BUILT ENVIRONMENT JOURNAL

Fire safety and valuation

Valuers have been unable to advise lenders, or prospective purchasers, whether remedial works will be required to a particular building and, if so, how much those works will cost and what impact that cost will have on value

Author: Alexandra Anderson

05 August 2020

Since the Grenfell tragedy in June 2017, there has been increased focus on the risk of fire in residential properties, particularly in high-rise residential buildings. While the Grenfell inquiry is on-going, the UK government has been acting to address the problems highlighted with fire safety in residential blocks.  

On 11 December 2017, the Department of Communities and Local Government (as it was then known) issued an advice note for landlords and building owners of tall residential buildings with aluminium composite materials (ACM) cladding – the material used on the Grenfell Tower, identified as the cause of the fire spreading so quickly – to assist building owners to assess what measures would be required to make those buildings safe. As more cladding materials were tested, and found to pose a similar risk, so the call for safety restrictions widened.  

On 21 December 2018, the Building (Amendment) Regulations came into force, implementing a total ban on the use of combustible materials anywhere in the external walls of residential buildings over 18m. This ban coincided with the publication by the Ministry of Housing, Communities and Local Government (MHCLG) of advice note 14, which gave guidance to anyone responsible for, or advising on, the fire safety of the external wall systems of residential buildings over 18m that did not incorporate ACM cladding.  Further, by an undated, unnumbered advice note issued in July 2019, MHCLG provided what it described as clarification – although many in the industry queried whether this was in fact the introduction of an entirely new restriction – concerning the prohibition on using combustible materials on balconies at any height as a direct result of the Barking Riverside balconies fire in London in June 2019.

All MHCLG guidance has now been drawn together into a single consolidated advice note, entitled Advice for Building Owners of Multi-storey, Multi-occupied Residential Buildings published in January 2020. This note makes it clear that MHCLG has its sights set firmly on residential buildings of any height where there are multiple occupants. This widening of focus is also reflected in the amendments to the Regulatory Reform (Fire Safety) Order 2005, which are due to come into force later this year through the Fire Safety Bill, current at the draft stage.

Impact on the built environment

The impact of these new rules and regulations is to require a far more robust risk assessment of all multi-occupancy residential buildings and, usually, the removal and replacement of any combustible cladding, with the imposition of interim safety measures, such as waking watch, pending those remedial works. The costs of these works and interim measures can be very significant and, unless they can be recovered under one of the funding schemes announced by the government, it is the leaseholders who will usually have to foot the bill.  

Leaseholders wishing to sell their properties have found themselves unable to do so, because prospective purchasers, or lenders from whom those purchasers might be seeking a mortgage,  are not prepared to buy or lend against a property that might bring with it an obligation to pay thousands, or even ten of thousands, towards the remedial works that will have to be undertaken to the building as a whole. In effect, roughly 125,000 residential units were rendered virtually unmortgageable by these fire safety issues because, absent an assessment of what works are necessary, no one would know the extent of that obligation and its potential impact on the value of the property.

This problem has caused significant disruption to the residential mortgage market, because valuers have been unable to advise lenders, or prospective purchasers, whether remedial works will be required to a particular building and, if so, how much those works will cost and what impact that cost will have on value.  

"The impact of these new rules and regulations is to require a far more robust risk assessment of all multi-occupancy residential buildings"
Working together for a solution

In order to address this problem, in early 2019, RICS formed a working group with various stakeholders, including UK Finance, the BSA, lenders, fire risk assessors and valuers, to come up with a form of wording that valuers could use when asked to value a high-rise residential block,  to help inform lenders and purchasers as to whether there was an issue with the external wall systems of a particular building. As the guidance coming out of MHCLG developed, particularly around the use of combustible materials on balconies, so the approach had to develop too. After several iterations, and a lengthy debate about the use of the form and liabilities that might arise from its use, RICS, UK Finance and BSA were finally able to launch the document in December 2019.

The form is divided into 2 sections: option A, where the external wall materials are unlikely to support combustion; and option B, where combustible materials are present in the external wall system. Even where there are combustible materials in the cladding, depending on whether there are adequate measures in place to mitigate any risk, such as sprinklers, it may not be necessary to replace the cladding.

Once completed, the form is valid for five years and covers the entire building. The form requires that whoever signs it off should be properly qualified to undertake the necessary risk assessment:  for Option A, the signatory would need the expertise necessary to identify the materials used in the external wall systems and any attachments to the building, and whether any cavity barriers and fire stopping has been installed correctly; for Option B, the signatory would also need expertise in the assessment of firs risk presented by any cladding material and should be a member of a relevant professional body that deals with fire safety in buildings.  

Any valuer who is asked to value a property taking into account the conclusions set out in an EWS1 Form should make sure that the form is completed and signed by someone with adequate qualifications to provide advice on the nature of the external wall system and whether it requires remediation.

It is important to note that the form specifically provides that the document is prepared for the sole and exclusive use of the named client. It also provides that the author of the form will have no responsibility to any third party who might receive a copy of the form, whether a prospective purchaser or lender. This means that, if a valuer relies on the form when preparing a valuation, and it turns out that the advice set out in the form is incorrect, so that the valuation is also incorrect, neither the valuer nor the instructing client will be able to claim against the author of the form. This exclusion may therefore leave the valuer in the firing line, which means it is vitally important to ensure that the valuation includes a suitable disclaimer to make it clear that, if the only reason why the valuation in wrong is because the valuer relied on incorrect advice set out in an EWS1 form, the client cannot sue the valuer. We would recommend a disclaimer along the following lines:

"In arriving at the valuation, we have relied on the EWS1 form, prepared by a professionally qualified third party. In so doing, we are not offering any advice as to the accuracy, completeness or fitness for purpose of the form or its content and neither the individual preparing the valuation nor this firm shall have any liability to you, or to any third party with whom you share the valuation, for any losses or potential losses arising directly and solely as a result of any inaccuracies or errors in, or otherwise in any way related to, the EWS1 form."

RICS continues to work with UK Finance and the BSA to see how the form is performing and whether any amendments are required, particularly now there is an increased focus on buildings under 18m. In the meantime, the form provides a valuable tool to keep the mortgage market moving, but surveyors must be aware of their obligations and the limits on liability, to take the steps recommended above to protect their position.

Alexandra Anderson is a partner at Reynolds Porter Chamberlain  alexandra.anderson@rpc.co.uk

Related competencies include: Fire safety
 

"It is important to note that the form specifically provides that the document is prepared for the sole and exclusive use of the named client"

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