After the Grenfell fire: who should pay the UK’s housing repair bill?

Not far from Manchester City’s gleaming Etihad stadium in the eastern suburbs of Britain’s third largest city stands a neat modern complex of 10 canalside blocks.

Built between 2002 and 2010, “Sportcity Living” seems at first glance no more than a typical slick residential development of 350 apartments and houses.

It helped earn its developer, Countryside Properties, the “best volume builder” award in 2007 in a competition run by the city’s newspaper, the Manchester Evening News, for “the lasting quality and design of its new homes”. The judges commended the company’s focus on regeneration and affordable housing.

More recently however, Sportcity Living has been the subject of rather less happy news.

Sportcity is just one of thousands of residential developments caught up in the fallout from the Grenfell Tower fire — a blaze that ripped through a London high-rise block in the summer of 2017, killing 72 people. Shocked by the massive death toll, and the role of combustible exterior cladding in spreading the conflagration, Britain’s fire authorities raced to review the safety of high-rise buildings.

Sportcity Living residential development on the Manchester canalside is one of thousands of apartment blocks in the UK facing a remediation bill after the Grenfell Tower fire © Jon Super/FT

Their focus soon expanded as inspectors uncovered far wider defects. Features such as internal firebreaks and fire doors, required by regulation, were found never to have been installed.

Nearly four years after Grenfell, the scale of the problem remains uncertain. But observers believe that inadequate regulations and shoddy building practices over the past four decades may have rendered as many as 1.3m — or 5 per cent — of Britain’s residential dwellings unsafe.

Officials have stripped offending high buildings of their safety certification, meaning they are no longer eligible to be mortgaged afresh. That has left hundreds of thousands of owners facing unpalatable options: either pay huge sums for remediation or face being stranded in unsafe and unsellable homes whose valuations have been drastically reduced.

The cost to make buildings safe can only yet be guessed at, but research by a parliamentary select committee suggested that it might run to more than £15bn.

Under pressure from its own backbench MPs, the government has tried to appease angry homeowners. Last month, Robert Jenrick, the housing secretary, announced £3.6bn of extra cash for its Buildings Safety Fund to strip flammable cladding from buildings more than 18 metres high, taking the total to £5.1bn. Those in lower buildings could be offered long-term loans to make repairs with monthly payments capped at £50. Part of the extra money will come from a tax on the building industry designed to bring in £2bn over 10 years. A levy on high buildings has also been proposed.

Yet campaigners have decried these plans as unfair for leaving much of the burden on owners. “If you bought a car and all its wheels fell off, would you really expect to have to pay to put the problem right?” says Dean Buckner of the Leasehold Knowledge Partnership, a body that campaigns for flat residents. “It’s those who caused the problem — and that’s in great part the industry — who should be made to pay.”

Seventy-two people died in the 2017 Grenfell Tower fire. The role of combustible exterior cladding in spreading the conflagration led Britain’s fire authorities to review the safety of high-rise buildings © Charlie Bibby/FT

‘Reasonable’ costs

Sportcity appeared to have got off lightly when inspectors first came knocking. They found no traces of the aluminium composite cladding responsible for the Grenfell disaster. But pretty quickly, residents found the defect count rising, and with it the costs of putting everything right.

Neal Anderson, a 39-year-old accountant, has owned a flat in the complex since buying it off plan from the developer in 2006. “First the inspectors found that there were no internal firebreaks where there should have been,” he says. “Then in 2018, we found out that the cedar [wood] cladding on the building had to come off because the government imposed a ban.”

Flats in Sportcity sold on average for about £160,000 before the cladding crisis. Residents in seven of the 10 blocks were told that repairs would cost them between £20,000-35,000 each, depending on which block they were in.

Sportscity flat owner Neal Anderson says ‘inspectors found no internal firebreaks where there should have been. Then in 2018, we found out that the cedar cladding on the building had to come off because the government imposed a ban’ © Jon Super/FT

That was not the only additional cost facing the occupants. They had to fit modern alarms costing £90,000, and insurance costs went up by 900 per cent to £210,000 in Anderson’s own block. “The annual service charge went through the roof,” he says. “It went from £97 to £297 a month.”

One of the complicating factors with high-rise flats revolves around the legal form through which residents own their properties. Most do not have freehold, but leases which tend to run for 99 years. In theory, the responsibility for repairing any faults rests with the landlord — often the original property developer or, increasingly, a financial institution.

But here one of the kinks of leasehold law in England and Wales kicks in. This allows the landlord to recover the cost of any “reasonable” works from the occupants through the annual service charge. Those who fail to pay up within 21 days can forfeit their lease, allowing the landlord to sell on the property to recover the debt.

The Paragon development in west London. For low-rise blocks of flats, the majority of those affected, the Ministry of Housing, Communities and Local Government is proposing a loan scheme to help fund cladding repairs © Leon Neal/Getty

This places a ticking time bomb under the escalating crisis. In the absence of any alternative, there is a risk that landlords (who have control but no financial exposure to the outcome) might simply commission repairs and send huge upfront bills to leaseholders who could not afford to pay them. The courts would be gummed with cases and tens of thousands could lose their homes.

A survey by Inside Housing last month of 1,324 blighted properties highlighted the potential scale of the problem. Almost 60 per cent of owners earned less than £50,000 a year, it reported. Meanwhile, the Association of Residential Managing Agents estimates the average cost of safety repairs to be £49,000 a flat (of which £23,000 is cladding).

The same Inside Housing survey showed that 17 per cent of owners were contemplating bankruptcy if hit with a repair bill.

‘Forced loans’

The government’s answer has been to offer grants to leaseholders. But as housing experts point out, the £5.1bn provided may not be sufficient and is anyway limited to removing cladding in buildings over 18 metres.

For lower blocks of flats, the majority of those affected, the Ministry of Housing, Communities and Local Government is proposing a loan scheme to help fund cladding repairs. (Other non-cladding defects — roughly half the total estimated repair bill — are not eligible for any loans or grants). The idea is that these loans would run for at least 30 years, and would be attached to buildings rather than individuals, so unlike mortgages would not have to be repaid when the building was sold. The loan would pass on from owner to owner until it was paid off.

Campaigners complain that what they term “forced loans” will simply heap financial burdens on to those who are often ill-placed to bear them, and could pitch some into negative equity.

But that’s a misreading, according to a key adviser to the housing ministry. Michael Wade, a former insurance industry executive, argues that the loan idea does not presuppose that leaseholders would pay for repairs out of their own pockets.

“I am not expressing any view on who should pay,” Wade insisted to a group of MPs and campaigners in December. “I am saying we need to find a way of paying these bills and first you need to know what the bill is. Once you have got the amount you can then ask: ‘Who is paying this?’.”

The idea is that leaseholders might claw back loans later by suing developers, cladding manufacturers and architects. Some developers might prefer to pay up rather than be shamed through the media and by politicians.

A Justice for Grenfell Solidarity rally in London. Campaigners say government offers of financial help to repair up to 1.3m dwellings in the UK still leave much of the burden on owners © Dinendra Haria/LightRocket/Getty

Pursuing claims

Campaigners argue that what they call the “fix and pursue” model will in practice leave leaseholders footing much of the bill.

Take the case of Neal Anderson in Manchester. He was one of a number of leaseholders at the Sportcity development that brought an unsuccessful action last summer against Countryside, the developer. “We failed at the first hurdle,” he says. “The judge threw it out on the grounds that the claim was out of time.”

The Sportcity case highlights the problem leaseholders face in bringing claims against developers. While there is a route to do so under 1970s building legislation, it is narrow. Claims must be brought within six years of the defective development being completed, which automatically eliminates older properties. (Having been completed in 2010, Sportcity was out of time, and the case hinged on the leaseholders’ argument that some subsequent work Countryside did on the cladding in 2013 and 2014 might have reset the clock.)

The situation is even more Kafkaesque when it comes to non-cladding defects, such as non-existent firebreaks in high buildings.

Taplow Tower in north London has cladding similar to Grenfell Tower. The government is offering £5.1bn to leaseholders in such high rises to fund repairs. But housing experts point out that the cash provided may not be enough © Justin Tallis/AFP/Getty

William Martin, a junior doctor and co-founder of the UK Cladding Action Group, discovered that no firebreaks existed behind the exterior walls in his high-rise development in Sheffield. Along with other leaseholders in the 113 apartment Metis building, he now faces a potential bill of £6.2m.

“There is simply no excuse for not putting firebreaks in or checking they were present,” he says. “It was the law. Essentially we bought the flats on the basis of false pretences.”

Yet the Metis residents have been told they have no realistic claim against anyone. The builder long ago wound up the business that built the flats, and might anyway claim that it had relied on the contractors to do the work. The chances of success are negligible. Meanwhile the local authority whose inspectors certified the building cannot be touched either. That’s because of a 1991 landmark judgment in the House of Lords that holds UK councils immune from any duty of care to protect homeowners against purely economic loss.

Some developers have picked up the tab for remediation. In 2018, for instance, the builders Galliard agreed to pay £40m for remediation work on a development in Greenwich, south-east London, through their insurers. But this has mainly been confined to specific cases where leaseholders were likely to have a valid legal claim.

Beyond that they’ve been wary. Taylor Wimpey, the construction giant, recently set aside £125m to fund cladding removal in 232 buildings built since 2001.

But campaigners point out that, while welcome, this is equivalent to just £500,000 per building, against a £2m average cost. They say also that it’s peanuts compared with the huge profits housebuilders have been making in recent years, helped by generous government subsidies on new home purchases. Since the Grenfell fire, five of Britain’s largest housebuilders — all of which have had cladding problems — have reported joint cumulative profits of about £9bn.

Demands for the industry to stump up more have been stoked by the ongoing official inquiry into Grenfell, which has exposed questionable practices. Evidence to the inquiry showed that employees of cladding-insulation makers allegedly rigged inadequately overseen safety tests to make these products seem safer than they really were.

‘Need to take ownership’

When the cladding scandal first erupted, the then housing minister James Brokenshire was clear that leaseholders shouldn’t have to pay for faults for which they weren’t responsible.

“There is a moral imperative for private sector landlords to do the right thing and remove unsafe cladding quickly, and not leave leaseholders to cover the cost,” he said in September 2018.

Jenrick, Brokenshire’s successor, has since rowed back from that position, to the dismay of some of his parliamentary colleagues.

Conservative backbenchers are troubled both by the possible political consequences of dumping a huge repair bill on leaseholders, and also by the feeling that the government contributed to its size through poor regulation over many years and by changing fire safety rules retrospectively after Grenfell.

When the cladding scandal erupted the then secretary of state for housing, communities and local government, James Brokenshire, centre, said leaseholders shouldn’t have to pay for faults for which they weren’t responsible © Mark Thomas/i-Images

“If there is a systemic failure to regulate, the government should bear a corporate responsibility,” says Bob Neill, a Tory backbench MP who has been critical of the government’s loan plans.

The Leasehold Knowledge Partnership has now devised its own solution. It would replace the loan scheme with a levy on developers, landlords and manufacturers to raise a fund sufficient to bankroll the cost of remediation, including non-cladding defects, beyond the proposed government grants. It would include a 1-2 per cent levy on all new-build properties over the next 10 years.

“Firms need a clear message that if they are part of an industry that created this problem, then they need to take ownership of it,” says Dean Buckner of the LKP.

The government, however, is unconvinced. The housing ministry rejects the £15bn estimate of the total cost as “highly speculative” and argues that it is “bringing forward the biggest improvements to building safety standards in a generation” backed by the £5.1bn funding package.

“It is the responsibility of building owners to make their buildings safe — and government intervention does not change this. Our new tax and levy on developers will also ensure they make a significant contribution towards remediation costs.”

Sources close to the government suggest that ministers are worried that a levy might conflict with its plans to increase the supply of affordable housing. But campaigners also point to the Conservative party’s dependence on financial support from the building sector. According to analysis of electoral commission data by Lucy Brown, an affected leaseholder, 59 per cent of the £18.6m of donations the Tories received in 2019 came from the building and property sectors.

At Sportcity in east Manchester, residents face the difficulty of meeting bills for faults they had no hand in. “People talk about affordability,” says Anderson. “But some of the people here don’t have even a spare thousand pounds, let alone the sums being mentioned.”

As for the possibility of hacking a way through the legal jungle, he is downbeat. “Everyone just seems to absolve everyone else.”

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