Cladding crisis reveals why freeholders are an impediment to any solution

The disaster of flammable cladding on blocks of flats and what to do about it is providing the biggest push to transform leasehold law since the eruption of the doubling ground rent scandal which we exposed in 2016.

The question being asked is: what is the third-party freehold owning landlord actually for?

For ground rent lobbyists these commercial operators – even when unidentifiable and based offshore – are the “responsible custodians” of the site. Only they can professionally manage blocks of flats for the long term

Unfortunately, these “responsible custodians” proved to be absent in the aftermath of the Grenfell tragedy in June 2017.

It was rather quickly revealed that around 300 private blocks of flats had similar ACM cladding (aluminium composite material) and local authorities were tasked with identifying them and ordering the cladding’s removal.

The question immediately arose: who was going to pay?

Both Communities Secretary Sajid Javid and his successor James Brokenshire urged freehold owners to “do the decent thing” and provide the money to remove the cladding and pay for emergency measures such as fire marshals.

After all, their thinking went, the freehold-owning landlord is the building’s owner; it is his asset and this is a long-term investment.

This fundamentally misunderstood what a freeholder is. He may be the “landlord” in law, but he is in reality only the owner of a building’s legally enforceable income streams.

LKP warned ministers and officials that freeholders would not – and in many cases, could not – pay the multi-million bills involved, and we were proved correct.

On May 9 Mr Brokenshire raided his department’s housing budget of £200 million – prompting the permanent undersecretary Melanie Dawes to reveal publicly her view that this was in breach of government spending rules. Her letter was reproduced in Inside Housing.

Today it is revealed that hundreds of other sites are now blighted with inflammable HPL cladding – high pressure laminate – and that people are living in potential “death traps”, to use the term of the shadow housing minister Sarah Jones.

There is dark talk of a cover-up.

When we first met senior officials about cladding in 2017, we warned them the issues of cladding went well beyond Grenfell’s ACM cladding only.

It was surely obvious that external wall materials of flats above 18 metres high needed to be examined.

Yet MHCLG officials insisted on restricting their inquiry to ACM material only.

The result is now a disaster: we are back to where we started, but with many more blocks of flats now urgently needing cladding to be removed.

Is there another £200 million? Or £400 million? Or a billion?

Government accused of cladding ‘cover-up’ two years after Grenfell Tower fire

The Government has been accused of “a poor attempt at a cover-up” in an announcement about cladding tests following the Grentell Tower fire. Two years on from the disaster which claimed 72 lives, people are still living in “potential death traps”, Labour’s shadow housing minister Sarah Jones said.

Building owners with “Grenfell” cladding must take immediate action to fix it

Cladding similar to that used on Grenfell Tower is lethal and must be fixed “as soon as possible”, government fire tests have found. Long-awaited tests carried out on High Pressure Laminate (HPL) material – which is wrapped around the homes of thousands of people in the UK – found it was “clear” in some cases it had to be removed.

And is this a justifiable expenditure? After all, leaseholders are actually owners of a leasehold asset. A not inconsiderable number are buy-to-let landlords.

Or, as Melanie Dawes put it when considering the £200 million handout: “The distributional impact is likely to be slightly regressive since leaseholders, on average, have incomes higher than those of the general population.”

LKP, as the secretariat of the All Party Parliamentary Group on leasehold reform, has organised two Westminster meetings with residents living in these blighted sites – the only organisation to have done so.

It has consistently warned officials and ministers that their approach to cladding was wrong.

We offered in 2017 to host a meeting with developers and freeholders and leaseholders to provide solutions – such as the government loan system to remove cladding in Australia – but officials thought they knew best.

It must be clear to everyone that the government cannot afford to keep paying to fix our broken buildings.

And it must be crystal clear that freehold-owning speculators are not going to do so.

Without exception, every ground rent speculator declined to respond to Mr Javid and Mr Brokenshire appeal to pay up to remove cladding.

So, what on earth are they for?

To sort this mess out we need to follow the Australian model and have government loan in place to remove the cladding.

The money cannot be leaned to leaseholders as they are only tenants in law.

The freeholders have demonstrated that they are not going to help.

At every cladding site the freehold needs to be handed over to the leaseholders, whose combined leases are far more valuable than the freehold.

Most freeholds are worth around 1-3% of the value of a building: the value of the leases far outweighs that of the freehold, yet the freehold owner is the “landlord”, makes all the decisions and is treated in law as the building’s owner (even though he never pays for anything).

Leaseholders need to deal with this problem and have possession of it, paying back the government loan as part owners of the freeholds. Freed from a third-party freeholder, they can also seek relief from developers, warranty providers and, yes, building regulators. In the courts, if necessary.

But the sheer pointlessness of having a third party landlord could not be more obvious.

They are the building owner when it comes to any income, but are entirely absent when it comes to showing any serious responsibility.

Over the cladding crisis, they are an impediment and need removing.