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.
By Liam Spender
A 10 March 2021 High Court decision shows that leaseholders at New Capital Quay face an uphill struggle to recover losses they may suffer as a result of remediation works which may still not meet the latest Building Regulations requirements. These losses may arise even after tens of millions have been spent removing and replacing cladding at the site.
The High Court decision means leaseholders will have to re-plead their claim to be able to recover these costs. This underlines the fact that litigation is an imperfect solution to the current building safety scandal, even in cases where claims against solvent defendants are still possible.
£40 million of remediation costs
Leaseholders at the New Capital Quay development in Greenwich continue their fight for compensation against Galliard Construction Limited (“Galliard”) and Roamquest Limited (“Roamquest”). Roamquest is the developer who sold the flats and remains the freeholder. Galliard is the construction company in charge of building the affected blocks. Both are part of the Galliard Homes group.
LKP has previously reported on this site and the leaseholders’ battle against Galliard Homes
New Capital Quay consists of 992 apartments arranged over 11 tower blocks of varying heights. There are 322 social housing apartments at the site.
Galliard built the blocks between 2009 and 2014. The blocks were clad in flammable Grenfell-style ACM cladding, in addition to missing fire breaks and inadequate compartmentation. As LKP previously reported, the New Capital Quay development is believed to be the largest ACM-affected residential site in Europe.
In 2018, the National House Building Council (“NHBC”) accepted a warranty claim for cladding remediation works. The works are estimated to cost £40 million. Completion is expected by August 2021. But for the NHBC’s pay out, leaseholders could have been faced with bills of £40,000 each or more.
Taxpayer on the hook via Help To Buy
Property values at the site have nevertheless plunged. The taxpayer has exposure to these losses via the Help To Buy equity loan scheme. In 2018 the taxpayer lost £75,000 on one property at New Capital Quay. In January 2021, Inside Housing reported a Freedom of Information request response from Homes England showing taxpayer losses of £395,000 on 119 Help To Buy mortgages across 119 different flats
Inside Housing, news, analysis, and comment about the social housing sector in the UK.
It appears Homes England, the body overseeing Help To Buy equity loans, has since taken a harder line on this valuation issue. Homes England now insists if leaseholders affected by cladding want to sell then they must pay off their Help To Buy loan at the “unaffected market value” of their flats. That’s surveyor-speak for the assumed value of the flat if there were no cladding.
Homes England may yet be the body charged with implementing the government’s ill-conceived forced loans scheme to remediate cladding on buildings between 11 and 18 metres tall.
Claims made in the litigation
On 31 July 2019, a group of 124 leaseholders of 186 flats in six different blocks began legal proceedings against Roamquest and Galliard. The proceedings seek damages from Roamquest and Galliard under the Defective Premises Act 1972 (“DPA”), for breach of the Building Regulations and for breach of contract.
This decision related to a part of the claim seeking £5.8 million in damages. Those damages are sought in respect of additional remediation costs the leaseholders may face as a result of fire breaks and fire stopping behind the replacement cladding not meeting the latest Building Regulations.
The NHBC is paying for cladding remediation and waking watch costs, but leaseholders still face other losses not covered by the NHBC. The leaseholders’ overall claim seeks damages for increased building insurance premiums, lost rental income, alternative accommodation costs and damages for distress and inconvenience.
The £5.8 million claim arose because leaseholders are concerned that the results of a July 2019 survey at the site suggest that the works being carried out by the NHBC may still not meet the requirements of the latest Building Regulations. In particular, it seems there are doubts whether some fire breaks and fire stopping behind the cladding, which are not being replaced by NHBC, will require replacement in the future to meet those Building Regulations requirements.
This part of the claim appears to have been made because there is a dispute as to whether the remediation works began before or after 21 December 2018. For this purpose, works can be deemed to begin at building control plans approval stage. The date is important. If the works started in 2019, as the leaseholders appear to argue, they are caught by the revised Building Regulations effective from 21 December 2018. Those regulations impose tougher standards, including a ban on combustible materials in the external walls of buildings more than 18 metres tall. The new regulations apply to major refurbishment works, such as recladding an exterior wall.
If the works began in 2018, as Roamquest and Galliard appear to argue, then they are not covered by the 2018 Building Regulations but by the 2010 Building Regulations. Those regulations do not contain the same ban on combustible materials.
It may therefore be possible, although the NHBC, Galliard and Roamquest seem to deny this, that the remedial works when completed will still result in a failed EWS-1. That is because the Advice Notes issued by the government in relation to external walls apply the 2018 Building Regulations standards. The EWS-1 process follows the standards in the Advice Notes.
Put simply, the leaseholders in this case are seeking to protect themselves from having to pay for another set of remedial works due to the regulatory mess caused by the government’s Advice Notes.
Extra-statutory guidance and its role in relation to the Building Safety scandal – Part 1: Advice Notes
It soon become clear following the Grenfell Tower fire that many other high-rise residential buildings with cladding were also at risk. The government’s response has been to seek to make buildings safe by issuing instructions to building owners through extra-statutory advice notes (the “Advice Notes”).
The particular difficulty the New Capital Quay leaseholders encountered in this case is due to the fact that they appear to have issued their claim at or very near the end of the limitation period, or time limit, for bringing such claims. Limitation periods are vitally important. If a claim is not brought within a the relevant time period allowed then it is lost forever. These time limits are enforced strictly.
Claims for breach of contract must be made within 6 years of the date of the breach. The law deems the breach of contract in a property transaction case to occur on the date the sale completes.
Claims under the DPA must be made within 6 years of the date the building is “completed”. There may be complicated disputes over when any given building is deemed to be “complete” for the purposes of DPA claims, although not in this case.
Negligence claims (claims based on an argument that a duty of care was owed, that it was breached and the breach caused damage to the claimant) are potentially subject to two different limitation periods. Claims in negligence must ordinarily be made within 6 years of the date of the damage. If the facts giving rise to the claim of negligence were unknown, then a claimant has a second period of 3 years to bring a claim, beginning on the date when a claimant first becomes aware of sufficient facts to realise he has a claim. In the second case, claims may not be brought more than 15 years from the date of the breach of duty (the negligent act).
Negligence claims are of limited use in building defects cases because, unlike with contract and DPA claims, the law does not allow recovery of economic losses against builders. Economic loss is precisely the type of loss being sustained by leaseholders in defective buildings, including things such as higher insurance premiums, lower property values and waking watch costs.
Limitation rules are harsh. The courts interpret them narrowly. As many hundreds of thousands of leaseholders have discovered already, time runs for contract and DPA claims whether leaseholders are aware of the breaches or not.
This case illustrates that limitation also poses serious practical difficulties when a claim is issued at or near to the end of the limitation period. English litigation requires that claims are pleaded to an arguable standard. If that standard is not met, the other party to the case can apply to strike out the claim, meaning it is removed from the case and not considered further by the court. That is what Galliard and Roamquest attempted to do here.
In this case, it appears the survey on which the claimant leaseholders base this part of their claim was completed in July 2019, at roughly the same time the claim was issued. The claimants had only limited time to put their case together, as is often the case when a claim has to be issued before the time limit expires.
Roamquest and Galliard attempted to have the £5.8 million claim struck out on the basis that (i) it was not arguable, being based only on suspicion and not evidence and (ii) that the leaseholders had no right to claim for anything other than increased service charges as a result of doing any further work.
The judge found that the claimant leaseholders’ arguments that they may suffer losses from non-compliant remediation work are not arguable as currently pleaded. The judge gave the leaseholders permission to try to amend their pleading to make the claims arguable in court. The claims will be struck-out if the claimants cannot do this.
The judge also held that leaseholders can claim under contract and under the DPA for losses other than increased service charges. That means that if the claimant leaseholders can amend their pleading successfully, they will be able to argue that they collectively should recover some or all of the £5.8 million they are seeking under this part of their claim.
The full judgment is available here: https://www.bailii.org/ew/cases/EWHC/TCC/2021/567.html
Hearing this one issue in this case occupied a full day of the High Court’s time, involving two rounds of further written arguments after the hearing. The claimant leaseholders were represented by a QC and a junior barrister together with their solicitors, Leigh Day. Galliard and Roamquest were represented by a junior barrister and two separate firms of solicitors.
The total costs of the hearing are not stated in the judgment, but are likely to run to at least tens of thousands of pounds. If the claimant leaseholders’ claim is not successfully amended and is struck out, the leaseholders may be forced to pay Galliard and Roamquest’s legal costs of the hearing.
Aside from the issues cases like this raise in relation to access to justice, it underlines the fact that litigation in England is an expensive place in which to conduct litigation. Complex cases around buildings defects can involve a number of hearings on points like this before reaching trial, further increasing costs and dragging out proceedings, which may last for years.
The only guaranteed winners from this approach are lawyers. It is within the government’s power to spare leaseholders the need for litigation by producing up front funding for the costs of works. Other measures such as prioritising the affected buildings by risk and establishing a central tariff of costs could also be taken to target resources where they are most required.
The LKP itself has proposed a system that would produce billions of upfront funding recovered by levies on developers
As 17% of cladding leaseholders consider bankruptcy, LKP funding proposal offers alternative to successive crises facing flat-owners
The government has to date offered only a pale imitation of LKP levy, being a £200 million a year tax for 10 years. That tax would raise just 13% of the estimated £15 billion cost of solving the building crisis. The government has made a political choice to put developer interests ahead of leaseholder interests. Substantial Civil Service effort is now being diverted into making leaseholders pay forced loans and the proposed Building Safety Charge, instead of coming up with a comprehensive financial solution to the crisis.
The sooner the government realises that what the LKP proposes is the right thing to do, as it so often urges developers, the sooner the abject misery of leaseholders will be eased. Until then, expect to hear of more cases like this one.