By Harry Scoffin
While leaseholders with Grenfell ACM (aluminium composite material) are in line for a £200 million handout from taxpayers, those with other forms of combustible cladding – now estimated at 500,000 flats, “come together and raise sufficient funds”, the Communities Select Committee was told on Monday.
Communities Secretary Robert Jenrick claimed that “banks can lend against properties and find arrangements to make it work”.
LKP understands that lenders told government in 2017 that they could not provide additional funds on properties impacted by dangerous cladding.
Mr Jenrick was challenged by Kevin Hollinrake, the Conservative MP for Thirsk and Malton, to defend a position whereby leaseholders, many of whom may have “taken out a high loan-to-value mortgage” on their flat, are “under water in terms of negative equity” because government encouraged them to borrow as a way of covering cladding bills.
Mr Hollinrake took issue with the Secretary of State’s comments that while some leaseholders “will be in financial hardship” there are “many who are not”, owing to the “significant equity in their properties”.
LKP has been deluged by leaseholders trying to sell their properies but being unable to do so as valuers are issuing zero valuations on blocks with dangerous non-ACM cladding, as well as those on developments with panelling which cannot be verified as safe under MHCLG guidelines.
The Times reported this earlier this week:
Owners of up to 500,000 flats face being unable to sell or get a new mortgage because of uncertainty over government advice on towers clad with flammable materials.As the inquiry into the Grenfell Tower disaster prepares to publish its first report on Wednesday, the cladding scandal is widening beyo
Mr Hollinrake highlighted that the nature of leasehold ownership means that building owners are third-party freeholders who are often only interested in the ground rent income.
The Tory MP said:
“Where you have a building that’s non-ACM cladding, so combustible cladding that needs remediation, the building owners you refer to may be freeholders and their only connection to the building is to manage the building for a ground rent of £200 a year [per flat].
It costs to remediate each flat, on average, £30,000 let’s say, [which] is not untypical.
If you ask building owners to do that, they would simply fold their companies and walk away because there’s no financial relationship between the two figures…
Isn’t it inevitable that the taxpayer is going to have to pick up the bill?”
Mr Jenrick said he was not persuaded of the need to call for “the taxpayer to step in and fund, as a matter of course, remediation on what could potentially be on quite a significant scale across the whole country, regardless of need”.
Mr Hollingrake said that he “can’t believe we’d ever get the leaseholders paying for this stuff,” to which the Communities Secretary refused to rule out a change in government policy with respect to who pays for remediation on non-ACM cladding sites.
Mr Jenrick stressed that “at the moment” the approach government has “followed is that, with the exception of ACM, it is for the building owner to do this.
Helen Hayes MP: But leaseholders will pay because freeholders have no legal obligation to pick up the tab …
The Communities Secretary was also quizzed by Labour MP for Dulwich and West Norwood Helen Hayes over the cladding crisis.
He updated her on the progress of the government’s flagship ACM cladding fund for privately-owned buildings and confirmed that out of the 168 high-rise blocks with Grenfell-style cladding:
- 24 have started remediation
- 76 have a remediation plan in place, but works haven’t started
- 46 have responded with an intent to remediate and are developing plans
- 22 buildings have not come forward with any remediation plans “and at that point it was unclear what they intended to do”
Mr Jenrick said that “the present situation is not acceptable” and raised his disappointment that some “building owners” are still “not taking advantage of this”, despite taxpayers paying for the remediation.
The Communities Secretary said that government has now established “a named contact” for each freeholder, adding his officials are working to “encourage the building owners to take action… phoning and discussing this with them on a weekly basis, if not more often than that”.
The remarks support the LKP position that distant freehold-owning entities do not work for the benefit of the buildings they nominally own as their interests do not align with that of the residents.
They have invested in residential freeholds for the income streams of the buildings, not to play a stewardship role or provide a service.
Mr Jenrick also repeated his intention to ‘name and shame’ freeholders who have refused to apply for the ACM cladding fund and confirmed that his department are exploring other more “meaningful” tools by which they can compel the “building owners” to commence remediation.
In a terse exchange between the two politicians, Mr Jenrick was forced by Ms Hayes to defend the inconsistency of government policy on the cladding crisis.
She highlighted the fact that some leaseholders are in line for financial assistance, because their buildings happen to be wrapped in Grenfell-style cladding, while others in equally dangerously-clad properties are left to plead with their freeholders ‘to do the right thing’ over remediation costs.
The Labour MP for Dulwich and West Norwood described the government as being “reliant on the goodwill of landowners / building owners, many of whom will choose simply to pass the costs on because they can.”
The Communities Secretary conceded the point:
“Well, you’re right that it would be the responsibility of the building owner to cover those costs and they would recover them, you know, under the law from leaseholders if that was their right to do so.
The question is do we cover this cost from the taxpayer at large. We’ve chosen to do so with respect to ACM because it was so urgent and important that that was removed quickly and, even in that case, that is taking longer that we would like.
But beyond that, I do think it’s right the owners of those buildings should shoulder the cost of ensuring those buildings are safe – rather than that being something that all taxpayers pay for all properties.”
Unhappy with his response, Ms Hayes said that the question is not about taxpayer liability, but “whether the building owners should be able to pass on those costs, at a very high level, that arise through absolutely no fault of the homeowner [leasehold tenant], and are being undertaken only to make the homes safe from fire?”
She said that the government “can intervene” to protect leaseholders against crippling cladding bills.
Mr Jenrick rejected the suggestion, saying that “we haven’t proposed making what I think would be a pretty fundamental change to the rights of building owners and leaseholders, but I don’t want to appear uncritical of building owners.”
On the issue of wider building safety he referred Ms Hayes to his opening remarks.
He had begun the session by announcing his decision to enlist Dame Judith Hackett, the reviewer of building regulations originally tasked to produce proposals for a post-Grenfell safety regime, to help him set up a “shadow regulator” to avoid residents waiting two years for the shakeup of building safety rules to come into force.
Unfortunately, Dame Judith herself had confessed to having no background in estate management nor understanding of how leasehold ownership interacts with building safety, including the stratagems freehold owners deploy to undermine residents’ voice.