- As the Grenfell Tower Inquiry gets underway, we look at the question of who pays for the removal of the cladding that remains on many high-rise buildings across the country. This issue has resulted in both landlords and tenants being caught in limbo where they are unable to sell their properties due to the uncertainty as to who will foot the bill for these huge costs.
- We also look at Theresa May’s heavily reported spring speech on the housing crisis and query whether her government’s initiatives can assist in alleviating the chronic shortage of affordable housing.
- Lastly, the new energy efficient regulations for buildings finally came into force in April. This means that it is unlawful to let commercial properties with an energy efficiency rating of less than “E”. Some estimate that a quarter of all commercial property in England and Wales is currently rated below this level. Therefore, landlords and tenants need to be aware of the regulations and what their obligations are.
Grenfell – The issues
The Grenfell Tower disaster that claimed 71 lives in June 2017, has led to a public inquiry under the leadership of Sir Martin More-Bick. The inquiry is set to report in 2019 but already we have heard damning reports about the role that the cladding on the building played in this horrific event. In addition, the Government has set up an independent review of Building Regulations and fire safety, with a focus on high rise residential buildings. This review is due to publish its findings later this year.
Landlords v Tenants – who pays?
Immediately after Grenfell, the Government ordered a systematic testing of cladding in high-rise buildings. This has identified that hundreds of buildings incorporate cladding which does not meet the existing regulations. This cladding will need to be replaced with a suitable and safe alternative.
Obviously, the re-cladding of buildings comes at a significant cost and the question arises as to who is responsible for this cost.
Most local authority landlords and registered social landlords have agreed to cover the costs of emergency works to replace cladding on their affected buildings. What remains unclear, is whether private landlords are responsible for the cost of replacing cladding or whether they can pass this cost on to their tenants. There is certainly pressure from government officials and the press that private landlords should foot the bill for replacing cladding.
However, a recent property tribunal decision has cast doubt on this. The First-Tier Tribunal (Property Chamber) held that the costs of replacing cladding at Citiscape, Croydon should be borne by the tenants rather than the landlord. Whilst this decision does not set a legal precedent, it may embolden other landlords to try to recover these costs from tenants through a building’s service charge.
Following the tribunal’s decision, the Citiscape landlord refused to undertake the works until the tenants covered the costs.
Fortunately, in this case, the Citiscape developer, Barratt Homes, agreed to pick-up the costs of the re-cladding works despite no longer having an interest in the building. This led the then secretary of state for housing, Sajid Javid, to call for other developers to “…follow the example set by Barratt to protect leaseholders from costs and begin essential fire safety works.”
Whilst the debate continues as to who should pay for these works, some landlords have employed interim fire safety measures. Again, these often come at a significant cost and the same argument arises as to who should pay for them. It is reported that the provision of 24 fire hour security at a Canary Wharf building is costing its tenants more than £160,000 per month.
Although the majority of buildings affected by the cladding issue will be residential, many will have commercial tenants on the lower floors. Those tenants will only be in occupation during office or trading hours. Therefore, interim fire safety measures, such as 24-hour security patrols, are of no value to them although Landlords may still seek a contribution to these costs through the building’s service charge. Clearly, commercial tenants may feel aggrieved by this. As yet, no applications have been made to the Property Tribunal by commercial tenants in high-rise buildings seeking to apportion the cost of interim measures and re-cladding costs between commercial and residential tenants to reflect the fact that commercial tenants do not use a building 24hours a day. However, we envisage that such applications are likely.
Claims against third-parties
It was suggested by the Property Tribunal that the parties who end up paying for the re-cladding of a building could bring an action against the cladding manufacturer, the developer or the Government, to recover their costs. However, the difficulty is in establishing who is to blame. No claims are likely to be brought until the government review reports later this year as key to this question will be if the cladding used complied with the Building Regulations and Fire Safety requirements.
A final question that remains unresolved is how far a reasonable landlord or building contractor must go to ensure that the materials used in the development of a building are suitable? Is it sufficient for a product to be used if this is stated as being compliant with the relevant country’s regulatory standards or should further investigation be made? It is hoped that the inquiry and the Government’s independent report will provide answers.
If anything grabbed the headlines from Theresa May’s housing speech earlier this spring, it is her claim that land banking by housebuilders is helping to cause the housing crisis.
Let’s start with the basics – what did she mean by land banking? In essence, an unused plot of land is bought, and the buyer sits back whilst its value rises. It will then sell on the undeveloped land once an optimum price is attained.
If you only read the press reports of May’s speech, you may be forgiven for thinking that large numbers of developers are buying up large plots of land and not developing it out. In our experience, most developers are anxious to obtain planning and develop out as swiftly as possible. They do not usually spend money on land that they cannot develop out and sell within a reasonable timeframe. Whilst we appreciate that some developers may acquire specific strategic sites that they consider are not cost effective or practical to develop immediately, this is only a minority of sites.
Our view is that land banking is not the only cause of the current housing crisis, but other contributing factors such as a lack of investment by successive government in promoting or developing affordable housing are also to blame. Let’s look at some initiatives that are proposed to address this issue.
The Prime Minister identified that some local authorities unreasonably block planning permissions or delay the planning process which is contributing to a housing shortage crisis. The PM is due to review the National Planning Policy Framework to remove planning powers from councils that do not achieve their goals, passing these to an independent party. Depending on the involvement of the independent party within the local area (which you would expect to be none, given the ‘independent’ nature) this could prove hugely unpopular with the local residents and the local authorities themselves. You would hope the local councillors will try their best to avoid losing planning powers by acting reasonably in deciding planning applications notwithstanding the inevitable pressure from local residents to limit development. Certainly, the Government message is clear - there is a housing crisis and in order to alleviate this, “nimbyism” cannot prevail.
In contrast to the proposal to take control away from “failing” local authorities is the Housing and Planning (Local Decision-Making) Bill 2017-19. The second reading of the bill is due to take place and it will be interesting to see how far the government’s plan to remove powers of the Secretary of State in relation to the location of and planning permission for new housing developments extends.
The provision of more affordable housing is absolutely key to dealing with the housing shortage crisis. However, the government’s criteria for those eligible for affordable housing means many people just above the breadline are still not eligible for help.
Our residential conveyancing team has seen a rise in first time buyers, thanks to the Help to Buy (HTB) schemes which are now available. Whilst this is welcome, the HTB process needs to be streamlined as the process is very slow and this places buyers at risk of losing their purchase. Hopefully, the government pledge to invest £44 billion in capital funding, loans and guarantees means further investment in schemes such as HTB.
New stamp duty land tax rules for first time buyers have also helped some first-time buyers to get on to the property ladder, but this impact of this is relatively small. The main issue is that SDLT is payable after the purchase has completed and a reduction in this does not necessarily help first-time buyers save a deposit or deal with the fact that so may house values are far in excess of the value of any mortgage many people are able to take.
At the other end of the spectrum, taxing property investors through an additional 3% stamp duty land tax increase on additional homes has not stopped people from buying a second, third or even thirtieth house. As the buy to let market often involves purchasing at the lower end of the housing market, the additional 3% is not a sufficient deterrent to investors and so the house values continue to rise beyond the reach of many.
That there is a housing crisis is clear, but blaming housebuilders for not delivering more housing is not the solution. Hopefully, with additional funding into government initiatives, more first-time buyers can get a foot on the housing ladder. In the short term, low interest rates and falling prices in some areas of the country may yet be the biggest aid for first-time buyers.
Landlords - are you complying?
The introduction of the Minimum Energy Efficiency Standard (“MEES”) by the Energy Efficiency (Private Rent Property) (England and Wales) Regulations 2015 in March 2015 established a minimum standard for energy efficiency for both non-domestic and domestic privately rented properties in England and Wales.
We focus in this article on the regulations as they apply to commercial premises. There are different additional regulations which apply to residential units, which include things such as the ability for a tenant to request consent to make upgrades to the energy efficient of properties they are renting.
The regulations came into force on 1 April 2018, meaning it will be unlawful for landlords of both commercial and residential properties to enter into new leases and lettings where the properties have an energy efficiency certificate (EPC) rating of below an “E”. Further, if you are a tenant, granting a permitted underletting, the regulations will also apply to you (as ‘new landlord’) even if they didn’t apply on the grant of your lease.
This requirement will then extend to all leases, including leases already in place, from 1 April 2023 and the landlord must not continue to let any properties which have an EPC rating of less than “E”.
Although the regulations do not impose any obligations on the landlord to undertake works to increase the energy efficiency of their properties to achieve a rating of an “E” or above, it should be noted that valuation and rent reviews for properties that do not comply with MEES may be affected.
There are also financial penalties for non-compliance by the landlord of up to a maximum of £150,000. In addition, a publication penalty can be issued, which allows the enforcement agency to publish details of a landlord’s breach on a publicly accessible part of the exemptions register. This can include details of the breach, for example details as to misleading information having been uploaded to the exemptions register.There is therefore reputational risk in not complying with the regulations.
The MEES regulations will not apply to certain buildings or leases which include:
- buildings which are not required to have an EPC;
- tenancies of less than 6 months (but only to leases with no right of renewal, or where the tenant has not been in continuous occupation of the Property for more than 12 months); and
- tenancies for a term of over 99 years.
Landlords can let a building with an efficiency rating below the minimum standard if the landlord can demonstrate:
- all cost effect energy efficiency improvements have been carried out;
- consent to undertake works is refused by a third party, such as a Local Authority, a superior landlord or a tenant, or if the consent has been given with conditions which a landlord cannot reasonably comply. However, if other works can be carried out to improve the efficiency which do not require consent, the exemption will not apply to these works and the Landlord will be required to carry out those works. Where a tenant has refused to allow consent, the exemption relating to those works will only remain valid for as long as that tenant remains the tenant and a landlord must be able to evidence a ‘reasonable effort’ having been made to obtain the consent;
- an independent surveyor has determined that the energy efficiency improvements that could be made to the property are likely to reduce the market value of the property by more than 5%; or
- the landlord has recently (or unexpectedly) become a landlord. For further information on this exclusion please contact us, as this is a very limited exclusion.
Exemptions will need to be lodged on a register maintained by the Government and will last for five years, unless a tenant has refused consent to the works (where the exemption will apply for the shorter of five years of until the end of the tenant’s occupation) or unless a landlord has recently become a landlord (where the exemption lasts only for a period of six months).
Please note that the above exemptions do not run with the land and are personal to the landlord. If you purchase a property which currently has an exemption registered, as the new owner you will also need to apply to reregister the exemption.
The onus is on a Landlord to register an exemption and this must be done before the purchase of the property or before the property is let.
Landlords can prepare by:
- reviewing their portfolios and considering whether any exemptions may apply;
- carrying out cost effective improvements on their properties ahead of the 2023 deadline; and
- reviewing their leases to ensure they are aware of their rights to re-charge costs to their tenants.