The cladding at Ferrier Point in East London
What is a leaseholder to do when they find their home valued at nothing? Following the Grenfell Tower fire, thousands of residents of homes in tower blocks where the cladding may be combustible have been forced to confront that very question.
Resolution will take time, though. Surveyors face examining thousands of towers that exceed the government-designated limit of 18 metres in height, to try to establish what they are clad in, and the consequent extent of risk. In an attempt to assist trapped leaseholders, RICS has evolved a new method of inspection but no one is certain of the problem's full extent. And the situation is urgent: combustible cladding can spread fire up a tower with astonishing speed.
"Leaseholders have been left in a Catch-22 situation, it's horrendous. Their flats are worthless."
Firefighter Richard Hippel told the Grenfell Tower public inquiry that on the night of the fire he initially assumed an arsonist was loose, as it had not been known that cladding could spread a fire at the speed he witnessed, when what might have otherwise been a manageable incident turned into an inferno that claimed 72 lives.
One of the findings from phase one of the public inquiry into the Grenfell disaster perfectly illustrates the cladding problem: "The external walls of the building did not resist, and indeed actively promoted, the spread of fire. That was principally due to the presence of [aluminium composite material (ACM)] panels with a polyethylene core."
And a further finding highlighted the problem that this creates for surveyors. Inquiry chair Sir Martin Moore-Bick found: "There is compelling evidence that requirement B4(1) [of the Building Regulations] was not met in this case. It is clear that the walls did not resist the spread of fire. On the contrary, they promoted it."
"Following this finding, valuers face not only the huge task of assessing the properties at risk, but also a change to a basic assumption," says John Baguley MRICS, tangible assets valuation director of RICS.
"Findings so far have exposed failings in building construction and there is no real assurance from the Building Regulations regime and walls do not have combustible material," says Baguley. "Even those that appear to be brick may have a brick skin on something combustible or may be glued there. Valuers might have have once said that anything built in accordance with the Building Regulations is OK, but that assumption has been called into question. Buildings now need to be inspected to see if they need remediation."
Martyn Boyd, chair of trustees at Leasehold Knowledge, which campaigns for people trapped by zero valuations, says: "Leaseholders have been left in a Catch-22 situation, it's horrendous. Their flats are worthless, and they have had to pay for 'waking watches' [to monitor their properties 24 hours a day in case of fire] so any money they might have been able to put towards re-cladding work has gone to that. One or two landlords have provided short-term loans but that is all. We are not seeing landlords suddenly becoming archangels."
As Baguley points out, valuing a flat at zero does not mean it is worthless, rather it raises questions about lending. "A zero valuation is a flag to stop lending taking place. Lending processes can be automated, and having a zero valuation passes the decision from the automated system into the manual one," he explains. But that may be scant comfort for leaseholders in tower blocks, since lenders will usually reject a property which has combustible cladding. And even if a lender was found, buyers would baulk at an impending bill of large but unknown size for their share of remediation works.
The root of the problem is uncertainty over what the tower blocks' cladding comprises, and who will pay for any remediation needed. The second stage of the Grenfell inquiry is looking at the nature of the cladding and who was responsible for its use. Working out who must pay for remediation is particularly fraught as the different roles of developers, contractors, freeholders, leaseholders and managing agents have the potential to create protracted legal disputes.
RICS, the Building Societies Association (BSA) and UK Finance have now agreed a valuation process for homes in tower blocks. This will require a fire safety assessment of the external wall system by a suitable professional, who will complete an External Wall System (EWS) form, which has two options. Option A shows that a building does not contain materials likely to spread fire, while Option B shows there are known combustible materials in the external wall system. Within Option B there are two sub-options: one that shows the combustible materials present do not require works, and one to indicate that remediation is needed.
Surveyors can expect to be kept busy. As of 29 February the Ministry of Housing, Communities and Local Government said it had identified 455 high-rise residential buildings in England with aluminium composite material (ACM) cladding unlikely to meet the Building Regulations, of which 205 were privately owned, 155 social housing, 55 student accommodation, and the rest hotels (30) or public buildings (10). In the social sector, remediation had been completed on 70 blocks, with work started or planned for the remainder; in many cases these will have leaseholders in flats sold under Right to Buy. In the private sector, where zero valuations have their greatest impact, remediation had been completed in just 24 blocks and was under way in 39, leaving 140 with work still to start.
And those numbers only represent blocks with ACM. Others must be inspected to determine what their cladding is made from, and if it is combustible. As Modus went to print, the chancellor Rishi Sunak had announced in his 2020 Budget a £1bn Building Safety Fund to remove any unsafe materials – not just ACM – from private and social residential buildings over 18 metres tall.
"The situation is complicated by the number of potential parties involved"
Surveyors will be even busier if housing secretary Robert Jenrick implements his intention to consult on extending combustible cladding investigations to buildings less than 18 metres tall. The government has made it plain it thinks cladding inspections have been too slow. Jenrick said in January: "Progress on improving building safety needs to move significantly faster ... there can be no more excuses for delay, I'm demanding immediate action."
Jenrick also started naming and shaming building owners who failed to act on cladding safety – although finding all of them might be complicated, as while it's clear to social sector leaseholders who owns their building, it can be difficult to pin down in private towers. The situation is complicated by the number of potential parties involved, which can include the original developer, contractors, a company that later bought the freehold, and one or more managing agents responsible for aspects of maintenance.
Add to that questions about whether warranties issued when a block was built remain valid, as well as whether building control services should have signed off the cladding, and trapped residents face potentially lengthy litigation. Joe Ollech, a barrister at Falcon Chambers, who has advised on these issues, says: "For landlords and tenants, responsibility for meeting the cost of repairs will most likely rely on what each lease says and on what, therefore, freeholders can recover through the service charge, for example.
"The issue is likely to come up in different guises. It could concern freeholders but also the original contractor did they build the building correctly and did the freeholder buy in good faith something they thought complied with regulations?
"The ripple effect from this horrendous tragedy will probably give rise to litigation between a variety of possible parties with regard to ultimate liability, but there haven't been any cases as yet to give any guidance." Ollech says that he expects little can happen until the second part of the Grenfell Tower public inquiry is over, but after that there will be a lot of litigation, with the circumstances varying depending on what each lease says.
Leaseholders fear the likely legal complications. Boyd says: "A great deal is owned by third-party landlords who bought buildings from the original developer just for the ground rent. They will have bought it on the assumption that it was built in accordance with building regulations. Leaseholders who bought from the original developer will also have assumed that."
Although the ESW system should help leaseholders, Baguley says: "The number of affected units is unknown, as is the timescale to check all of the buildings, but it could take several years."