Dangerous Cladding - Is your Flat Still Saleable?

13/06/2018
The issue of dangerous cladding fitted to many tower blocks throughout the UK has come to prominence since the awful fire at Grenfell Tower. The tragedy has had many knock-on effects; one of the major ones being the position of leaseholders who currently live in tower blocks which have unsafe cladding. As things stand, their flats have suddenly become unsaleable, and already, at least one lender has refused to grant a remortgage to one such leaseholder.

Additionally, because the value of such flats has fallen, occupants are caught in negative equity. If you are such a leaseholder, what can you do to find out what your position is and what should you then do to make the best of it?


UPDATE - Just two out of 205 affected private residential blocks re-clad (21 Sept 2018) [Click to find out more]

The Grenfell Tower Disaster

In the early hours of 14 June 2017, Grenfell Tower in North Kensington, West London, suffered a huge fire which resulted in the deaths of around 100 people. Many more people became homeless as a result.

The fire was supposedly caused by a refrigerator catching fire. It rapidly spread when the fire spread to cladding on the outsides of the building. This cladding was found to be a huge fire hazard.

Authorities admitted that the unsafe cladding had been fitted in more than 300 properties throughout the UK, including in around 160 social housing tower blocks, and one of the initial scandals after the event was the snail's pace at which work to take down and replace the cladding was carried out, with a minuscule fraction of the total number made safe by January 2018 (6 months later).

The legal arguments over who should take ultimate responsibility for allowing the cladding to be fitted continue to be hotly contested.

Can you help?

The Grenfell tragedy is very much ongoing and those affected by it, both indirectly and directly, continue to require both practical and financial assistance.

Click on Grenfell Assistance to find out ways you can help.

This article looks at the issue of dangerous cladding on flats in tower blocks and considers the following:




Dangerous cladding - worried about selling your flat or remortgaging it?

Our experienced solicitors can help you sell your flat and are up-to-date with current information regarding the dangerous cladding issue and our independent mortgage brokers can best advise you regarding remortgaging your flat and help you select the best lender for the purpose.


* Fixed Fee – No Sale No Fee – On all Mortgage Lender Panels
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    1
    Can you remortgage?
The remortgage process (click to find out more) always involves a valuation of your property. The level of valuation can vary on a case-by-case basis - it might be a desktop valuation (remote) whereas it might involve an actual physical visit by a valuer. It is the result of this valuation which carries most weight in the decision as to whether to grant a remortgage and how much finance the lender might offer.

SAM Conveyancing spoke to a spokesman from Lloyds, the UK's biggest lender, about the process and the spokesman confirmed the above process. He additionally stated that Lloyds would expect their professional valuers to find out, in their valuation process, whether an applicant's flat is in a block with dangerous cladding. Once the valuer has established this fact, it would have a material - and negative - effect on the property's value.

Therefore you can expect a lender to discover whether your flat is affected by unsafe cladding and if it is, to consequentially lower its value and therefore its remortgageability.

Even though the Lloyds spokesman said that final decisions on granting remortgages would always be considered on a case-by-case basis i.e. there's no 'blanket' refusal regarding the scenario, it leaves open the large possibility that your application for a remortgage may be refused. A knock-on effect of this is that the refusal will in turn harm your credit score, reducing your chances, for 6 months, of having other credit applications agreed to.

Clydesdale Bank apparently refused to grant a remortgage for an applicant in a block on the grounds that it had timber cladding (click to find out more) and is only one example of where lenders won't lend if there's evidence that a dwelling has fire safety issues.

Fixed Fee, No Sale No Fee with a 5 out of 5 rating

 
    2
    Will it affect your sale?

Solicitor

An experienced conveyancing solicitor is likely to discover the issue with dangerous cladding during the legal enquiries stage of the conveyancing process and report the fact to your buyer, regardless of whether they're making a cash purchase or buying using a mortgage. There is, of course, nothing stopping a cash buyer from going ahead anyway even if they know that there's an issue, but the fact of itself is likely to prove problematic - you have expect that they might either negotiate for a large price reduction or even pull out.

'Real life' Solicitor Guidance

SAM Conveyancing has received some guidelines from a leading solicitor firm which carries out extensive conveyancing transactions, regarding leasehold enquiries for its solicitors to raise in the wake of the Grenfell Tower tragedy.

The firm forecasted that the Grenfell Tower enquiry is likely to focus on the role of the freeholder and the management company and investigate any failings on their part.
Regarding particular steps its conveyancers should take to ensure clients are well informed of the risk of fire when purchasing a flat in a high rise building, the firm made these points:
  • Solicitors should first and foremost ask to see the risk assessment and check when this was last updated as well as checking any recommendations have been followed. Any serious alterations or extensions after this risk assessment would entail getting a completely new risk assessment.
  • The risk assessment must cover all non-domestic premises including the common or shared parts of blocks of flats or houses in multiple occupations - Fire and Rescue Authorities have a statutory duty to ensure compliance and enforce requirements where necessary.
  • In the event that sellers cannot provide an up-to-date and legally compliant fire risk assessment, they should be asked to obtain an assurance from the freeholder/management company 'within a reasonable period of time'.
  • Sellers should provide confirmation from the freeholder/management company that, if there is no fire risk assessment plan available, there is a plan in place to undertake one in the future. This may involve the seller having to pay an additional fee to the freeholder/management company (perhaps £100).
  • If the buyer is to acquire an interest in the freehold/management company, then they must be made aware that there is a risk of enforcement action as long as the assessment isn't produced and that the freehold/management company, of which the buyer is a part, is liable for any costs of the enforcement action and must comply with enforcement directions.
  • The solicitor must make enquires about whether there is a sprinkler* or other fire suppression system installed.
  • The solicitor must make enquiries about whether a building has undergone refurbishment; if it has, then they must enquire as to whether the fire risk assessment was updated as a result.
  • The solicitor must enquire about whether the property is cladded; if so, then they must enquire about whether the cladding has a plastic or mineral core (a plastic core was present in Grenfell Tower's cladding).
  • The solicitor must enquire as to when the Fire Service visited and inspected the building and when the last inspection took place.

* "More than a million people are living in Council owned tower blocks with no sprinkler systems....in all newly constructed blocks taller than 30 meters sprinklers need to be installed, although not in common areas."

Mortgage lender

It is more likely, however, that your buyer will be wanting to purchase using a mortgage. Their lender will carry out valuation, in similar fashion to point 1 above, and are then likely to find out about the presence of suspect cladding.

They may well then decide not to grant a mortgage based on the reduction in value of the property or to offer a considerably reduced mortgage, which may well similarly mean that your buyer won't be able to proceed.

Your lender undervaluing your property may well spell the end...

As a purchase, when your bank values your property as worth considerably less than the asking price, it's always a serious issue which may mean you won't be able to buy it.

It's always likely to be difficult to appeal against the bank's valuation successfully and if you're already needing a mortgage, it's highly unlikely that you'll be able to make up the shortfall to enable you to purchase.

Read Bank Undervalued Property: What Can You Do? to find out more information about this subject.

In January 2018, according to media reports, Leeds Building Society declined to offer mortgages to buyers wishing to purchase shared ownership flats in Richmond, a tower block in Southend, owned by Genesis Housing Association, on the grounds of fire safety.

Richmond House had contained non-compliant cladding which Genesis replaced, however Leeds cited present concerns about the block’s lack of a sprinkler system as one of the main factors behind its reasoning.

Genesis has insisted that Richmond House is fully compliant with building regulations and, and press time, said it is in discussions with Leeds Building Society to try to resolve its issues.

This case illustrates quite how important fire safety and building control considerations are in whether a lender regards a dwelling as providing sufficient security for a loan. Lenders naturally assume a defensive 'if in doubt' position.


    3
    Are you in negative equity?Negative-Equity-Caused-By-Dangerous-Cladding-in-Tower-Block
Negative equity (click to find out more) essentially means that your property is worth less than you bought it for; this can be a real problem if you're still paying off a mortgage on your property. Owners of any property in a block with dangerous cladding are likely to be experiencing negative equity at this time.

Negative equity becomes a real issue when it comes to selling if you've an outstanding mortgage as it's highly likely that the sale won't cover your outstanding mortgage. Additionally if the worst scenario happens and you get repossessed, your dwelling will sell for that much less money putting you even more in debt that you already are. It's a particular reason to ensure that you stay in your job or otherwise ensure that you've sufficient finances to make your monthly mortgage repayments and you may even wish to protect yourself by taking out income protection insurance.


    4
    How are Help to Buy Equity Loan scheme properties affected?
You would be forgiven for thinking that, according to the existing rules of the Help to Buy Equity Loan scheme, if you had bought flat in a block with dangerous cladding under the scheme, you could at least take advantage of the value of your flat being written down by paying off the equity loan portion because this portion falls proportionally to a price fall.

Unfortunately, although Homes England, which runs the scheme on behalf of the Government, did honour this in the immediate aftermath of the tragedy (the occasion was in April this year) to at least one such flat owner, it has retrospectively changed the rules in a highly controversial way.

Various media reports have published a statement given in June this year from Target, which administers the back end of the scheme, speaking on behalf of Homes England. which appears below.

'Novel Issues'
The Government has decided to define flats in buildings with Grenfell-style cladding as having 'novel issues'.

Target's statement made in June was as follows:

"If a borrower’s property is affected by novel issues in relation to its valuation, eg its external cladding, Homes England reserves the right, in accordance with the terms of the equity mortgage, to agree the valuer used. This ensures the appropriate due diligence is carried out in the interests of borrowers and the taxpayer investment in these homes."

Most experts view this stance as highly unsatisfactory. It leans heavily on the surveying profession, whose members might feel "damned if they do, damned if they don't" and whom, SAM Conveyancing has found anecdotally, generally wish to steer well clear of being asked to carry out such a controversial valuation. Additionally, the stance is presently (as of September 2018) under legal challenge and understandably so.

Although SAM Conveyancing has not encountered such a case itself, it is highly likely that this stance will also apply regarding matters of Help to Buy Staircasing, i.e. where scheme subscribers can pay off some portion of their equity loans.

    5
    Can you staircase (if flat is shared ownership)?
Once again, this is entirely down to your lender, as per Section 1 and Section 2 above; they may or may not wish to lend, according to the valuation. There is nothing to stop you staircasing if you're paying for your staircasing with cash, however.

If you are able to staircase, you should be able to buy your new share at a decreased price, reflecting any fall in value of your flat due to the cladding.


If you are a council tenant, your Right to Buy should remain of itself unaffected, and it would cost less to buy your flat than previously, however your challenge, as discussed above, is finding a lender.

Section-20-Leasehold-Major-Works--resulting-from-having-to-pay-to-replace-dangerous-cladding-in-tower-block
    6
    What are likely future costs you will face?
Building Control Regulations and Fire Safety Regulations require freeholders to take down all unsafe cladding from tower blocks although it will be some time before all the UK's buildings affected by the issue will have done so.

The issue of who'll ultimately have to pay for the installation of the sub-standard cladding is the subject of ongoing and fiercely contended legal battles at press time.

However, in the interim, freeholders will look to pass on the costs of taking down all the dangerous cladding (and possibly replacing it with safe cladding) to the leaseholders and, so far, legal cases have observed this principle (see below). That means that leaseholders in blocks where dangerous cladding is removed and replaced are likely to have to pay as Section 20 major works (click to find out more), usually via the reserve or sinking fund.

Knowledge of this is also likely to be a retardant for a buyer when it comes to finding one to purchase your flat.


    7
    What is the legal position regarding responsibility for defective (fire hazard) cladding?
At press time, responsibility for the installation of dangerous cladding is the subject of a number of heated legal battles and therefore things may change in the medium or longer term.

In the 'Salford Case' i.e. E & J Ground Rents No.11 LLP various leaseholders of Fresh Apartments, Salford (click to find out more), the First-tier Tribunal decided that, in this case involving a block with dangerous cladding, leaseholders do have an obligation to pay for the contingency 'waking watch' and the costs of insurance.

In the case of Citiscape, which is the name of two affected tower blocks in Croydon, the First-tier Tribunal once again found in favour of the freeholder/management company that the leaseholders are obliged to pay for the waking watch and replacing the cladding (cost £2 million). 


Sajid Javid, the Housing Secretary at the time (19 April 2018), said of Barratt's decision:

"I applaud Barratt Developments’ decision to cover the costs of fire safety works. They have listened to the concerns of Citiscape residents, engaged with government and have done the right thing.

"Other building owners and house builders in the private sector should follow the example set by Barratt Developments to protect leaseholders from costs and begin essential fire safety works. I want to see all leaseholders in this position get the peace of mind they deserve and I am keeping this under review."

There is no legal force, however, in Javid's encouragement to other building owners.

That said, large developer and housing association Legal & Quantile (L&Q) has pledged, regarding affected tower blocks, "If we have to replace cladding, we will"; it is not clear whether 'have to' means that they'll only take action if they're legally ordered to.


    8
    What are your best options?
The Grenfell Tower disaster was an unprecedented tragedy, the reverberations of which are likely to around for many years to come.

If you live in a flat in an affected tower block, you should consider doing the following:
  • Find out what you can about what your property's current value is. You can use a variety of online sources to help you with this. This should give you an idea whether you are in negative equity and by how much.
  • If you have an outstanding mortgage, you should contact your lender and establish what their position is regarding remortgaging your property.
  • If your current lender states that they would not grant you a remortgage using your property as security, you should see if there are any other lenders who will. We would always advise that you consult an independent mortgage broker to help.
  • Be prepared for larger service charges - you and your other leaseholders may have to pay for replacing the suspect cladding and any other related costs such as providing a waking watch.
  • Keep observing legal developments related to this matter; the future is presently unclear and it's possible that you might be able to claim back the increased service charge costs related to dangerous cladding in future.


  • Be prepared to stay put and don't try to sell; this is the best strategy if you are in negative equity and additionally, when the dangerous cladding has been replaced, selling prices should rise again, making selling your flat much easier than at present and more worthwhile.


  • Only two out of 205 private residential blocks containing combustible ACM cladding have had it completely removed since the Grenfell fire last June, according to the Government's own figures.
  • Re-cladding work has started on only 12 private residential bocks in the last 15 months.
  • Owners of 86 of the 205 residential blocks found to have combustible cladding have yet to confirm their remediation plans.

Grenfell Disaster: Ways You Can Help


Volunteer

If you would like to volunteer to help with the support effort being co-ordinated by Kensington and Chelsea Council please register your interest by emailing grenfellvolunteers@rbkc.gov.uk including your name, contact number and availability.

Donate

Click to visit the Support4Grenfell Community Hub to find out details about various charities working to help those affected by the disaster.

Dangerous cladding - worried about selling your flat or remortgaging it?

Our experienced solicitors can help you sell your flat and are up-to-date with current information regarding the dangerous cladding issue and our independent mortgage brokers can best advise you regarding remortgaging your flat and help you select the best lender for the purpose.


* Fixed Fee – No Sale No Fee – On all Mortgage Lender Panels
** Access to whole of the market – Available Outside of Work Hours – No need for face-to-face meeting


Related News Articles

 
Remortgage Process Explained
13/10/2017
Staircasing Process
01/11/2018
What are Section 20 leasehold Major Works?
10/11/2017
What is Negative Equity on a House?
19/04/2018
What is Shared Ownership?
20/12/2017
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