By Liam Spender
Liam Spender is a Trustee of the Leasehold Knowledge Partnership. Personally affected by the cladding scandal, Liam is a Solicitor-Advocate and Senior Associate at Velitor Law practising commercial litigation and arbitration in the City of London. Views in this article are personal and do not constitute legal advice.
Parliament last night broke the four month long deadlock over the Fire Safety Bill. The Bill cleared the Lords by a vote of 153-242, a majority of 89.
The Bill’s passing leaves many leaseholders angry and confused about what comes next. Many face financial ruin as a result of the government’s failure to take action to keep its promise that leaseholders should not pay these costs. This article summarises the debates in Parliament yesterday and then sets out answers to Frequently Asked Questions.
Long opposition from the Lords
Since December 2020, the Lords has been urging the government to add leaseholder protection into the Bill. These pleas fell on deaf ears. The government repeatedly rejected amendments. In the end the government did not budge an inch on the wording of the Bill, instead forcing it to a last-minute vote before the current session of Parliament ends later today.
Commons rebellion led by Sir Peter Bottomley
The Fire Safety Bill end game began in the Commons after Prime Minister’s Questions on Wednesday.
Chris Pincher, the Minister of State for Housing, opened the debate. Mr. Pincher served up many of the same platitudes that the government did want to protect leaseholders but would not act to protect them until the Building Safety Bill was introduced to Parliament.
Mr. Pincher did repeat his promises from Tuesday’s debate, saying that the government would look to bring in a ban on forfeiture as part of its leasehold reform package. Mr Pincher also promised that details of its soft loan scheme for buildings under 18 metres would be published soon.
Sarah Jones – Labour Shadow Fire Safety Minister – delivering a fiery speech, condemned the government for putting the interests of developers above leaseholders and the interests of developers above financial stability.
Hilary Benn called on the government to convene an urgent round-table, free of property interest lobbyists, to discuss how to resolve this situation for the benefit of all leaseholders once and for all.
Not a single Conservative backbencher spoke in favour of the government’s proposals. Bob Neill in particular condemned the government’s disingenuous excuses for not drafting leaseholder protection into the Bill, saying this could be easily achieved if the government chose to do so.
Bob Blackman, a long-time critic of the government on this issue, also condemned the government’s lack of action, saying that the government owed a duty to redraft the amendments to protect leaseholders. Mr Blackman criticised the government for running down the clock instead of getting around the table to negotiate a solution with rebel Conservatives.
Other speakers, all against the measure, included former Liberal Democrat Leader Tim Farron and Labour MPs Ruth Cadbury, Barry Gardiner and Stephen Doughty.
Just before the vote, Sir Peter Bottomley, again leading a rebellion of 39 Conservative backbench MPs, asked the government to roll the Bill over into the next session of Parliament to give the government time to come up with a solution. The Deputy Speaker ruled that this was not possible as the Bill had already been considered by the Lords. In any event, it was a decision for the government to make.
The Commons sent the Bill back to the Lords without leaseholder protection, voting 322 to 256, a government majority of 66. The vote saw a rebellion more than halving the government’s majority, underlining the deep unease on Conservative backbenchers about the government’s inept handling of this issue.
The Hansard record of the debate is here: https://hansard.parliament.uk/commons/2021-04-28/debates/96647D2E-D688-41F9-8367-71E87CCAE042/FireSafetyBill
The voting record is here: https://votes.parliament.uk/Votes/Commons/Division/1023
Scathing speeches in the Lords
Expressing genuine anger, the debate saw many peers lambasting the government for failing to keep its word that leaseholders would not have to pay
Lord Newby, a Liberal Democrat peer, said that Chris Pincher – Minister of State for Housing – had responded to the earlier Commons debate with “with all the empathy and grace of a Victorian miller faced by workers’ demands to install expensive safety equipment on all the machinery.”
Lord Roy Kennedy (Labour Shadow Minister for Housing) and Baroness Kath Pinnock (Liberal Democrat Spokeswoman on Housing) each tried again to force the government to accept amendments to protect leaseholders.
Only Baroness Pinnock’s amendment went to a vote. The Pinnock Amendment would have capped costs at no more than £600 per leaseholder per year, mirroring the government’s own capped loan proposal.
Lord Greenhalgh – the Lords Minister of State for Housing – again looking visibly uncomfortable as he read from a prepared speech – gave a series of increasingly fanciful, specious reasons for not accepting the last ditch amendments proposed by Baroness Pinnock and Lord Kennedy.
The minister ultimately had no answer as to why the government was breaking its promises to leaseholders, instead only offering to do something about it (perhaps) when the Building Safety Bill is introduced to Parliament.
The minister also repeated the promises made regarding forfeiture protection and a reform of limitation periods and corporate/director liability for building defects claims.
Lord Greenhalgh appeared to contradict previous government statements when he said that the government’s financing solution would not require an Act of Parliament. This appears to point to some sort of contractual arrangement, rather than a change to lease terms, as the government originally appeared to be proposing.
Other powerful speeches came from Baroness Fox, Lord Adonis and the Earl of Lytton, each of whom condemned the government’s lack of a plan to resolve this. All three peers warned of looming disaster in the housing market if nothing was done to help leaseholders.
Lord Adonis, referring to the fact that the Lords’ constitutional duty is only to delay and not to block legislation, argued that the government had committed to resolving these issues for leaseholders in its last manifesto and adopting the amendment would be implementing that promise.
Ultimately, the speeches were of no effect. The Lords did its constitutional duty and allowed the Bill to pass, rejecting Baroness Pinnock’s amendment by a vote of 153-242, a majority of 89.
The Bill is expected to receive Royal Assent and become an Act of Parliament later today. The commencement provisions in the Act mean it will not have legal effect until a day appointed by the English and Welsh governments.
The Hansard record of the debate is here: https://hansard.parliament.uk/lords/2021-04-28/debates/98E4480A-9A0F-4D0A-A861-37B525848DCF/FireSafetyBill
The voting record is here: https://votes.parliament.uk/Votes/Lords/Division/2520
Coverage of Tuesday’s proceedings in Commons and Lords is here: https://www.leaseholdknowledge.com/fire-safety-Bill-ricochets-around-parliament-as-31-conservative-mps-again-vote-against-the-government/
Can this problem ever be solved? Yes
This is not a difficult problem to solve. It has already been solved elsewhere in the world. The government needs only to look to Australia and Scotland for working model examples of how to resolve this problem.
A solution to getting the buildings up to the level of safety required probably involves the government providing cashflow funding to do remedial works whilst it comes up with a scheme to collect the money off the developers, construction contractors, cladding manufacturers, building inspectors and others who are ultimately responsible.
The LKP has itself proposed a levy to raise the money to do this, which is explained here: https://www.leaseholdknowledge.com/as-17-of-cladding-leaseholders-consider-bankruptcy-lkp-funding-proposal-offers-alternative-to-successive-crises-facing-flat-owners/
Other alternatives have been put forward. One of which is to modify the existing laws applied to clean up contaminated land (the Environmental Protection Act 1990) and to ensure final salary pension schemes are properly funded (the Pensions Act 2004) to force those responsible to pay.
What will the new law actually do?
The new Fire Safety Act amends the Fire Safety Order.
The Fire Safety Order is the main law governing how fire safety risk assessment are performed. The Fire Safety Order applies to a wide range of buildings, residential, industrial and commercial.
The Fire Safety Act makes clear that in the case of buildings containing 2 or more residential dwellings the external walls and individual entry doors of flats must be assessed for fire safety. This removes any doubt in the current form of the Fire Safety Order.
The new Fire Safety Act is a push-pull operation. It potentially pushes more buildings into scope of having their external walls and flat doors inspected than at present. This may worsen the problems already caused by the EWS1 process, if that is what happens.
The Fire Safety Act also, potentially, pulls many buildings that have been affected by the EWS1 out of scope through new risk-based guidance. The potential effect of the risk-based guidance is explained in response to a question below.
Whether the Fire Safety Act actually improves matters will depend a great deal on how the “pull” factor works in practice, if at all. If the “pull” part of the Fire Safety Act works, this is potentially a ray of hope for leaseholders, who may be spared costs.
Doesn’t this change in the law implement Sir Martin Moore-Bick’s recommendations
It is true that the Phase One report from the Grenfell Inquiry recommended this changes. See the Phase One report here: https://www.grenfelltowerinquiry.org.uk/phase-1-report
However, the government has already forced these changes to be implemented via Advice Notes it has issued since October 2017. In particular, its January 2020 Consolidated Advice note specifically extended the advice to check external walls and flat entrance doors to all buildings of any height. The effect of the Advice Notes is explained here: https://www.leaseholdknowledge.com/government-use-of-extra-statutory-powers-has-made-the-cladding-crisis-far-worse-than-in-australia-or-possibly-scotland-writes-lkp-trustee/
The Advice Notes have no legal basis. The Fire Safety Act is partly required to provide a basis in law to cover the government’s previous actions. If anyone challenges the Advice Notes now, the government will doubtless pray-in-aid this new law to justify the steps it took before it came into effect.
So the Fire Safety Act does nothing to solve the problem or ensure buildings are safe?
Yes, the Fire Safety Act alone solves nothing and contributes nothing to building safety.
There are two key issues here. First, there is not enough money available to bring buildings up to the standard of “safe” defined by the government.
Leaseholders cannot afford the billions of pounds the government is forcing them to spend to reach its standard of “safe”.
Unless every leaseholder in an affected building can afford the necessary works that building will not be remediated. The government can change the law as many times as it likes, but only more money will resolve this first issue.
Secondly, the government has not defined what “safe” means, except that it involves not having certain materials on the outside walls of buildings. This ill-defined standard of “safe” has been forced on buildings via the Advice Notes issued since October 2017.
The Advice Notes have in turned spawned the EWS1 process, which has rendered many thousands of properties unmortgageable either because they cannot obtain an EWS1 or because they have “failed” the crude test in the Advice Notes.
The new Fire Safety Act attempts to address this issue. The new Act requires the government to issue a new code of risk-based guidance against which external walls and flat entrance doors are to be assessed. This is the “pull” part of the law referred to earlier.
The British Standards Institution (“BSI”) is currently consulting on part of that risk-based guidance. It is developing a new standard for assessing the fire risk posed by external walls, called PAS9980. You can see the consultation here: https://www.bsigroup.com/en-GB/about-bsi/media-centre/press-releases/2021-press-releases/april/public-consultation-open-for-pas-9980/
The BSI document is long, technical and complicated. In simple terms, it proposes the fire risk of external walls by reference to a wide-range of factors, including the type of cladding on the external walls, the characteristics of the building’s population, the quality of fire escapes and fire alarms
The risk-based approach is similar to that used in New South Wales and Victoria, Australia, which has tried to divide buildings into high, medium and low risk categories, focussing resources on the highest risk buildings.
The English approach has been to leave the determination of risk to people with vested interests in generating fees and reducing their own legal liabilities, such as managing agents and surveyors. This has resulted in a high failure rate for the EWS1 process.
This vacuum of responsibility has allowed insurers to step in and to appoint themselves as arbiters of building safety. This, coupled with a hardening of the market as insurers try to recover years of past losses, has resulted in huge insurance premium increases.
The BSI’s guidance will only be effective in breaking this cycle if it is implemented in a level headed way by appropriately qualified professionals. A great deal depends on that working in practice. If the government continues to do nothing to define an appropriate standard of safety, the risk is that buildings which are low risk and which do not require extensive and expensive works will continue to be put up for remediation to satisfy vested interests’ demand for fee income and minimal legal liability.
Of course, as with the Advice Notes, the BSI’s standards appear to contradict what is said (or not said) by the current Building Regulations. Until the gap between the three is addressed, it is still possible to build a building that complies with Building Regulations, but when assessed by the Advice Notes or BSI proposed method will be found to require remedial works. That underlines the depth of the government’s policy failure in this area.
So we can expect changes immediately?
No. Acts of Parliament typically do not come into force (i.e. legal effect) on the day they are made. The government includes rules about timing (called commencement provisions), which allow the government to bring the Act into force at different times.
The parts of the Fire Safety Act which extend the Fire Safety Order to external walls and front doors will not come into force until the English and Welsh governments name a day. The English day may be different from the Welsh day. The section of the Act enabling the government to issue risk-based guidance will come into force on the same day the Fire Safety Order is extended to external walls and flat front doors in England or Wales.
In practice, this is likely to mean that the new Act will not be brought into force until the risk-based guidance is ready. As things currently stand, this may not be until the end of 2021 or the beginning of 2022.
Until the new law comes into force, the current law applies.
So the Fire Safety Act makes things worse?
The Fire Safety Act makes things worse in two ways. The first, as explained below, is that it in most cases it will remove any doubt that lease terms require leaseholders to pay these costs. Leaseholders were already being billed before the law was changed. The changing law makes it even easier to send them bills for remediation costs in the future.
Secondly, the Fire Safety Act, as discussed above, potentially brings millions of new buildings into scope for assessment, including two flat conversions from old houses. It is only if the risk-based guidance described above pulls such buildings out of scope that the new law will avoid compounding the existing problems.
What should leaseholders do in response?
Unless works are already underway, or are required because the local Fire Brigade has imposed a statutory notice requiring works to be undertaken, leaseholders may wish to consider pushing back against works starting. Leaseholders cannot stop works, but sufficient protest is likely to force landlords and managing agents to think again.
The new risk-based guidance issued under the Fire Safety Act may well be different to the requirements of the Advice Notes. Perhaps some lower-risk buildings caught by the Advice Notes will no longer require works, or will require less extensive works.
Until the new Act comes into force, we do not know. There is a risk works may not go far enough or may not be required at all. Leaseholders may wish to push back on that basis. Managing agents and freeholders should think twice before demanding money from leaseholders in these circumstances.
Seeking independent legal advice appropriate to facts of an individual case is also a good idea.
What if leaseholders cannot pay?
There’s an old adage that if you owe the bank £100 it is your problem, but if you owe the bank £100,000 then it is the bank’s problem.
The adage applies to the current situation between freeholders and managing agents who want to go ahead with works and leaseholders who cannot pay. The fact that the money is not available is as much, if not more, of a problem for the managing agents and freeholders as it is for leaseholders.
If leaseholders cannot pay, they should tell their managing agent why. Given the scale of the bills in question, some running to tens of thousands of pounds, it is not unreasonable to expect landlords to put in place adequate payment plan terms, such as interest free loans over long periods, to ensure leaseholders can pay the costs demanded.
If you do not pay your service charge then virtually all leases will say this is a ground for the landlord to seek to forfeit the lease. This means that the lease disappears and the property returns to the landlord. The landlord needs a court order to exercise forfeiture. Any forfeiture does not affect your liability to pay a mortgage.
If a mortgage is in place, the landlord is obliged to contact the lender to see if the lender will pay the unpaid service charge to avoid forfeiture. If the lender does pay, this money will be added to your mortgage.
Outside of forfeiture, there is also a risk that a landlord could seek to bankrupt a leaseholder, or obtain a Court judgment that the leaseholder is liable to pay money. Obtaining such a judgment would allow the landlord to seek other orders, such as Attachment of Earnings Orders (requiring your employer to pay over money directly to the landlord) or Third Party Debt Orders (requiring that third parties, such as banks holding your savings, pay over money to the landlord).
There is a difference between having a legal right to do something and it being worthwhile exercising that right. In the current circumstances, it is not in landlord’s interests to start forfeiture proceedings against an entire building. That would only result in the works not being done and leaseholders becoming homeless. If it has to be done across many thousands of properties, then even landlords and managing agents are going to have to consider the severe consequences for their businesses of creating thousands of empty properties with no service charge or ground rent income coming in.
It is also not in lenders’ interests for large numbers of mortgaged flats to be subject to forfeiture. That would have material consequences for their balance sheets and the wider financial system. The Bank of England is reported to already be concerned about this latter risk. Mortgages are bank assets. Anything that affects the value of a flat affects the value of the asset, the mortgage, the bank has secured against that flat.
As for the non-forfeiture options, it is also not worthwhile obtaining a judgment against a defendant who cannot pay it, even if money held or paid by third parties cannot be redirected. Litigation costs money. There is no point spending money with no prospect of recovering anything.
We cannot rule out the risk that some unscrupulous freeholders will go down the road of forfeiture, bankruptcy petitions or seeking judgments against leaseholders. That is why it is important to seek appropriate legal advice and to try to reach an agreement, where possible, on service charges.
All of the above underlines the need for the government to provide a comprehensive financial solution to ensure works can be done, buildings can be made safe where necessary and the market can resume ordinary operation.
What if I can pay?
It is a sad fact of the leasehold system that managing agents and others regularly load up service charges with high fees for themselves and many other hidden fees and commissions. The remedial works to cladding and to remedy other fire safety defects are no exception.
Every bill, even if you can pay it, should always be examined closely for signs of these inflated charges. Every bill should always be checked against the terms of the lease to see if it has been properly raised.
If you think there are grounds for challenge, whether in terms of the amount of the bill or the legal right of the landlord to claim the costs under the terms of the lease, you should pay the bill but write to whoever sent it and say it is “paid under protest”. This removes any doubt about your right to challenge the bill later.
Leaseholders need evidence to challenge bills. They must challenge bills at the First-Tier Tribunal and produce evidence to demonstrate that charges are not reasonable in purpose, or in amount or by reference to the quality of work or service delivered.
This is a complicated area. When the changes under the Fire Safety Act are brought into force it is likely to be harder to challenge bills for remedial costs on the basis of lease terms. The new Act is likely to remove any doubt that these costs are recoverable under lease terms. So that leaves arguments as to whether the costs imposed are reasonable in the ways described above.
Again, when faced with large bills, it is always a good idea to seek legal advice specific to your circumstances.
Do leaseholders have any other legal options?
The short answer is, unfortunately, no.
This article explains the legal position in further detail: https://www.leaseholdknowledge.com/should-the-buyer-beware-leaseholders-and-fire-safety-remediation-costs/
Why did the Lords not block the Bill and stop it from becoming law?
The British system of government ultimately relies on the unelected Lords giving way to the elected Commons.
Last night the Lords came up against the confines of its constitutional straitjacket. It had no realistic choice other than to let the Bill pass.
Some argue that it would have been worth sending the Bill back to the Commons with the Pinnock amendment. Ultimately this would have achieved nothing. Whilst there has been a 40-odd strong rebellion among Conservative MP in the Commons, this is not enough to defeat the government. The government would merely have rejected the amendment and sent it back to the Lords, which would then had to give way to the Commons.
Some also argue it would have been better to deprive the government of its new law, by letting the Bill fail. If the Bill had not passed by the end of today, it would have failed automatically because all bills must pass both houses by the end of each Parliamentary session.
Allowing the Bill to fail would have set an extremely dangerous constitutional precedent. You can read more about this here: https://commonslibrary.parliament.uk/research-briefings/sn05996/
In fact, the Lords behaving in this way to block land taxes proposed by the Liberal government between 1909 and 1910 led to two General Elections and diverted all attention to a battle between Lords and Commons. The logjam was only broken by the passage of the 1911 Parliament Act.
The 1909-11 controversy also led to a constitutional change that would have meant blocking the Bill last night would not have prevented it from eventually becoming law. If the Lords had blocked the Bill last night, the government could have used the Parliament Acts 1911 and 1949 to force the Bill through without the Lords’ agreement. The Parliament Acts are a product of the Lords’ attempts to block the will of the elected Commons in 1909-11 and under the post-WWII Attlee government.
Did anything come out of the repeated attempts to force the government to reconsider the Fire Safety Bill?
Yes. The government has promised reforms to protect leaseholders from forfeiture as part of its leasehold reform package due to start going through Parliament later this year. The government has also promises to extend limitation periods for bringing claims against developers and to make it easier to prosecute companies, and their directors, involved in construction.
The forfeiture relief, though welcome, is unlikely to come anytime soon. It requires an Act of Parliament, so is probably at least a year to 18 months away. It will not help leaseholders who cannot pay their bills now.
The other package of measures around limitation periods also requires an Act of Parliament, so is also some time away. It is very unlikely the government will make these changes apply retrospectively, so they are only likely to benefit future buyers.
It is also unlikely the government will go as far as required to make builders build properly for fear of legal consequences, for example:
- Imposing implied warranties as to quality, habitability and compliance with Building Regulations as terms of building purchase contracts. In other words, making buildings subject to the same legal protection as consumer goods, such as cars and kettles;
- Requiring anyone involved in construction to maintain insurance for the full length of the limitation period as a condition of obtaining planning permission;
- Abolishing rules of law which prevent claims against building inspectors and others for economic losses; and
- Putting new building warranty schemes on a statutory basis, to give effective means of redress to consumers without having to litigate.
The measures above are things the government could easily implement to protect future house and flat buyers. All four measures should form part of any comprehensive response to Grenfell and be embodied in the Building Safety Bill.
Both sets of reforms rely on the government keeping its promises to protect leaseholders, something at which it has so far spectacularly and repeatedly failed. Having made these promises repeatedly in Lords and Commons, the government will not be surprised that people will look to hold it to those promises.
How can leaseholders keep up the pressure on the government to do something to help?
One easy way is to start sending copies of the bills as they arrive to MPs and ministers in the Ministry of Housing, Communities and Local Government. This should help publicise the fact that leaseholders cannot pay and need help to pay.
Copy in the Leasehold Knowledge Partnership firstname.lastname@example.org and we will raise them with the MPs in the All-Party Parliamentary Group on leasehold and commonhold reform.
Leaseholders may also wish to publicise the fact that they have received the Bill and have sent it to their MP via local newspapers.
And the bottom line?
This is not over yet. Not by a long way. Ultimately this is a question of political choice. Only if the government is put under sufficient pressure will it choose to help leaseholders.