Government funding for unsafe cladding – who really foots the bill?

Simon Lewis on the discussion around building safety, and particularly the replacement of combustible cladding, which continues to dominate the headlines for the construction sector.

The government’s February 2021 announcement on support measures for affected buildings came against a backdrop of increasing pressure to improve its existing funding arrangements, which were launched to deal with unsafe cladding in the wake of the Grenfell tragedy.

While it is of course welcome, it is notable that, first, the fund relates only to cladding and not to other unsafe materials or products. There are a significant number of buildings which face fire safety problems not directly related to the cladding employed on the Grenfell Tower and which are unsafe in ways often not related to cladding at all.

Second, it is those living in lower-rise buildings that are receiving loans rather than grants. It remains debatable whether the loan scheme in itself provides anything more than a temporary solution, which will be unsatisfactory to many given that it will not alleviate the significant financial difficulties in which many tenants now find themselves. With so many people still living in unsafe and deemed valueless homes, and the entire sector facing increased costs as reforms continue, there is also still an issue as to whether the amount now set aside, albeit very significant, will actually be enough.

It seems inevitable that the levy on developers and the new tax will result in increased development costs, which are likely to be passed down the line to purchasers, tenants and leaseholders. The Grenfell Tower tragedy has uncovered a lamentable situation in relation to both construction products and the practices used in constructing multi-occupancy buildings of this nature. Obviously, the recent announcement of a construction products regulator, while reflecting concerns in the industry that go back many years, is another step in the right direction. But what can developers and building owners do now to get in the best position possible?

One thing is certain, with the building and fire safety reforms already well underway, and the amount of regulation for the industry set to increase, costs will continue to rise over the coming years. And as developers seek to recover costs from construction companies, landlords from developers and tenants from landlords, disputes in the sector could span years, especially where tenants do not have access to the original developers or builders.

Despite the government committing to fund these costs (at least in part), there is still an expectation that reasonable steps will have been taken to try to recover these costs by pursuing others. We are advising our construction clients to be proactive, have surveys carried out independently, maintain clear records and seek to access funds where they can, especially as these funds could be limited and will have end points.

As tenants’ building safety rights are still being defined, pressure groups are also pushing for immediate action. Builders and developers should prepare for different outcomes, potential risks and long-term disruption. There are financial implications already arising from the Building Safety Bill and the Fire Safety Bill, such as insurance premium increases and exclusions, construction materials reforms, and other potential changes arising out of various consultations that are currently in progress.

Putting Brexit and other sector pressures around margins, materials and skills to one side, all of those operating in the construction sector should have a strategy to deal with safety issues as an immediate priority and rising costs of future projects. While we wait for the final detail on regulatory reform and resulting industry changes, there are steps that can to be taken now to allow businesses to plan their cashflow:

Simon Lewis is a partner at law firm Womble Bond Dickinson.