This week sees the publication of the first Grenfell Inquiry Report. It will inevitably be a harrowing document to read.
The impact of that disaster rolls on both for those who survived the experience, and for tens of thousands of others who still live in blocks that have various forms of cladding.
This issue has now gone on for more than 850 days with no clear solutions for many sites.
The disaster of flammable cladding on private blocks of flats and what to do about it is providing the biggest push to transform leasehold law since we exposed the doubling ground rent scandal in autumn 2016.
The question now being asked is: What are the third-party freehold-owning landlords actually for?
For ground rent lobbyists, these commercial operators – even when unidentifiable and based offshore – are the “responsible entity” that owns a site. Only they can professionally manage blocks of flats for the long-term, it is claimed.
Unfortunately, these “responsible entities” proved to be absent in the aftermath of the Grenfell tragedy in June 2017.
It was 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 that the “building owners” – as ministers referred to the 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.
But this argument fundamentally misunderstood what a freeholder is.
He may be the “landlord” in law – and therefore enjoys an considerable advantageous position in disputes – but he is, in fact, little more than the owner of a building’s legally enforceable income streams. Inevitably, the residential leases of a building pass on 100% of the building’s maintenance costs to the leaseholders.
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.
As far as we are aware, every tribunal decision has made the leaseholders responsible for paying for the cladding replacement.
On May 9 2019 Mr Brokenshire was forced to raid his department’s housing budget for £200 million to help pay for ACM cladding replacement on private blocks owing to the inaction of the “building owner” freeholders.
This prompted Melanie Dawes, the MHCLG permanent secretary, to take the very unusual step of disclosing publicly her view that this decision was in breach of government spending rules.
More recently, it was 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 MP.
We have also had wooden cladding, which also needs to be removed from hundreds if not thousands of sites after the Barking fire in east London in the summer.
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. Now local authorities have had to go back and check all their buildings more than 18 meters high in needless duplication of work already done in 2017.
We are now back to where we started, but with many more blocks of flats urgently needing cladding to be removed.
The leaseholders will be made to pay by the courts and, inevitably, many won’t be able to and will face homelessness for build defects for which they had absolutely no involvement.
We have seen many flats for sale now declared to have “zero value”, because valuers and agents do not to feel able to declare that a buildings is safe when government tests are ongoing.
There appears to be a total lack of clarity about how materials that supposedly passed government tests (including the insulation used on Grenfell) are now deemed by the government to somehow fail those same tests.
There is dark talk of cover-up.
From Celotex, which manufactured the Grenfell Tower cladding:
We support the Government’s ongoing response to the Grenfell Tower tragedy, and the steps being taken to restore public confidence in construction methods, the selection of products and materials and the safety of tall buildings. We continue to offer full cooperation with the investigations which are considering a broad range of factors, such as building construction and the fire safety measures in place.
In January 2018, Celotex announced that its current management team had determined that there had been differences between the rainscreen cladding system which had been tested under BS 8414:2 in May 2014 (which included RS5000) and the description of that system in the report of the test published in August 2014.
Following this, we commissioned a further test under BS 8414:2, which aimed to mirror, as closely as possible, the system as described in the August 2014 report. The test was carried out on this specific rainscreen cladding system which uses cement boards amongst other products on 4 April 2018.
The test results show that the rainscreen cladding system tested (which included RS5000) met the performance criteria specified in BR 135 1. We are taking steps to notify the relevant bodies and contact our customers to inform them of the results of this test.
In terms of fixing the problem, is there another £200 million? Or £400 million? Or a billion?
And is this a justifiable expenditure?
After all, leaseholders are actually owners of a leasehold asset. A considerable number of them are buy-to-let landlords. Should taxpayers – and many under 40 will not own any property at all – be bailing them out?
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.”
The Leasehold Knowledge Partnership, which is the secretariat of the All Party Parliamentary Group on leasehold reform, organised two Westminster meetings with residents living in these blighted sites – the only organisation to have done so.
The Leasehold Knowledge Partnership has consistently warned officials and ministers that their approach to the cladding scandal 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 now that the government cannot afford to keep paying to fix our broken buildings. That is, blocks of flats built by our hugely subsidised house building companies.
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 the appeal of Mr Javid and Mr Brokenshire 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 loans in place to remove the cladding. The freeholders have demonstrated that they are not going to help.
The £200 million ACM cladding fund is now subject to further delays as every large site struggles to find 100% of the leaseholders.
Anywhere else in the world, where flats are owned by condominiums or commonhold strata entities, this would be a very simple matter: the resident directors of the controlling body would know who owns the flats.
In England and Wales, where the freehold speculator introduces every impediment to thwart leasehold owners contacting each other and thus uniting to question his management, it is far more complicated.
Furthermore, government has decided that its “state aid” to leaseholders is to be paid to the freeholders.
That is, the freeholders who sat on their hands and would not assist this crisis in the first place – beyond securing rulings in the courts that they did not have to pay.
Susan Bright, professor of law at Oxford, has questioned whether these proposed payments falls within state aid competition rules. This and numerous other issues concerning the cladding scandal were raised at a conference of the law faculty last month:
Is it really a good idea to hand over monies to the freeholders – many of whom are unknown and unknowable, hiding their beneficial ownership offshore; while others are indeed well known, and are among the dodgiest operators in the property sector?
Any state aid to remove cladding needs to be under the control of the leaseholders, whose combined leases are far more valuable than a building’s freehold. They are always the majority stakeholders even if they have little or no control of their building under our deeply flawed leasehold laws.
It should be a condition of the state aid to address cladding that the freehold assets are transferred to the leasehold flat owners.
In the long-term it is only leaseholders who are able to deal with this problem: paying back the government loan as part-owners of the freeholds.
Freed from a third-party freeholder with no interest in recovering funds from anyone for a defective building, the leaseholders could 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 entirely absent when it comes to showing any serious responsibility. Over this crisis, they have shown themselves to be an impediment and need to be removed.