Building on previous recent announcements, in a strongly worded statement to parliament on 10 January 2022 the Secretary of State for Levelling Up, Housing and Communities, Michael Gove, confirmed the Government's intention to further protect leaseholders living in higher-risk buildings and to ensure that the construction industry contributed more towards the cost of remediating unsafe cladding in affected buildings.

Mr Gove's announcement represents a significant change in Government policy towards the cladding crisis and the policy changes are intended to shift the financial cost of ensuring fire safety in higher-risk residential buildings from leaseholders and the taxpayer, to companies in the construction industry who either caused or profited from the crisis.

The key aspects of Mr Gove's announcement include:

  • A commitment that no leaseholder of a property in a building over 11 metres in height "will ever face any cost for removing dangerous cladding". It is anticipated that the Government intends to establish a new building safety fund, to supplement the existing £5.1 billion Building Safety Fund applicable to higher-risk residential buildings over 18 metres in height, to fund cladding remedial works to residential buildings between 11 metres and 18 metres. Previously, the only proposal was the provision of low interest loans to leaseholders of affected residential buildings between 11 metres and 18 metres to fund remedial works.
  • An invitation to the construction industry to accept responsibility for the cladding crisis and to agree, on a voluntary basis, to a fully funded plan of action to remediate unsafe cladding on buildings between 11 metres and 18 metres, estimated to be £4 billion. In the event that the construction industry fails to agree a funding approach by March 2022 Mr Gove confirmed that the government would impose a legislative solution and promised "commercial consequences for any company which is responsible for this crisis and is refusing to help to fix it".
  • An amendment to the draft Building Safety Bill to provide a further extension to the period under the Defective Premises Act 1972 during which a homeowner can bring a claim against the developer and/or builder of their property for defects in the property that make it unfit for habitation. Previously the Building Safety Bill proposed to extend limitation period from 6 years from completion to 15 years. It is now proposed to extend limitation to 30 years from completion.

Burges Salmon Comment

While Mr Gove's announcement will be welcomed by leaseholders many of whom are facing, due to no fault of their own, significant bills for repairing unsafe cladding to their properties, there are a number of potential difficulties with this change in policy:

  • Firstly, as with the main Building Safety Fund, the new fund only appears to assist with the removal of unsafe cladding and will not assist with the rectification of any other fire safety defects that may be present in the buildings. As such leaseholders may still face significant costs in order to make their properties safe.
  • Secondly, it is doubtful that the construction industry will be able to come together and agree how to fund the necessary remedial works within the time frame set by Mr Gove (or at all) and, if no agreement is reached, it is not clear what levers Mr Gove will be able to practicably pull in order to compel the construction industry to further contribute towards the cost of the necessary remedial works. It should be noted that residential property developers are already facing an additional 4% tax on profits under the Residential Property Developer Tax coming in to force on 1 April 2022 and a new building safety levy on high-rise residential developments will be introduced under the Building Safety Bill (expected to be enacted this summer).

The construction industry is also likely to be concerned by the prospect of the proposed extension of the limitation period for claims under the Defective Premises Act 1972 to 30 years from the date of completion. This represents a fundamental rewriting of limitation provisions in relation to construction claims and, given that the proposed extension will apply retrospectively, the construction industry could now find itself exposed to claims on projects which were completed in the early 1990s, greatly increasing the risk profiles of many in the industry and the potential financial liabilities that may arise as a result.