20 February 202420 February 2024 derek

Leasehold and Freehold Reform Bill: Ensuring the Building Safety Act operates as intended

Politics

It has always been clear that the nature of leasehold tenure has played an intrinsic part in the building safety crisis. As leaseholders, a lack of real control over our own homes has left us at the mercy of powerful freeholders and developers, leaving many leaseholders exposed to life-changing costs to remediate life-safety defects and enormous delays to our homes being made safe.

Within six months of the Grenfell tragedy, leaseholders started to get official notices that we would be made to pay tens of thousands of pounds each to make the buildings that we lived in safe – buildings we didn’t design, build, sign off or even own. It was unimaginable. But it soon became clear that our options to defend ourselves from these outrageous costs being passed through the service charge were limited by leasehold law, and this was confirmed when cases were brought to the First-Tier Tribunal in the summer of 2018. 

The Government spent years urging building owners (freeholders) and developers to “do the right thing”. But even now, with the (limited) protections brought in by the Building Safety Act (BSA) in 2022, freeholders and developers continue to delay or try to avoid their liabilities in far too many cases. 

It was very welcome, albeit long overdue, when the background briefing notes to the King’s Speech in November 2023 promised that the Leasehold and Freehold Reform Bill (LFRB) would – 

“Build on the legislation brought forward by the Building Safety Act 2022, ensuring freeholders and developers are unable to escape their liabilities to fund building remediation work – protecting leaseholders by extending the measures in the Building Safety Act 2022 to ensure it operates as intended.” 

This commitment was repeated in the overview of the Bill’s measures in the Government’s Guide to the Leasehold and Freehold Reform Bill, published when the Bill was introduced into Parliament on 27^th November. However, when we were invited to give oral evidence to the Public Bill Committee two months later, the Government still hadn’t added anything to the content of the Bill that would extend the leaseholder protections in relation to building safety. That remains the case now, after the line-by-line scrutiny of the Committee Stage has come to an end. The Government could still bring in amendments – but time is running out. The Report Stage of the Bill is scheduled to begin in the House of Commons on 27^th February 2024. 

The Building Safety Act is not “operating as intended”

If the intent of the BSA was for all homes to be made safe as quickly as possible and for innocent leaseholders to be protected from the costs of remediating buildings, then it is beyond doubt that it has failed to operate as intended in all significant respects. 

Remediation progress in the 6.5 years since Grenfell could generously be described as limited, at best. The pace may have increased slightly in 2023, but it still remains shockingly slow. The latest data shows that only 797 buildings have been remediated in the years since Grenfell. In 2022, the Government estimated that around 10,000 unsafe mid- and high-rise buildings require remediation of the cladding and external wall (not to mention other internal building safety defects which may require remediation); if that estimate still holds true, then only 8% of buildings have been made safe so far. 

There must be clear deadlines for completion of works so that making homes safe is prioritised with the urgency it deserves. Yet so far, the Government has not announced any deadlines or target dates to hold stakeholders to account – not even for its own remediation schemes, let alone other actors like self-remediating developers and social housing providers. 

It seemed positive when, from March 2022, over 50 developers began to sign a “pledge” to fix the buildings they had developed, and then went on to sign the developer remediation contract a year later in March 2023. However, this has not yet translated into any pressure for these companies to deliver remediation at pace, and profit-seeking new home building continues to take precedence over making existing homes safe. Most major developers intend to spread their remediation programme over a further 5+ years, which means some leaseholders will remain trapped in unsafe and often unsellable homes for an astonishing 12 years post-Grenfell. One large London-centric developer, Galliard Homes, says their remediation plan could take another 8 years, at a pace of just 5 buildings per year. This is around 10% of the pace that is planned by a developer such as Barratt, with no clear justification for this much slower pace.

There is no sign that the Government is influencing the pace, stipulating in the developer contract only that building assessment and remediation should be undertaken “as soon as reasonably practicable” (at clause 5.2 and 6.1). It is also evident from the contract that DLUHC must already be aware of each developer’s planned time frames, because developers are obliged to report their target dates for each building to DLUHC in their quarterly data returns; however, the Department has so far chosen not to publish the data on “target dates” in their publicly available reporting. This lack of transparency means leaseholders do not know what to expect and nobody can challenge unreasonably slow time frames. 

The robust and independent dispute resolution process promised by the Secretary of State at the time of the pledge – which senior officials told us directly would have leaseholder representation built into the process – has been watered down to nothing more than an ad-hoc process rather than a formal, independent, authoritative one. As a result, leaseholders have limited ability to challenge building assessments or remediation, even if developers continue to put their profit above our safety by reducing the scope of remediation work, or hire engineers who have a long history of working with the developer, which could hardly be said to meet the spirit of the contracted obligation to be “independent”. There is no consistent route to ensure scrutiny and redress for the quality or timeliness of the remediation process  – leaseholders are being left to fend for themselves against the might of industry. 

Meanwhile, the notion that the freeholders who extract income from our homes are the noble, responsible – and indispensable – custodians of our buildings has been revealed as a lie by their failure to take responsibility for making buildings safe. In a significant number of cases, large, well-resourced freeholders have prioritised limiting their liability over their obligations to make our homes safe and have delayed taking any action including by refusing to sign grant funding agreements for work to start at their buildings. The Government has applied for a Remediation Order against Grey GR in respect of Vista Tower in Stevenage, due to their delay in carrying out works – but this is one single building – and while the action was announced 15 months ago, it has not yet even reached a court hearing. While the Government may hope this legal action sets a precedent, it is far too slow and far too piecemeal to be a solution to a national crisis. 

In May 2023, the Secretary of State also announced that he was taking legal action against Wallace Estates, another large institutional freeholder. But in the meantime, at one of the buildings named in the action, the residents have been decanted from their homes. This is just one illustration of how leaseholders and residents are still paying a huge price as they remain caught in the middle of the “blame game”, with lawfare continuing above their heads and outside their control.

More recently, in January 2024, a fire spread rapidly between apartments at a building in Wembley, due to the presence of combustible cladding, and it transpired that remediation hadn’t started because the housing association and the developer – a signatory to the much-vaunted developer contract – are still in legal negotiations. Lengthy wrangling over “who pays” is too often taking precedence over the urgency of making people safe in their homes.

Leaseholders also continue to battle for clear communication about remediation. In a survey we conducted in October 2023, leaseholders rated both the timeliness and quality of communication from their developer or responsible entity as 1.5 out of 10. It remains a never-ending battle to access information about the safety of our own homes. 

And when remediation does finally begin, the Code of Practice for Works in Residential Buildings has not been made legally binding; the feedback from residents on the ground is that most developers, building owners and managing agents apparently do not even know that the code exists. The Government has made the mistake of continuing to wait for commercially motivated entities to “do the right thing” without compelling them to do so. The balance of power remains firmly out of the grasp of leaseholders when it comes to ensuring our homes are made safe.

All leaseholders are innocent – but not all are protected

In addition, large swathes of leaseholders have been completely or partially excluded from protection. Some of their stories can be seen on our Youtube playlist. All leaseholders have suffered the same consequences from the building safety crisis and are equally blameless – and therefore it is both just and logical that all leaseholders should have equal access to the “leaseholder protections”. 

However, leaseholders who own – or have an interest in – more than 3 UK properties (of any type) are deemed to be ”non-qualifying” – a truly awful label to force onto innocent victims of this scandal. The status is based on a crude and arbitrary number of properties owned, without any financial appraisal of the property portfolio, which may be relatively low in value. It does not even come with the protection of a wealth test or consideration of ability to pay; this is inexplicable considering that the developers responsible for defects are not obligated to pay up if they do not meet a profits condition (an average £10m operating profit per year from 2017-19), and freeholders are allowed to pass costs on to leaseholders if they don’t meet the “contribution condition” of £2m net worth per building. 

Non-qualifying leaseholders face uncapped costs for non-cladding remediation, other than on up to one main residence, whereas “qualifying” leaseholders enjoy protection on up to three properties, so they do not have parity. Joint ownership is also ignored, which is unfair and illogical because a couple each owning three properties individually would be assessed as qualifying leaseholders, whereas a couple owning four properties jointly would be non-qualifying. HMRC and the Land Registry assess liability on the proportion of ownership, so it seems reasonable to be consistent with this approach when assessing whether leaseholders are “qualifying” for building safety purposes. We understand that this is now being reviewed; however, we do not know if, when or how any amendments will be put forward.

In addition, payment could be demanded from non-qualifying leaseholders in as little as 28 days, as the leaseholder protections which limit building safety charges to 1/10^th of a capped cost per year do not apply. Building owners will use (and exploit) the law to their benefit and they will have no qualms about repossessing a property when a non-qualifying leaseholder cannot pay. Finally, the non-qualifying status remains on the lease in perpetuity and this is affecting the ability to sell or remortgage properties, even in buildings where surveys have declared they do not require remediation work or works have been completed and signed off by a Qualifying Assessment. 

There are approximately 400,000 dwellings in mid- or high-rise residential buildings in England owned by leaseholders with more than three UK properties, affecting an estimated 60,000 leaseholders (our estimate is based on multiple DLUHC datasets: Building Safety Programme data release, English Housing Survey, Leasehold Dwellings statistics and English Private Landlord Survey). In any building that has even one non-qualifying leaseholder who cannot pay, work may be delayed or unable to go ahead. 

Furthermore, leaseholders in buildings under 11 metres in height are completely ruled out of support for building safety remediation costs, no matter how high-risk the building may be. Not only do the leaseholder protections not apply, but they are also excluded from government funding for cladding remediation and from developer self-remediation contracts. Several serious fire incidents since Grenfell – from Holborough Lakes to Worcester Park, Romford, Arborfield and Basingstoke – have demonstrated that high-risk construction and rapid fire spread can sometimes be a risk to life in three- and four-storey buildings. But there is no pathway for homes to be made safe, even when professional safety assessments to the PAS 9980 standard say that work is essential to remedy life-critical safety defects in buildings of this height.

Conservative-run Harlow Council recently announced that at one building under 11 metres for which they are the freeholder, the fire safety remediation cost to each leaseholder would be £110,000 and therefore they are considering demolition. We are aware of many other cases where leaseholders in low-rise buildings face remediation costs of tens of thousands of pounds – far in excess of the cap on qualifying leaseholders in taller buildings – and many are going through a torturous process to beg DLUHC to intervene in their case. So far, not a single case has reached an outcome that definitely ensures another party pays for remediation and releases the leaseholders from their ongoing nightmare. 

Buildings of this height have also been excluded from a route to justice as they cannot apply for a Remediation Order or Remediation Contribution Order at the First-tier Tribunal – legal actions that were introduced in the Building Safety Act to make it easier to access justice more quickly and with lower costs. It is especially concerning that DLUHC seems not to understand that this route is unavailable to buildings under 11 metres, as they apparently recommended that the leaseholders of an under 11 metre building in Camden should apply for a Remediation Order! 

If so few buildings under 11 metres require remediation – as the Government would have us believe – then it is nonsensical to exclude them from protection, as this has a ripple effect on thousands of buildings of this height. Stakeholders such as mortgage lenders and insurers remain excessively cautious because there is no clear route to pay for any remediation that might be required. 

Enfranchised and leaseholder-owned buildings are also excluded from the leaseholder protections, which defies the spirit of the LFRB, since this Bill seeks to make it easier to enfranchise. The Government’s call for evidence on leaseholder-owned buildings with relevant defects closed in November 2022, yet they have not published any results or proposals in the 15 months since then. A press release in November 2023 specifically stated that the LFRB would “include measures to amend the Building Safety Act 2022 to make it easier to ensure that those who caused building-safety defects in enfranchised buildings are made to pay”. We are still waiting to see the Government bring forward any measure to achieve this. 

Enhancing building safety protections for leaseholders in the LFRB

The building safety scandal was caused by a collective failure of state and industry, and the state has a duty to take control and recognise the imbalance of power that has failed leaseholders so far. Ultimately, the goal should be for building safety defects to be remediated at pace and all blameless leaseholders to be protected, with simplicity and consistency; we need legal protection that finally matches the rhetoric. We have always called on the Government to “do the right thing” and fully fund remediation up front, to make homes safe first and recoup costs later. There is a precedent for this: in January 2023, the Irish government announced it would fully fund the remediation of all defective apartments up front.

All leaseholders and all buildings should have equal protection

We strongly support the amendments which were brought forward at Committee Stage by the Shadow Minister, Matthew Pennycook, under New Clause 27 and New Clause 28. These amendments would have given the Secretary of State the power to bring “non-qualifying” leaseholders within the scope of the protections of the BSA, and the power to bring buildings which are under 11 metres in height or have fewer than four storeys within the scope of the protections of the BSA.

We reassert that all leaseholders should be fully protected. However, if the Government continues to resist fair and equal treatment of all leaseholders, we have repeatedly highlighted steps they could take to reduce or minimise the harms being caused by the BSA, including: 

• Three For All: equally protect the first three properties of all leaseholders. 

• Recognise joint ownership of properties when counting the number of properties owned to determine a leaseholder’s qualifying status. The Government’s press release in November 2023 promised that the LFRB would include measures to ensure “that the leaseholder protections are not unfairly weighted against those who own properties jointly.” But so far nothing has been added to the Bill to achieve this.

• Assess property value, not just an arbitrary number of properties, when determining a leaseholder’s qualifying status.

• Payment Plans: ensure that building safety charges are capped to a maximum per year for non-qualifying leaseholders, allowing payment to be spread. 

• Create a mechanism by which the non-qualifying status is removed after remediation is completed (confirmed by a Qualifying Assessment) or for those buildings deemed not to require work (confirmed by a professional risk assessment).

• Protect all leaseholders from their freeholder’s legal costs (currently only qualifying leaseholders are protected), as this only serves to inhibit access to legal action. 

• Extend the developer self-remediation terms to include buildings under 11 metres. Developers and other responsible parties should be held to account for fixing their defects in buildings of all heights.

• Extend the government’s Cladding Safety Scheme to include buildings under 11 metres, or establish an alternative building safety fund to approve and control essential safety work for sub-11 metre buildings. 

• Extend the duty on freeholders to pursue alternative cost recovery routes before passing costs to leaseholders, for buildings of all heights. 

• Extend access to Remediation Orders and Remediation Contribution Orders to all buildings, regardless of height or if they are leaseholder-owned.

• Extend the leaseholder protections to leaseholder-owned and enfranchised buildings, with financing provided by the Government if no other party is available to pay. 

• Give Resident Management Companies (RMC) and Right to Manage (RTM) companies the ability to raise funds, otherwise they cannot pursue legal action. 

• We would support an amendment to s.110 of the Building Safety Act 2022 so that it does not preclude a Tribunal-appointed manager from being an Accountable Person undertaking and overseeing complex construction projects involving higher risk buildings, thereby meeting the legal eligibility criteria for funding from the Building Safety Fund and similar schemes. 

Focus on delivery and operational improvement

In other respects, it may be the case that new primary legislation is not needed so much as significant operational improvement and an increase in the Government’s grip on the existing remediation programmes, so that the current building safety legislation can operate as intended.

• Deliver government-funded remediation at a much faster pace, with targets for progress. 

• Extend government remediation funding schemes to cover not just cladding, but the full range of building safety defects – finally living up to the name of the “Building Safety Fund.” Buildings cannot be half-safe, and we cannot continue to pretend that only cladding defects are life-critical, since the developer remediation contract accepts that internal defects are also life-critical. Remediation policy should be consistent for all leaseholders, not a game of luck depending on whether the original developer still exists.

• Enforce the developer remediation contract, including ensuring much quicker pace, independence of assessors, and introducing a robust independent dispute resolution process. 

• Extend the developer remediation contract to include SME developers. Should there be concerns over the profitability of these smaller companies, then consideration should be given to those buildings still being allowed to apply to government grant funding schemes with the developers being obliged in law to fund assessment – and remediation or mitigation – of non-cladding defects. 

• Compel a wider pool of industry actors – from contractors to product manufacturers, architects, building control, warranty providers and others – to contribute financially towards making buildings safe, which will finance the extension of remediation protections for leaseholders. None of these professionals were slow to take profits and earnings from our defective homes. Michael Gove promised to make industry pay instead of leaseholders in January 2022, yet this has not happened. 

• Take decisive action where building owners are causing unreasonable delays to signing remediation contracts and making homes safe. Homes England already has the power to seek Remediation Contribution Orders, as well as the power to have legal rights of action assigned to it under the Grant Funding Agreements. The Government should also consider using compulsory purchase order (CPO) powers to step in and take direct ownership of the freehold of any building where the owner is failing to undertake remedial works by a given deadline, which was recommended by the cross-party departmental select committee as long ago as 2020. The Government responded that it had “not ruled out any options, including CPOs, if the pace of remediation remains too slow.” More than three years later, no one could argue that the pace of remediation isn’t far too slow, and all available options should be taken to speed up the process of making homes safe, including the use of CPOs.

• Ensure action by all regulators is co-ordinated and based on accurate information – avoiding duplication. 

Our manifesto includes many more detailed actions that the Government could take to ensure the existing building safety legislation operates “as intended”. This was shared with the Department and with Ministers several months ago, and we will continue to press them to act on these recommendations. 

Broader leasehold reforms

Naturally, we are focused on how the LFRB can be used to improve protections for leaseholders specifically in relation to building safety. However, leaseholders affected by the building safety crisis often find their nightmare is compounded, and sometimes made inescapable, due to other leasehold issues that make it impossible to sell their property. We therefore support many broader reforms that are in scope of the Bill.

• We support the intention to make it easier and cheaper to extend leases, including abolition of marriage value and increasing the standard lease extension terms to 990 years. 

• We support measures to make it easier and cheaper to buy the freehold of existing properties. We also support the views submitted in written evidence by resident-led campaign groups including the National Leasehold Campaign (NLC), Free Leaseholders and CommonholdNow that all new flats should be sold with a share of freehold, with a view to phasing out leasehold as a tenure and replacing with commonhold. 

• We support the views of the NLC on reducing ground rent to a peppercorn. 

• We would support an amendment to remove forfeiture which is disproportionate and can be used unscrupulously as a punitive measure against leaseholders.

• We support the views of Shared Ownership Resources, that shared owners must be provided with the same rights and protections under the Bill as any other residential leaseholder in relation to enfranchisement and ground rent reform. As noted in their evidence, “shared owners are perhaps more likely to encounter short leases than other leaseholders… and do not have a statutory right to lease extension” and this is particularly problematic in complex ownership structures where the housing association is not the freeholder. Currently, if shared owners want to extend their own lease, they would have to pay to extend the housing association’s head lease too. This is unreasonable as well as unaffordable and must be amended. We agree that there is a compelling case for making leasehold enfranchisement financially accessible to shared ownership households that were sold short leases.

• We support requirements for freeholders to belong to a redress scheme so that leaseholders can challenge them if needed.

• We support regulation of Managing Agents, including mandatory qualifications and a mandatory code of practice, as called for by The Property Institute (TPI) in their written evidence on the Bill. 

• We support the removal of the presumption for leaseholders to pay their freeholders’ legal costs when challenging poor practice. 

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