New laws in place sees leaseholders protected from paying for cladding remediation

On 28 June 2022, new laws in place sees leaseholders protected from paying for cladding remediation. These leaseholder protections in the Building Safety Act 2022 mean qualifying leaseholders are exempt from paying costs towards the removal of dangerous cladding and limits future liability towards the repair of other historical building defects.

New laws in place sees leaseholders protected from paying for cladding remediation up to a point. It must be noted that these leaseholder ‘protections’ only apply to historic life safety issues caused by issues from the time of the building’s construction (e.g., where developers used inappropriate materials, or the workmanship is substandard). Costs relating to the maintenance of the building or normal wear and tear continue to be covered by the buildings service charge.

In the first instance, the onus is very much on the developer to cover the whole cost of historical building repair works, or the removal of cladding. Where the developer is absent; through bankruptcy or other means, the responsibility will then fall to the freeholder. This is dependent on their value of assets i.e., if they meet a certain wealth threshold or if they are connected to the developer of a building with fire safety defects. In the case, where the freeholder does not meet these requirements, and therefore cannot cover the costs relating to non-cladding remediation, it could then potentially fall to the leaseholder. However, it will be illegal for freeholders to pass on cladding remediation charges to their leaseholders. This also applies to any existing invoices, which will no longer be valid, and any landlord or agent who seeks to enforce them could be committing a criminal offence, and potentially face prison terms of up to 10 years under the new legislation.

Where certain non-cladding costs are considered recoverable from leaseholders, the total amount will be capped at £10,000 for those living outside of London and £15,000 in Greater London. Any costs that a leaseholder has already contributed towards non-cladding repair work in the last five years, will also be considered within the capped amount. The cap will only apply to non-cladding related work for those whose property is valued at more than £325,000 (London) and £175,000 outside London (owners of properties below this ceiling will pay nothing). Before qualifying leaseholders are asked to contribute to these costs however, landlords must provide a formal legal certificate, or verify that the costs do not relate to works covered by the Act.

The government intends to further implement a series of schemes designed to protect non-qualifying leaseholders from remediation costs, should remediation be needed.

Who do these protections apply to?

The protections will apply to leaseholders whose property is in a building above 11m (or 5 storeys), and where, on 14 February 2022:

• the property was the leaseholder’s main home, or
• the leaseholder owned no more than 3 UK residential properties in total.
• • Where the property was not the leaseholder’s main home on 14 February 2022 because they had to move out and sublet, it will be covered if the criteria above are met.
  • The protections will automatically transfer to any future buyers of the property. This means that all new owners of a property that was eligible for the protections on 14 February 2022 will be covered.

What should leaseholders do if they are a non-qualifying leaseholder?

Firstly, they should check whether the developer of their building has signed the Building Safety Pledge.

If they have, then the developer will be required to pay towards fixing all life-critical fire-safety risks, including non-cladding defects. If the developer or an associated company still owns the building, then they will also be completely liable for the repair work.

Where an assessment following the latest guidance suggests that work is necessary to make a building safe, then funding schemes will be available:

• The landlord or freeholder will still be able to apply to the Building Safety Fund, which has now re-opened, if the property is in a building over 18 metres tall with dangerous cladding. If they applied during the first phase, leaseholders can see the status of their registration on the portal.
• There will also be a new scheme for buildings over 11 metres tall, to be funded by developers through the Building Safety Levy – further guidance will be set out in the coming months.

Where freeholders or owners of buildings over 18m with cladding related issues do not have clear plans to address these issues, they must have full assessments ready to submit to the Building Safety Fund (BSF), which is now open. Information on the BSF can be found here.

Freeholders or building owners must inform and consult leaseholders throughout. If they do not do these things, responsible authorities now have the legal powers to compel them to remediate their buildings, and to ensure that they meet the costs.

All other aspects of the Building Safety Act 2022 are expected to be implemented in the next 18 months but for now, the commencement of the leaseholder protections will come as a relief to thousands of leaseholders. They can be further reassured by 47 of the UK’s biggest homebuilders having agreed to fix life-critical fire-safety defects on all buildings 11 metres+ that they have played a role in developing or refurbishing in the last 30 years.