Cladding / balconies / Government announcement – the practical consequences: Part 1

The day before yesterday (14 February 2022), the Government announced significant proposed changes to the legislation it intends to introduce to limit the effects of what has become known popularly as the “cladding crisis”. For those interested, the proposals are contained in proposed amendments to the Building Safety Bill. The proposals run to 38 PDF pages of fairly involved amendments to be moved to the Grand Committee. Of particular interest to those practising in the area of liability for the cost of fire safety remediation works, for both cladding and non-cladding works, are the exclusions concerning buildings that have been acquired under the 1993 Act and the caps on service charge liability. Writing for the Leasehold Knowledge Partnership, Liam Spender was quick off the mark with a very full discussion paper. That paper is well-worth a couple of hours’ reading time.

Yesterday (15 February 2022), I appeared in the First-tier Tribunal in a case which demonstrates the practical consequences of the preceding day’s announcement. The case concerns a substantial building comprising a significant number of flats. The case raises a number of issues including lease variations under the 1987 Act, the payability and reasonableness of service charges under section 27A and dispensation under section 20ZA. I am not giving away anything that has not been stated in open hearing in the FTT when I say that the building under consideration has non-ACM cladding and balconies with exposed timber decking. Funding from the Building Safety Fund, the original developer and the leaseholders are all possibilities, and all affected by the proposed legislation. It is familiar but fast-moving situation.

The final hearing was postponed (for various reasons). But a really interesting point for practitioners is this. The Court of Appeal decision Avon Ground Rents Ltd v Cowley & ors [2019] EWCA Civ 1827 is well worth a re-read in this context. Remember, that case concerned the interplay between section 19(2) of the Landlord and Tenant Act 1985 (the reasonableness of service charges not yet incurred) and third party funding (the NHBC). The case has points of relevance where, at the date of the final hearing, there exists the possibility of funding from the Government and/or original developer. At paragraph 36 of the decision, the Court of Appeal identified three facts that were critical to the exercise of the section 19(2) discretion in the context of third party funding – (i) an effective policy was in place which would cover the majority of work (ii) NHBC had agreed to repay and (iii) the sum payable by the third party was not hypothetical in that it had been identified (unchallenged) by the FTT at the final hearing. In reality, the payment by the NHBC had crystallised.

As things stand, it is difficult to see how the FTT might conclude that third party funding that falls short of the level of certainty established in Avon v Cowley would be enough to defeat a section 19(2) determination that the cost of certain fire safety works, say, the replacement of exposed timber decking on balconies, are payable. Until the possibility of third party funding becomes a probability, perhaps a certainty, it will be reasonable for the leaseholders to pay for that work.

The Government says the legislation will be up and running by early summer this year. I’ll write Part 2 then.

By Robert Bowker