Since the Grenfell disaster of 2017, there has been some confusion about who should bear liability for the cost of removing and replacing this type of cladding on other high-rise buildings.
It is official policy that combustible materials should not be used in or on external walls or in any attachments to those walls and the Government has committed to removing aluminium cladding material (ACM) from privately owned blocks at a cost of £200 million to prevent the risk of fire. A review of building regulations and fire safety in England in 2018 said the regulations were “not fit for purpose” and called for a “radical rethink” of the system. The Fire Service has said that the report from the first phase of the Grenfell enquiry made it “clear that the fire risk presented by flammable cladding can only be removed when the cladding itself is completely removed”.
A recent dispute relating to the cladding at two blocks of flats in Manchester has now been resolved by the Courts which found in favour of leaseholders and freeholders who were suing their insurer to recover the costs of fire remediation work.
The case, Manchikelepati and Others -v- Zurich Insurance , concerned two blocks of 40 flats in Manchester, known as New Lawrence House, which were constructed in June 2007. From 2012 onwards, it became clear that major building defects existed in the development, including extensive fire safety faults and a roof that needed replacement.
The Court ruled that the insurer of the two blocks must pay the full cost of repairing fire safety failings which have forced residents out of the building since 2017.
The dispute related to the level of the cap on liability under the Zurich Standard 10 New Home Structural Defects Insurance Policy.
Insurers Zurich had provided a warranty on the properties to cover the cost of “major physical damage” and “present or imminent danger to the physical health and safety of the occupant” but only up to a maximum of £3.6 million, less than one third of the total remediation cost. However, following this appeal, residents and freeholders are now entitled to the full £11.6 million and amicably can claim the cost up front, rather than having to pay for repairs first before claiming the money back from the insurers.
The finding by the Court was that the liability cap under the policy was a purchase price of the new homes of the insured residents claiming under the policy, up to a maximum of £25 million. Considering the effect of the relevant provisions, the Court focused on the fact that the cost of rectifying a present or imminent danger to the health and safety of occupants (as provided for in the policy) could easily exceed the purchase price of an individual flat.
Phil Morrison, head of Clarion’s Construction Team, points out that it is this kind of problem which is credited with slowing the sales market for new apartment buildings - in October, The Times estimated that up to 500,000 flat owners are now unable to get a mortgage.
Phil comments “This case comes amid an insurance crisis for the sector, which it’s claimed is putting thousands of projects at risk. The decision in this case is likely to result in proprietors making more claims against their insurance companies and will further impact new buildings as insurers will be more reluctant to cover them.”
Phil adds that “Previously, fire professionals would be prepared to give a view that, although the system itself was not compliant with fire regulations, that the component parts were compliant: they would give an ‘engineering view’. This is no longer the case; fire professionals are now giving factual assessments without that view. We are reaching a point where I’m fearful that if a building has fire-resistant cladding issues, professionals will be reluctant, or even unable, to become involved.”
“The case could have significant implications for other buildings identified as having unsafe cladding. We have already been approached by individual leaseholders who have contacted us collectively to ask where their rights sit and whether freeholders or leaseholders have any responsibility. If you are concerned about your position its important to seek legal advice.”
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