Cladding Remediation: Cost of alternative accommodation?

by Readers Question

15:45 PM, 8th April 2021
About 2 weeks ago

Cladding Remediation: Cost of alternative accommodation?

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Cladding Remediation: Cost of alternative accommodation?

Sometime in the near future, the remediation of cladding issues will need to take place in several developments in which I own apartments. It is possible that complete external walls may have to be removed, such that my tenants would have to relocate for a period of time.

I want to avoid having to foot the bill to re-house tenants if this situation presents itself.

My initial thoughts are that I should include a clause in any new/renewal AST that would terminate that agreement should the building works mean that the tenant would have to move out – which could be for many months.

After the remediation is complete, we would either offer a new AST to a new tenant, or to the same tenant should they wish to move back. It sounds heartless, I know, but in reality, I just could not afford the cost of alternative accommodation.

What do others think?

Richard

Comments

Tony Hodge

14:14 PM, 9th April 2021
About A week ago

Check your LL insurance as it may provide cover associated with rehousing tenants in situatiuons like this.

Ed Regent

15:43 PM, 9th April 2021
About A week ago

Hello Richard, you seem to be in a similar boat to me on cladding/fire safety (on sh*t creek and with a very tiny paddle) and I'm glad you've raised the question. I don't have an answer sadly as I'm not sure the works will require residents to be moved out of flats I own in such blocks. Costs would then escalate for owner occupiers as well as tenants and I'm hoping the block managers will do all they can to work around people in situ?

David

15:59 PM, 9th April 2021
About A week ago

I'm not sure adding such a clause to the tenancy agreement would be of any legal effect as I suspect that you would not be able to claim the contract was frustrated. You should check this point with a solicitor.

However, although its a hassle, the tenant would still be obliged to pay you the rent for your property and you would use this to pay for the alternative accommodation. As said above, your insurance may cover any shortfall.

Wyn Burgess

7:20 AM, 10th April 2021
About A week ago

Unlikely that cladding remediation would require flats to be vacated unless the construction of your block is unusual. In the situations I have come across flats have been occupied during the works.

Shining Wit

14:08 PM, 10th April 2021
About A week ago

For those that aren't aware, this so called 'cladding scandal' is the result of the Grenfell Tower tragedy (and subsequent inquest). Essentially, due to Government negligence, developers were allowed to build flats that were wrapped in 'dangerously flammable materials' (typically with the fire retardant property of petrol.... watch YouTube videos to see how quickly the fire spread at Grenfell). The manufacturers of the cladding actually knew the materials were unsuitable (and how badly they failed the tests), but sold them anyway. Then the builders took shortcuts (like forgetting about fire compartmentation, and proper fire doors etc) to save money. Nobody bothered to check the buildings when they were 'signed off'. There are now literally hundreds of tower blocks across the country that are potentially unsafe.

Leaseholders (ie people who bought their homes, but don't actually own the property, because the freeholder does) are now liable to pay for the remediation - the costs recently quoted in the House of Commons debate are over £70,000, per flat - and as the bill is usually presented as part of a Service Charge demand, you have a couple of weeks to pay (in full) or risk forfeiting the lease. In the meantime, Leaseholders are liable for Waking Watch costs (essentially paying someone to sit around the building just in case a fire breaks out) and Insurance costs have rocketed: typically 10-15 times higher than last year.
Homelessness and bankruptcy loom for many flat leaseholders - it is already happening.

There are various proposals that would protect Leaseholders from the cost of fixing historic fire safety faults at NO COST TO THE TAXPAYER - but the government has rejected them.
The government 'solution' is to offer grants (with lots of caveats) - to cover the cost of some remediation (ie cladding only - but not all dangerous cladding types) if the flat is in an 18m building. For anyone in a smaller building, a forced loan (although the precise details as to who this will work, and what it will cover are still lacking) should be available (no more than £50 per month) - with the balance of the loan, presumably, coming off any eventual sale price.

Leaseholders are the innocent victims - they had no part in creating any of the problems that now need addressing - and yet they are now face life-destroying bills - they should be protected, and this protection could be available at NO COST to the taxpayer.
Pleas help to
#EndOurCladdingScandal

Ed Regent

10:43 AM, 12th April 2021
About 7 days ago

Reply to the comment left by Shining Wit at 10/04/2021 - 14:08
Thanks for updating Property118 readers about this. I'm amazed how it hasn't been a bigger topic of conversation on here. Perhaps there aren't many landlords affected by it? Perhaps a survey of members would be interesting?

Ian Narbeth

10:28 AM, 13th April 2021
About 6 days ago

@Shining Wit, you write: "There are various proposals that would protect Leaseholders from the cost of fixing historic fire safety faults at NO COST TO THE TAXPAYER - but the government has rejected them."
Please would you explain this. I do not think it is true. One major problem is that although "the freeholder" owns the building, the freeholder's interest is usually worth little by comparison to the interests of the leaseholders. In many cases the freeholder is:
(a) a special purpose vehicle (SPV) set up to develop the flats but with no assets left;
(b) a company owned by the leaseholders themselves;
(c) an SPV which purchased the freehold from the developer but with insufficient assets to pay for the works. In any case the directors of the SPV would probably wind it up. Paying £X million on remediation works to increase the value of your freehold by £0 is not sensible, especially if you were not responsible for construction.
Going after the original developer may not work either. The company may no longer exist and even if it does, will it have the resources to pay, again assuming the leaseholders can prove that the developer was responsible?
The Grenfell enquiry has taken nearly 4 years and is still not over. It is not straightforward to apportion responsibility. If it were as easy as Shining Wit suggests, Government would have done so.
As I see it there are two realistic solutions. Either the Government (i.e. the taxpayer) picks up a massive bill, not just for cladding but for inadequate fire compartmentation etc., or low or zero interest loans are made to leaseholders and these are repaid when the flats are sold. Yes. it's tough on people who bought in good faith but with rising house prices, many leaseholders would at least be able to "get out whole" as the increase in equity would cover the loan.

Ed Regent

10:03 AM, 15th April 2021
About 4 days ago

Reply to the comment left by Ian Narbeth at 13/04/2021 - 10:28
Ian I wonder if you are having to 'tough' this one out yourself? Are you a resident in a flat affected by these issues, or perhaps a landlord who owns blighted flats? I suspect not. People are going bankrupt and worse trapped in unsafe and unsalable properties. Many have no prospects of 'getting out whole'!! A very London-centric view of property prices going up to cover loans doesn’t help your credibility when you look at this issue nationally. What about owners in Newcastle or Bradford? This is a national disaster, look at how many died at Grenfell and how risky life is in these properties now so if necessary yes the taxpayer should pay.
Finally I wonder if you bought a car and the manufacturer covered up a safety issue with their suspension systems because costs had been cut in the manufacturing process. I suppose you'd be ok with taking out a loan to fix such a problem? I doubt it!

Ian Narbeth

10:26 AM, 15th April 2021
About 4 days ago

Reply to the comment left by Ed Regent at 15/04/2021 - 10:03
Ed, I was responding to Shining Wit's claim that the faults could be fixed at no cost to the taxpayer. You are correct that I do not own one of the affected flats. The Grenfell scandal has highlighted problems with sign-off of building works in the UK. Bodies such as NHBC being funded by the people they are meant to police creates a conflict of interest. The use of SPVs which disappear shortly after a building has been sold creates its own problems. The deliberate concealment by manufacturers is shocking. People are better protected buying a car than a house.

That said, the situation is desperate for many people. There is no sign of the Treasury agreeing to fund the full cost of remediation works. That being so, many leaseholders will continue to have to pay for waking watches and have higher insurance premiums. Many will be unable to sell or re-finance until the works are done. Therefore the priority is to get the work done quickly. Granted house prices may not rise rapidly outside London so that equity builds up quickly but at least if the problems are fixed leaseholders could stop shelling out for waking watches. The question is not whether Ian Narbeth would be OK with taking out loan but what is the least worst available solution. My suggestion is low or zero interest loans from Government. There may be others and I am happy to hear them. What is your proposed solution?

Ed Regent

15:45 PM, 16th April 2021
About 3 days ago

Reply to the comment left by Ian Narbeth at 15/04/2021 - 10:26
Interesting to get your further thoughts Ian. I know it’s a very difficult problem to solve, but in my view it should not be one that is resolved by asking leaseholders to pay. This would offer no deterrent to future malpractice!
A combination of builders/developers/freeholders levies or taxes should be used to replenish a fund set up by the Government to cover all the costs. As a national disaster it should be treated as such and dealt with nationally. The Government’s building standards have been lacking or ignored and regulators have been guilty of not doing their jobs so the Government must be the bank of last resort on this one.


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