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. Liam is unable to take individual cases or to give legal advice to individuals.
The Building Safety Bill will have its Second Reading in Parliament on Wednesday, 2 February 2022. The Bill is expected to become law before the end of the current session of Parliament, likely to be in April 2022.
The government’s rhetoric around cladding and building safety has certainly changed since Michael Gove took over from Robert Jenrick. Gone are misconceived appeals to the principle of “buyer beware” and a taxpayer versus leaseholder narrative. In comes talk of protection of leaseholders, with industry penalty and repentance, and pledges of broader leasehold reforms.
Campaigners have welcomed cautiously Mr Gove’s 10 January announcement that builders and others would be forced to pay for remediation of buildings 11 to 18 metres tall. This is said to produce at least £4 billion for that work. Leaseholders were also promised that the law would be changed to protect them from paying remediation costs.
Things have moved quickly since 10 January. That is in part a tactical decision and in part due to a shortage of Parliamentary time. The tactical decision is to ensure that the faster the government spins the wheel, the harder it is for anyone on the wheel to take bearings.
The shortage of Parliamentary time is due to the upcoming end of the current session, by which time the Building Safety Bill must be passed or lost.
Negotiations between the government and developers and cladding manufacturers have already begun.
The start of the negotiations sees much weeping and gnashing of teeth by the developers. Leaks from the first negotiating session saw them brand as “Marxist” the government’s proposal that they should pay to clean up their own mess.
They threatened the government with their lawyers and an audit of the costs of the crisis conducted by one of the Big 4 accountants. They warned darkly of “wave after wave” of judicial reviews if Mr Gove jeopardised their ability to obtain planning permission.
The cladding industry has been more circumspect. Perhaps because it realises that reaping profits from supplying flammable material undoubtedly comes with a duty to see that it is used properly. The evidence emerging from the Grenfell Tower Inquiry about their rigging safety testing also gives them limited room to manoeuvre.
It is difficult to know what definition of Marxist the leading developers had in mind when making their criticism. Is this not the same industry that has hoovered up £30 billion (or more) in taxpayer subsidies from Help to Buy? Has the same industry not benefited from decades of privileged access to Whitehall, seemingly ensuring regulations were made forever in their favour?
In the last 10 years, some of the listed developers have been making up to half their sales on the back of taxpayer funded schemes. These companies have, in some cases, doubled their operating profit margins on the back of the subsidy pound. Those fat margins have in turn been paid out in the form of dividends to shareholders and bumper bonus packages for top executives.
All these threats really show is that the developers are bullies. Like all bullies, they are fearful cowards. They lash out at others to distract from their own shortcomings. And the developers’ shortcomings are legion. The government should give no quarter.
Whether or not they have taken the subsidies, all housebuilders have benefited from the wall of public money that has washed over the housing market in recent years. That money has kept demand buoyant and selling prices high, benefiting producers at the expense of consumers.
The developers’ threats of high-priced lawyers and Big 4 accountants say more about the weakness of their position than its strength. Such threats usually show someone desperate to settle, merely looking for a better price.
The developers’ threat to launch a wave of judicial reviews if planning permission is blocked shows limited insight. If the government were to block enough planning applications, that would eventually cut off the developers’ cash flows. Then where would the money come from to pay for the judicial reviews, which would inevitably take years?
And what if the government were to change the rules for future planning permission, perhaps as part of its promised Planning Bill, to consider developers’ failure to clean up their own mess? I hope they are prepared to spend the equivalent of one of their bonus packages on lawyers to assist them fashioning an argument that would overcome a well-drafted Act of Parliament. And it would potentially take years of litigation – again with no money coming in – to get that Act of Parliament changed.
The building safety crisis is not the only mess developers have left behind them. In recent years, their creation of doubling ground rents has provided a taproot from which ever more leasehold properties have grown.
The doubling ground rents are gradually being unwound by the Competition and Markets Authority. Even once doubling ground-rents are removed, the consequences of this expansion in leasehold will be felt for years to come.
The increase in the number of leasehold properties has created more opportunities for freehold investors to become involved in people’s homes. These freeholders are even less scrupulous than the developers. As David Lloyd George said at Limehouse in 1909, “look at all this leasehold system. This system – it is the system I am attacking, not individuals – is not business, it is blackmail.”
Modern freeholders have elevated this ancient leasehold blackmail into an artform. They regard leaseholders as nothing more than accounting entries. To them leaseholders are nothing more than a source of insurance commissions, permission fees and transaction fees when buying and selling. The more gouging the better.
Freeholders care not one iota that the managing agents they appoint are engaged in similar gouging of leaseholders. These agents are often as greedy and dishonest as they are incompetent and indolent. Those in the social and public sectors are repeatedly proven to be little better.
FirstPort, for example, has filled its boots with £40,000 or more in fees for simply making Building Safety Fund applications
Those application fees have been billed despite FirstPort being unable to perform simple tasks like counting the number of storeys in a building correctly.
We must be collectively mad if we trust the likes of FirstPort with billions of pounds of complicated remediation works without also imposing tougher controls on fees.
Leaseholders scarred by years of half-measures from the government are cautious. They remember how they were let down over the Fire Safety Bill, passed by Parliament in 2021. They prefer to verify rather than trust.
The government’s approach is not a magic bullet, albeit a significant improvement on what has gone before. It is still not clear what happens to buildings under 11 metres tall. There is still no ready solution for crippling insurance and waking watch costs. The government, has, however, recently pushed the Financial Conduct Authority and Competition and Markets Authority to start asking difficult questions of insurers.
Another key issue in the government’s approach is that delivery of the remediation works still depends on a conflict-ridden combination of self-interested managing agents and surveyors to identify and remediate the buildings in question.
Private sector managing agents (and their housing association and local authority counterparts) routinely charge 10% to 20% of the value of “major works” as fees for project management. These fees are said to cover costs they incur in overseeing these projects. Collecting a percentage fee of the costs of work creates a perverse incentive. The higher the costs of the works, the greater the fee. These fees are uncapped. It is not unusual to see project budgets reserving hundreds of thousands of pounds for such fees. Why are such fees necessary? Do they match the actual effort expended under the contractual arrangements put in place for the works?
The government has also revoked the January 2020 Consolidated Advice Note. That caught every residential building with more than one flat inside. A newly published inspection regime embodied in a document called PAS9980 is to take the place of the Consolidated Advice Note.
Even with the introduction of the new PAS9980, there is still a worrying lack of objectivity in the process of deciding which buildings are “safe” and which are not. It is still not clear what counts as “safe”. Without some sort of objectivity in the process, the risk remains that buildings will continue to put up for remediation to cover assessors’ backs and to generate fees for remediation work.
And last but by no means least, discussed in more detail below, are the difficulties with the Building Safety Bill itself. The new occupation regime in Part 4 of the Bill threatens to impose huge costs on leaseholders for safety cases, building safety managers and potentially yet more works. There is a risk that if these provisions are not revised the market for residential high-rise buildings may yet still be blighted for years to come.
The remainder of this piece looks at the stages the Bill will go through in the House of Lords. It also examines the promised steps by the government against some of the other potential amendments on offer.
What is the Building Safety Bill?
The Building Safety Bill is the keystone of the government’s response to the Grenfell Tower fire in June 2017. It introduces far-reaching reforms to the design, planning and occupation of tall residential buildings. It also introduces new rules on product safety, the regulation of architects and creates a New Homes Ombudsman.
The Building Safety Bill also implements recommendations made by Dame Judith Hackitt. Dame Judith was tasked by the government to examine how the construction industry should be overhauled to prevent future Grenfell Tower fires.
We have previously published articles examining the Bill in detail here:
and here:
What has happened to the Building Safety Bill so far?
The Bill started life in the House of Commons in July 2021 (see report of Second Reading here:
The Bill was introduced by Robert Jenrick.
It underwent Committee stage in the Commons in September and October 2021. It completed its passage through the Commons with Report and Third Reading on 19 January 2022.
The Report and Third Reading were delayed by the replacement of Robert Jenrick with Michael Gove. As described above, this gave time to Mr Gove to set out an alternative approach to who should pay for building remediation.
Lords Stages of the Bill and timetable
Both Houses of Parliament – Commons and Lords – must agree on the same text of a Bill before it becomes law. Having completed its passage through the Commons, the Bill now goes through a process of scrutiny in the House of Lords.
As with the Commons, a bill in the Lords goes through 6 stages: First Reading, Second Reading, Committee, Report and Third Reading.
The First Reading is a formality. It consists of reading out the name and long title of the Bill and ordering that it is printed in the form passed by the Commons. That happened on 20 January, the day after the Bill completed its Commons stages.
The Second Reading, as in the Commons, is the first time the Lords debates the principles of the Bill. That will happen on Wednesday, 2 February, likely in the afternoon.
This debate will likely to be very general in nature. We should be looking for any sign of further details on what the government proposes to protect leaseholders.
From 3 February, members of the House of Lords will be able to start tabling amendments to the Building Safety Bill. These amendments will be published each day the House of Lords is sitting here: https://bills.parliament.uk/bills/3021/publications
Following its Second Reading, the Bill will be delegated to a Grand Committee. A Grand Committee involves detailed consideration of each of the clauses of the Bill. In this case, there are 143 clauses and 11 schedules to consider.
Unlike with the Commons, any member of the House of Lords can turn up to a Grand Committee. Another key difference is that there is no time limit on discussion of amendments. The government, does, however, dictate the pace by deciding how many days in total the Grand Committee will last.
Theoretically, in a Grand Committee, every clause of the Bill is passed by unanimous consent, meaning one member could block an amendment, a clause, or a schedule.
In practice, there are no votes in the Grand Committee. Normally an amendment not supported by the government will be withdrawn at or before the end of debate to avoid it being lost.
If the government wishes to accept a point raised by an amendment, it will either provide the sponsor of the amendment with a text to be tabled, or it will put down its own amendment.
Amendments will be grouped together and with the clauses or schedules of the Bill to which they relate. This process is called marshalling. Marshalled lists of amendments will be published before each committee session.
Marshalling is important. That is because when the Building Safety Bill is reported back to the House of Lords at Report and Third Reading it is not permitted to table an amendment that has already been considered and rejected by the Grand Committee.
The House of Lords is in recess between 10 February and 21 February. The Grand Committee is likely to start on or after 22 February 2022.
We do not currently know how long the Grand Committee is likely to last. Given the length and complexity of the Bill it is likely to spend some time in Grand Committee.
Lords Stages of the Bill and timetable: Report and Third Reading
Once the Grand Committee has finished its work, the Bill will undergo its remaining stages: Report and Third Reading.
Unlike the Commons, in the Lords these stages are typically conducted on different days. Report is normally 14 days after the Committee has finished. Third Reading timing varies.
At both Report and Third Reading, the Lords continues considering and amending the Bill. Unlike with the Commons, the Bill can be amended during the Third Reading. As above, an amendment previously rejected at Committee – or at Report – may not be tabled again in the same form at Report or Third Reading. That rule applies whether or not it was discussed – because it was marshalled with other amendments – at an earlier stage.
Is there a time limit on getting the Bill through the Lords?
There are two practical limitations of time.
The first is that all Bills must be passed in the same form by both the House of Commons and the House of Lords by the last day of the Parliamentary session.
If a Bill is not passed by both Houses before the end of the session it is lost and does not become law.
The government very rarely loses Bills due to a shortage of time. This only usually happens in the run up to a dissolution of Parliament before a General Election. Even then, the government will make deals on legislation to ensure the laws it considers particularly important are passed.
The second limitation is that the House of Lords is currently under significant pressure of business. There is a lot of legislation waiting to complete its passage through the Lords. It has already started sitting for longer hours and on Fridays to try and clear the backlog.
This pressure of business may mean that there is not enough time to consider the Bill in as much detail as leaseholders would like. That carries risks for leaseholders, described below.
What happens once the Lords has finished?
In this case, it is likely that there will have to be at least one round of ping-pong. That is because the government has said it will amend the law, changing its text, to protect leaseholders during its House of Lords phases.
Any change to the text means the Bill will have to go back to the House of Commons so that both Houses of Parliament agree on the same text.
Theoretically, where the House of Commons and the House of Lords cannot agree, this process of passing the bill backward and forward between can continue indefinitely, hence the name ping-pong.
What has the government said it will do?
During his announcement on 10 January, Mr Gove committed the government to bringing forward amendments in the Lords that will give statutory protection to leaseholders from costs being passed on to them.
The details of what that protection entails are currently unknown. The government said it would consult with the opposition during the remaining stages of the Bill to refine that protection.
The government has, however, already acted to extend the limitation period for bringing claims under the Defective Premises Act 1972. For current buildings this has been extended to 30 years, which means it should catch any building built after roughly June 1992. The government has also extended the safe harbour period for bringing these claims from 90 days to 1 year. Both ideas were proposed previously by the McPartland-Smith amendments and amendments Labour put down during Commons Committee stage.
Whilst those changes are welcome, litigation is only likely to be of use where there is a developer still around to pursue. Leaseholders will also have to front-up the costs of the litigation, or else find a law firm willing to represent them on a conditional fee basis.
The government has also said it will try to help shared owners by loosening guidance on subletting for housing associations and pushing banks to give consent to sublet.
The government also says it may impose a solution in law on builders and others if they refuse to pay toward the costs of remediating buildings over 11 metres. Fulfilling that promise may not require changes to the Building Safety Bill.
The goal could be achieved, for example, by changing the rate of the Residential Property Developer Tax from 4% to 8% so it raised £4 billion instead of £2 billion, all other things equal. That would require an amendment to clause 33 of the Finance (No. 2) Bill currently also going through Parliament.
What if the government does not do as it promised?
As we saw with the Fire Safety Bill, if both Houses of Parliament are unable to agree on the same text, then the Bill will keep shuttling backward and forward until both Houses can agree.
If the government does not put down amendments in the Lords to protect leaseholders, then other peers can act to do so. The government lacks a majority in the Lords. A united opposition there could insert amendments over government objections.
Either way, that means the Bill will have to come back to the Commons. The Commons can then either agree the Bill and it passes, or it can disagree and have ping-pong continue.
If there are no Lords amendments to throw out in the Commons, it is relatively straightforward for the government to pass the Bill in the form it wants, because it involves merely a vote to approve the Bill in that form.
If there are Lords amendments to throw out in the Commons, then it becomes more difficult for the government. Even if it has the votes in the Commons, it still must send the Bill back to the Lords, giving further chances for further amendments.
The government will be wary of not carrying through on its promises. Many Conservative backbench MPs have already expressed disquiet at the way promises made during the passage of the Fire Safety Bill have not already been implemented. They may not be forgiving if the Bill comes back from the Lords without adequate protection.
Can the Lords block the bill?
The House of Lords can delay, but not stop, the Bill from becoming law. It can do that by either insisting on the same amendment twice or allowing the Bill to run out of time.
This would only be a temporary reprieve. The Parliament Acts 1911 and 1949 provide that where the Lords blocks a bill that started in the Commons, the government only has to wait a year from second reading (so until July 2022) to reintroduce the Bill in exactly the same form as rejected by the Lords. It then sends the Bill back to the Lords. If the Lords rejects the Bill a second time, it becomes law over the Lords’ objections.
Why may the Lords be reluctant to block the Bill?
The House of Lords is, today, an unelected house dominated by Labour, Liberal Democrat and cross-bench members. This is a reversal of the position prevailing for most of the twentieth century, in which it was dominated by Conservatives.
Since the Parliament Act 1911, it has been a settled principle of British democracy that the will of the Commons, as the elected house, should prevail over the unelected Lords. The Lords is supposed to give way to the Commons to avoid legislative deadlock.
The current settlement was not achieved easily. The settlement was achieved by the Parliament Acts 1911 and 1949. The 1911 Parliament Act followed a period of paralysis in British politics, equivalent to that caused by Brexit between 2016 and 2019.
In 1905, a reforming Liberal government was elected. It wanted to introduce various social reforms, particularly in education and welfare, such as introducing the first old age pension. These reforms were repeatedly delayed, in some cases blocked, by the large Conservative majority in the House of Lords.
In 1909, to raise funds for the approaching First World War and to implement further social reforms, the Chancellor – David Lloyd George – had attempted to impose taxes on land. The House of Lords blocked these reforms until April 1910.
To break the deadlock, two general elections were held in 1910. One in January 1910 and another in December 1910. Both elections returned the Liberals with the largest number of seats, but the Conservatives had the largest share of the popular vote.
Negotiations between the Liberals and Conservatives failed to produce a political solution. After the December 1910 election, the Liberals moved forward with what became the 1911 Parliament Act. This removed the House of Lords’ rights to amend or to prevent the government passing money bills. It also restricted the House of Lords’ right to delay other legislation to a period of 2 years. The Parliament Act 1949 later reduced this right to 1 year.
The Parliament Acts have been used sparingly. Only six laws, including the Parliament Act 1949 itself, have been passed using the override procedure. A further three bills were lined up to go through using the Parliament Act but were agreed by the Lords on the second attempt. The threat of deploying the procedure is normally enough to ensure a Bill passes.
Another issue is the so-called Salisbury Convention. That holds that where a government has been elected on a promise of enacting certain laws, the House of Lords will not amend bills enacting those promises in such a way as to prevent them receiving Second or Third readings. In this case, these reforms were promised in the Conservatives’ 2019 election manifesto.
What about other amendments, like Polluter Pays and McPartland-Smith?
In addition to government amendments, other members of the Lords may propose their own amendments.
The types of opposition amendments proposed will depend on what the government itself comes up with. It is possible that if the government does not produce amendments that protect leaseholders then another version of the McPartland-Smith amendments could be proposed.
It seems likely that the Polluter Pays amendment will also be proposed. In barest summary, that is a group of amendments that propose to create a building-by-building system of assessment. The amendment would apply to all buildings built after 2000, possibly earlier.
If the building is found to present a fire safety hazard because of defective construction, then the original builder, or possibly the parent company of the original builder, can be compelled to pay an amount toward remediation.
Whether or not the building in question represents a fire risk is also left to be decided later in statutory instruments. The scheme appears to rely on a mixture of building regulations and other factors. To the extent these other factors were not in force at the time, it would appear to involve a retrospective change in the law.
The issue of whether a building presents a fire hazard because of defects in construction, and the liability of persons to pay for remedial works, is determined by an independent official, or possibly group of officials – called an assessor. These assessors may be able to look beyond the particular company that built the building and up to its parent or sibling companies to extract money.
If there is no-one around to pay, then this group of amendments requires the government to set up a levy scheme to recover the money from the building industry.
Although this has been marketed as a solution that will protect all leaseholders everywhere from costs, it is far from clear that is so. For the following reasons, some of which are distilled from comments made on social media by Professor Sue Bright and Giles Peaker:
1. It is said that the polluter pays process of determinations would not delay remediation because it would run alongside existing funding. The issue is that funding is currently only available for certain types of tightly defined external wall defects in buildings 18 metres and above. That is to be extended to buildings 11 metres and above. Any building outside that tightly defined set of criteria has no recourse to funds. These amendments do not change that position, meaning that buildings outside the existing rules would have to wait for the determination process to produce money. In the meantime, they will be left paying waking watch and other costs.
2. It is true that the draft amendments contain provisions to enable the government to make interim grants to buildings potentially eligible for the scheme. This provision is unlikely to be accepted by the government. The government has already said that there is no more public money available, so there will not be any money from which to pay interim grants unless the government both adopts these amendments and reverses its position on further public funding.
3. A key issue with the polluter pays scheme is that it involves going behind final certificates or completion certificates already issued. These certificates create a presumption that the building in question complied with building regulations in force on the date the certificate was given. Whether the building did so comply is a different question.
4. Changing rights and remedies after the fact carries with it the risk of challenges under the Human Rights Act. In this case, the only evidence we have that these challenges have been considered and discounted is the opinion of the draftsman himself.
5. It is also unclear, because the current drafting of the polluter pays amendments does not adopt the same language as statutory provisions which do this, whether the scheme would be successful in avoiding special purpose vehicles already wound up.
6. Looking through one company into the assets of another, or the personal assets of its directors, is generally something the law permits only in special, tightly defined circumstances, usually involving knowledge, fraud or some special assumption of responsibility by the target. It would seem difficult to do that in the context of construction of a building undertaken with various complicated sub-contracting arrangements.
7. It is argued that the determinations process will be straight forward. This relies implicitly on an assumption that there is only one way to look at compliance with the fire safety elements of building regulations.
In fact, as is often the case in construction and other technical matters, there appears to be a spectrum of opinion on what counts as compliance with the building regulations. The promoters’ camp appears to look only at the fire safety requirements of the building regulations in isolation from the rest of the regulations.
Other experts say that assessing compliance with the fire safety requirements involves looking at other features of the building. The other experts argue that the fact that Approved Documents are only guidance as to how one may comply with the Building Regulations means weighing up the various features contributing to, and detracting from, fire safety and then reaching a conclusion on a balance of all those factors.
8. It is argued that polluter pays amendments mirror an existing process called determination by the Secretary of State. It is not clear what the promoters of the polluter pays amendments mean by this. There are two different determination processes under the Building Act 1984, both of which take place before the building works in question are started.
9. The first such process is carried out under section 16 of the Building Act 1984. It is used when a local authority or approved inspector cannot reach agreement with an applicant on whether plans should be given approval.
This process involves looking only at the plans and is based on written representations. This can only take place before the building works in question have begun. An opinion is then expressed on whether the plans meet the functional safety requirements of the building regulations.
The other determination process under the Building Act 1984 is that under sections 39 and 50. Under these sections, where a building control authority has refused permission for plans and the applicant has appealed asking for relaxation or dispensation from the building regulations, then a further appeal may be made to Secretary of State.
Again, that process appears to involve written representations before the building works in question begin.
It is also clear from the Department’s website that determination decisions under sections 16,39 and 50 of the Building Act 1984 are rare in practice. The most recent one was made in February 2015: https://www.gov.uk/guidance/building-regulations-determinations
10. The polluter pays amendments as drafted currently do not explain exactly how assessors are to make decisions on applications. If these awards are to withstand judicial review, the government will have to guarantee certain institutional safeguards regarding their independence to ensure that the decisions stand. These details are left to statutory instrument. It appears they intend a process of oral representations from the parties, possibly with tests of the structure and consideration of a wide range of documents. That is understandable. It is a settled principle of English law that there should be natural justice: both sides must be given a fair opportunity to present their case. Written representations alone may not satisfy that principle.
11. Any such process of oral representations is far removed from the determination process under the existing law. Any such process is inevitably going to involve arguments presented by lawyers, perhaps accompanied by opinions from various types of expert, in an attempt to show that the building is not within the scheme. These hearings, at the fastest, are going to take days, if not weeks, in the most complicated cases.
12. There are also other issues to do with the identity of the assessors and their skills. A decision made by an unqualified – or under-qualified – assessor (or groups of assessors) is more likely to be attacked than one made by a well-qualified one. Finding an appropriate number of assessors without connections to any of the buildings under review would also appear to be difficult, given the mix and nature of skills required and the fact that such individuals will all have been active in the industry in the recent past.
13. The polluter pays scheme as currently drafted also appears likely to generate many judicial reviews. There is no appeal route against a decision that a building is liable to be assessed. That would mean anyone affected would have to apply to the High Court for a judicial review of that decision. Given the government estimates that there are 88,000 buildings between 11 and 18 metres potentially in scope, the number of judicial reviews could be huge.
14. If someone affected by a decision requiring it to pay to remediate a building, or pay a levy, then an application must be made to the FTT. There are various chambers of the FTT, each dealing with specialist subject matter. The amendments do not distinguish between the different chambers, so it is unclear whether the amendments mean the Residential Property Chamber or whether they mean the Tax Chamber.
15. The FTT is a no-costs jurisdiction, so any and every decision that the recipient does not like will end up there. That is because even if the appeal is lost, the loser will not have to pay the winner’s costs, as would be the case in the courts.
16. To the extent the FTT in question is the Residential Property Chamber, then that is not the appropriate place to send decisions concerning compliance with fire safety rules. The Residential Property Chamber is specialised in residential landlord and tenant disputes and certain other housing and rent matters. It typically considers relatively low value disputes. It has no expertise in the detailed technical issues of the building regulations, potentially concerning issues worth tens of millions (and perhaps hundreds of millions in the case of whether a levy is payable).
17. The promoters of the polluter pays amendments claim that the risk of judicial review has been considered and discounted. This is said to be based on an opinion from a construction QC. The QC in question is actually a planning QC specialising in planning inquiries, town and village green applications and compulsory purchase orders, with no apparent experience of litigating construction disputes. The opinion itself has not been published.
18. In any event, from what we know of it, the opinion on judicial review risk appears to have concluded that there will be litigation over eligibility for the scheme and determinations to pay. The QC expects that these cases will coalesce into leading cases on the interpretation of the scheme.
19. What that means in practice is that there will have to be at least one decision of the Court of Appeal dealing with a broad range of issues under the proposed scheme (and perhaps more than one if the first one leaves questioned unanswered). It will take years for the right sorts of decisions to come out of the Court of Appeal to clarify the operation of the scheme.
20. I add that I have never met a QC, or lawyer, who has given an unqualified opinion about anything, even the cases considered foregone conclusions. Any opinion will have been couched in terms of the probability of a particular outcome being achieved. It is therefore necessary to know what probability has been ascribed to the current polluter pays drafting before reaching a decision on the desirability of the scheme.
Whilst beyond the scope of this article, there are also several technical legal points around the drafting, mainly related to defining the precise scope of the scheme, the independence of assessors, the control over any levy and obligations to pay in secondary legislation, that make the scheme difficult to pass in its current form. I accept these could be fixed by substantially redrafting the text.
Before I am attacked by the promoters of the polluter pays amendments as having a vested interest or being unduly negative, I should add three further points:
1. I am personally affected by the cladding crisis. Unless this is fixed, I face a bill to remediate the building in which I live. If I cannot pay that bill, I face potentially losing both my home and my career. It is likely I would lose my practising certificate if I became bankrupt. I have a vested interest in achieving a solution.
2. Whilst I am litigator, I have no commercial interest in the polluter pays amendment passing or not passing. I merely set out my observations based on 11 years working at City law firms, including working for very large companies on their litigation.
3. Although I disagree with the way the polluter pays amendments have been promoted, I commend the promoters of the polluter pays amendment for their efforts. I think the principle of polluter pays is sound. Indeed, I drafted a previous version of the polluter pays text, that which was tabled by Dr Liam Fox in during the passage of the Fire Safety Bill https://publications.parliament.uk/pa/bills/cbill/58-01/0288/amend/fire_rm_cclm_0423.pdf
My issue is with the implementation of the polluter pays principles. I do not believe that the amendments as drafted will achieve the stated objective of making the polluter pay. I also believe that there are more straightforward ways of extracting the money from developers, chiefly in the form of a tax. Leaving polluter pays on the table unexamined and unchallenged creates a risk that the government will adopt a solution that appears to solve the problem, but leaves leaseholders open to years more misery.
I believe that the polluter pays amendment, if appropriately redrafted, can form part of a toolkit that the government could use to solve the issue in certain types of cases. I do not believe it is the be all and end all solution it is claimed to be. Ultimately, resolving the current issues facing all issues will require a range of tools, contributions from developers, cladding manufactures and others and including more up-front government funding.
What about the other issues with the bill?
There remain serious issues with what is called the occupation phase of the Bill, contained in Part 4 of the Bill. As described in previous articles, these are likely to impose material and unnecessary costs on leaseholders.
Chief among these is the creation of a new Accountable Person regime, with accompanying Building Safety Managers, to oversee the new regulations being imposed on higher-risk buildings. The costs of this regime will be enormous.
The government’s own impact assessment estimates the costs of the various plans and registrations required at tens of thousands per block per year. The employment of a Building Safety Manager may add tens of thousands a year per block in salary and other employment expenses.
In the case of high-rise blocks with small numbers of flats, it is likely that these costs could increase service charges by thousands of pounds a year. This would potentially blight those blocks, making future sales very difficult.
The leasehold sector – through a body called the Building Safety Alliance – has been involved behind the scenes with the development of the detailed rules governing the role and activities of Building Safety Managers.
The Building Safety Alliance consists almost exclusively of producer interests, as can be seen from the list here:
https://publications.parliament.uk/pa/cm5802/cmpublic/BuildingSafety/memo/BSB46.htm
Given that the ultimate bill payer – the leaseholders – have not been in the room as these roles have been developed, it will be no surprise if the end regulations greatly favour the producer interest over those of the bill payer.
As the Bill is currently drafted, the costs of this new regime will be recoverable from a new and separate service charge: the building safety charge. This will be payable within 28 days of demand. The danger is this becomes, as with current service charges, a licence to print money for landlords and managing agents.
That is because the Bill as drafted offers few – if any – practical routes for leaseholders to know and to challenge costs. The provisions for information are the same as those already in place for service charges. Those provisions are inadequate in regulating existing service charges.
For example, under the proposed new regime, a leaseholder theoretically has the right to see the receipts and invoices underpinning a building safety charge. This is identical to the existing right to statements of account and supporting receipts and invoices under sections 21 and 22 of the Landlord and Tenant Act 1985.
These existing rights are commonly ignored by landlords and managing agents. Often, simply by ignoring leaseholder requests for long enough, they ensure the requests go away.
Even where leaseholders keep pushing, it is not uncommon for the managing agent to avoid effective scrutiny by imposing unreasonable restrictions on viewing the receipts and invoices. It is not uncommon to see restrictions such as only being able to view paper copies at a place and time of the landlord’s or agent’s choosing. Often the place and time specified makes it practically impossible to view documents.
It is already a crime not to comply with a request to supply the receipts and invoices. The same provision has been replicated in the building safety charge provisions. Local authorities are responsible for the prosecution of these offences.
In practice, these local authorities will tell leaseholders they do not have the resources to prosecute. The landlords and agents routinely get away with non-compliance. And they know it.
Unfortunately, the existence of these criminal offences will preclude further civil action by leaseholders, such as obtaining an injunction, to compel a landlord or agent to produce accounts and documents, as decided by the Court of Appeal in Morshead Mansions v. DiMarco [2014] EWCA (Civ) 96.
Nor can service charges be withheld until the receipts and invoices are produced. There is a statutory provision that would allow withholding of service charges if a landlord does not produce accounts. That is section 21A of the Landlord and Tenant Act 1985. That provision has never been brought into legal effect. Lobbying by the leasehold sector said it should not be brought into effect because it would stop sites being run effectively if everyone could stop paying their bills. Unfortunately, no provision was put in place to balance the tenants’ rights against the landlords’ convenience.
The Bill as currently drafted contains an equivalent provision to section 21A in relation to building safety charges. That is found in paragraph 2 of Schedule 8 to the Bill. That right will be subject to conditions set out in the Bill and in regulations yet to be made (paragraph 2(5)). There is time yet for the leasehold sector to lobby away these provisions.
The costs making up the building safety charge will also be presented in a way that suits the landlord or agent. Often service charge accounts (if provided at all) aggregate together multiple categories of expenditure into vague, broad headings. These often change from year-to-year. Without seeing all the underlying invoices and receipts it is difficult to identify trends and whether charges are reasonable. Accounts regarding the building safety charge are likely to presented in the same way.
As with ordinary service charges, the building safety charge will be subject to an application to the FTT for an assessment of reasonableness.
That right is unlikely to be of much use unless documents and accounts are not produced. The FTT, at least in the London region, usually works on the basis that it will not order the disclosure of the underlying receipts and documents, only the production of accounts.
It is very difficult to know which items to dispute without seeing the detail of the costs being charged. If a leaseholder wants the underlying documents and the landlord will not give them voluntarily, he will have to go and argue for them before a Tribunal judge. Many leaseholders will not have the skills, knowledge, or courage to do that.
The FTT is also, by design, an uneven playing field. FTT judges will repeatedly tell you that it is not their job to allow an audit of service charges to be conducted. That is frequently what is required. This approach gives Landlords various means to ensure the leaseholders have as much difficulty as possible in proving their case.
The Landlord controls all the documents relevant to the case and decides who it will send as a witness. The leaseholders must prove their case before any part of the charge will be reduced or disallowed.
By not giving disclosure and not sending witnesses who make the decisions regarding charges, the landlord shapes the proceedings in such a way as to make it very difficult for the leaseholder to win. If the evidence never comes out then the decisions are difficult, if not impossible, to challenge.
An additional complication is that when arguing over building safety charges, the matters concerned will often be, by their nature, highly technical. How much should a building safety case cost? How much should a building safety manager be paid?
Considering such charges will often require leaseholders to produce comparative evidence. The detail of these charges is unlikely to be available publicly. Which means leaseholders will have to obtain the details from other similar buildings, which may not be available. In many cases, the challenge will require the opinion of an expert surveyor. If leaseholders cannot produce evidence of satisfactory quality, then the landlord will win by default.
Even where leaseholders are willing to go to the FTT they will find another sting in the tail. Most leases will allow landlords to put all their costs of dealing with an FTT challenge through the service charge. The same rules will apply to challenges of building safety charges. Unsurprisingly, landlords spend generously on the legal fees. This leads to the grotesque absurdity of a hearing where the landlord uses the leaseholders’ money to retain barristers and solicitors to defend itself from the same leaseholders’ claims.
Theoretically, section 20C of the Landlord and Tenant Act 1985 allows the FTT to prevent such costs being passed on to leaseholders. Any such order, if made, will only protect the leaseholders who participate in the claim. The non-participating leaseholders can still be charged (see Conway v. Jam Factory Freehold Limited [2013] UKUT 592 (LC)). The same costs rules will apply to challenges to the building safety charge.
Of course, the lengthy exposition above is merely highlighting the fact that the Building Safety Bill is building on a rotten foundation, namely the leasehold system in England and Wales. We are promised further reform. Until that happens, leaseholders will be put at a structural disadvantage is arguing about service charges and building safety charges.
The bottom line?
Having delayed for years the issue of who will pay for remediation and how leaseholders will be protected from costs, the government has now promised to act.
We enter a period of consequences.
And leaseholders will be watching closely.
Related posts:
The Building Safety Bill: what do the government’s amendments mean for leaseholders?
Curiouser and curiouser: the Building Safety Bill has Second Reading in the Commons
Lords push government’s Fire Safety Bill to the edge as parliamentary session nears end …
Building Safety Bill means … leaseholders are going to have to pay a lot of money to clear up the mess of other people
Lords rebellion sees government Fire Safety Bill thrown into disarray
Open letter to Taylor Wimpey: If you cared about sorting out your ground rent mess, you can pay back the money your own ex-customers have wasted over this scandal
Thank you Liam on behalf of my daughter and her husband trapped in this Fire Safety Nightmare. So complex but I am grateful for your insight and knowledge and sheer hard work on behalf of your fellow Leaseholders.