen how practical some of the latest government plans will be to implement. At the same time, additional challenges continue to mount, including issues around crippling insurance bills on high and medium-rise blocks of flats.

On 28 January, Michael Gove asked the Financial Conduct Authority (FCA) to establish why insurance premiums have shot up for many customers. Read the open letter to the FCA here.