Cladding Remediation: Cost of alternative accommodation?

Cladding Remediation: Cost of alternative accommodation?

15:45 PM, 8th April 2021, About 6 months ago 14

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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

by Shining Wit

14:31 PM, 21st April 2021, About 6 months ago

Reply to the comment left by Ian Narbeth at 15/04/2021 - 10:26
Hi Ian,
apologies for the tardy response.
Essentially, the NO COST TO TAXPAYER solution is that used in Victoria (Australia) where they have successfully dealt with the same problem - and advocated by the Leasehold Knowledge Partnership (https://www.leaseholdknowledge.com/) whereby a massive long-term bond is issued (at a rate attractive to Pension Funds and the like to purchase), the funds raised are used to remediate the cladding issues, and the bond repaid over many years from funds raised by other 'levies' - which could be on developers, overseas property purchasers, ground rent taxes, etc, etc.
The problem is so huge (lowest realistic estimates are £16 billion) that it needs government intervention (for the cash flow) - but the actual funding doesn't come from the government/taxpayer.

The government policy of grants (which dont cover all the issues) for over 18m buildings, and forced loans for under 18m (which could take 85 years to repay at zero interest) - and who is going to pay the up-front cost for either? - is just so unfair on taxpayer AND leaseholder (the two innocent groups).

by Ed Regent

14:13 PM, 22nd April 2021, About 6 months ago

Reply to the comment left by Shining Wit at 21/04/2021 - 14:31
That's a very insightful response. Thanks, I didn't know about the Australian model. Why are government ignoring this solution here then?

by Ian Narbeth

14:32 PM, 22nd April 2021, About 6 months ago

Reply to the comment left by Shining Wit at 21/04/2021 - 14:31
Who issues the bond? Presumably the Government. It then taxes people, not just those "responsible" but those in the same industry and investors. Not sure that is going to fly here.Why should a developer who has never built a high rise building pay extra tax? Why should an investor who has never owned one? This looks like an hypothecated tax which the UK Treasury is very much against.

by Shining Wit

15:53 PM, 22nd April 2021, About 6 months ago

Reply to the comment left by Ian Narbeth at 22/04/2021 - 14:32
Thanks for your comments Ian.

Agreed, someone has to pay.

The government proposal of grants (which only cover part of the remediation required) and forced loans both require the government to provide the cash. The loans will be paid back at £50pcm, the grants wont. So the leaseholder(s) pay for ‘excluded’ (but still mandatory) remediation (over which they have no control) and the taxpayer pays (at least in the short term) for the rest….

The problem is that the ‘guilty’ parties aren’t generally available to be charged. The problem is the culmination of a number of separate failings: Government relaxed the regulations, Manufacturers lied about their materials, builders took short cuts on safety work, Local Authorities signed off without inspection, etc.
(Local) Government don't have their own money to provide redress.
The original developers/freeholders have often ‘disappeared'. Some are still trading and a few have set-aside funds to pay for (some) remediation work.

The leaseholders had no part in failings – they bought flats having done the due diligence to check that they were safe and fit for purpose. Now they are living in potentially unsafe buildings, not knowing how soon they will be ‘asked’ to contribute what could be life-destroying sums (the government quote £10k per leasehold, the figures quoted in the recent commons debate were over £70k, and I’ve seen quite a few different figures of over £100k - the highest being £156k!
Many blocks haven’t been assessed yet, so the true extent of the problem is only now being revealed. Many leaseholders are still in blissful ignorance of the situation in their buildings…

As an analogy: if you bought a defective car (where they decided not to fit brakes, and the seats were made of highly flammable material), you would expect it to be fixed and made fit for purpose. The analogy is for the government to pay to fix the flammable (cladding) materials, but not the (fire) brakes – but only if you have a (high-rise) SUV; if you have a (low-rise) estate, you get a loan to cover the remediation (which will take you 80-odd years to repay, or as it is somehow attached to the car, you will have to drop your selling price if you sell the car/flat).
However, please note that can only have your grant payment if you complete the (fully costed) application by June, start the work by September, and have it all finished by next September – when there aren’t enough qualified workmen to undertake the surveys and quote for the works (let alone actually do the repairs – which on high-rise blocks do have a tendency to overrun).

You make an interesting point about the hypothecated tax – and yet that is exactly what the government has already proposed with the £2Bn ‘developer levy’ (which is included in the recent £3.5Bn increase to the Building Safety Fund) and the recently introduced ‘Overseas Purchaser Stamp Duty’ (apparently aimed at reducing Rough Sleeping in England.

I am not an expert – but I have been horrified by what I have recently learnt about the background to the Grenfell Tragedy and the details of the so-called 'Cladding Scandal' (which actually encompasses so much more) – that has been revealed by the tragedy and the subsequent inquiry.

Dumping the costs onto the leaseholders is wrong.


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