Moved by Baroness Pinnock
13: After Clause 2, insert the following new Clause—“Prohibition on passing remediation costs on to leaseholders and tenants (1) The owner of a building may not pass the costs of any remedial work attributable to the provisions of this Act on to leaseholders or tenants of that building.(2) Subsection (1) does not apply to a leaseholder who is also the owner or part owner of the freehold of the building.”Member’s explanatory statementThe purpose of this new Clause is to prevent freeholders passing on remediation costs to leaseholders and tenants, such as through demands for one-off payments or increases in service or other charges.
My Lords, many tenants and leaseholders in blocks with cladding that is now known to be a serious fire hazard find themselves in a very bleak place indeed. This amendment seeks to address that. Leaseholders have purchased flats in good faith with building surveys, mortgage insurance and building warranties in place. They have done the right thing. Now, through no fault of their own, they are being threatened with additional service charges of several hundred pounds each month to pay for the so-called waking watch, a 24/7 in-person lookout for potential fires. On top of that, they are being asked to fund the considerable costs of remediation work to remove the dangerous cladding and replace it with a safer system. Figures I have seen for some of this work run to tens of thousands of pounds. How are leaseholders, who already have a hefty mortgage, supposed to afford, say, an additional £40,000 bill for the remediation work?
During the debate on an earlier amendment, the Minister referred to leaseholders being asked to pay only affordable costs. I am very disappointed if that reflects the Government’s thinking. Leaseholders should not be asked to pay towards remediation of problems that are not of their making in any way. The question that then arises is: who was responsible for including these dangerous cladding panels in the first place? The construction companies surely have some responsibility. The warranties that were provided on the building should surely cover errors made during construction. The people who do not have any responsibility are those currently being asked to pay the bills. This is not just and not right, and we have an opportunity today to take the first step towards removing the anguish and anxiety faced by homeowners and tenants in this position.
I thank the Minister for making time available for a very useful discussion of this issue, and I accept that the scale of the problem is very large and that the cost of remediation works will run to tens of billions of pounds. I also accept that the Government have made some attempt to relieve the financial pressure on homeowners by providing a £1.6 billion fund towards the costs. However, I suspect that that is just a small portion of the total cost. Perhaps the Minister can indicate the scale of the problem.
I bring us back to the basic question: who should take responsibility? Just yesterday, during the Grenfell inquiry, evidence was given by one of the suppliers of the cladding system about the misinformation provided to win the contract. Evidence has been provided that the Building Research Establishment had already shown the high flammability of these cladding systems. The Grenfell inquiry phase 1 report stated that
“there was compelling evidence that the external walls … failed to comply with Requirement B4(1) of Schedule 1 to the Building
Clear evidence, then, of culpability during construction or refurbishment at Grenfell. Of course, we do not know if this is the case elsewhere, but we have sufficient information to demonstrate that those who pay for this extensive remediation must not be the tenants and leaseholders.
We on these Benches feel very strongly that there is a just and moral case for leaseholders and tenants not to be required to contribute to any of the costs. I will listen carefully to what the Minister has to say but if the Government do not accept the amendment, I will feel it necessary to test the opinion of the House.
My Lords, I listened to the Secretary of State on the “Today” programme this morning, in which I heard him say that the cost of removal and remediation of dangerous cladding from residential buildings should be as affordable as possible for lease- holders. This afternoon is an opportunity for the Minister to make clear what this means. I understand that builders and freeholders may have responsibilities in meetings such costs, but where a leaseholder is not a freeholder, why should they have a responsibility to pay out?
The uncertainty for so many leaseholders who are stuck trying to sell their properties or are worried about their possible financial exposure needs swift resolution. The amendment would protect leaseholders who are not freeholders, and tenants, from extra costs, be they single or staggered lump sums, increases in service charges or increases in rents. The responsibility for making safe a building with a fire risk should not lie with the leaseholders or tenants. The amendment would make it clear that it is unreasonable to expect them to be responsible for those costs when they are the ones exposed to risk through no fault of their own. I hope the Minister will agree that this amendment, which would protect leaseholders and tenants, is justified.
My Lords, this is an enormously complex issue, as I outlined in an earlier amendment. The current legal framework makes liability for the matters that have been referred to by the noble Baroness and the noble Lord a patchwork, and entirely uncertain of outcomes. So significant are the matters at stake that in a normal course of events it may be years before matters are resolved by the courts. We need a quicker fix than that, which is why earlier I suggested that the Government should take a firmer hand in this and not leave it to the industry and markets to sort out. In other words, there is a strong case for government intervention. I welcome this amendment, although not precisely on its own terms, because I think it has some potential flaws. However, certainly the opportunity to debate the issue is absolutely vital.
I am satisfied in my own mind that where basic construction standards have been skimped, some residual duty of care ought to be capable of being invoked to make those directly responsible—constructors and developers and, to some extent, those responsible for construction warranties—liable. However, I am no lawyer and I fear that my hopes will not be fulfilled. Developers use increasingly sophisticated means to ring-fence liabilities of individual development projects, normally by means of a special purpose vehicle or similar device.
Enormously profitable housebuilding enterprises, which observed the provisions of approved documents but did not read the broad statement of objectives in the parent building regulations document, tell us they complied with the requirements at the time. The noble Lord, Lord Stunell, told us just now about a deliberate evasion of proper test procedures and certification. I must have seen the same BBC TV footage as he did, reporting on the investigation by Sir Martin Moore-Bick and the evidence of insulation materials suppliers, also referred to by the noble Baroness in moving this amendment.
The noble Baroness is right: the long leaseholder has paid hard cash in good faith. It is really wrong that they should be obliged to pay any significant sum in addition. Mortgage lenders have likewise relied on completion certificates, construction warranties and so on, although it appears that the construction warranty providers in particular have a role in monitoring quality of build—unlike the eventual building insurer, whose only concern is with subsequent post-construction insurance against specified perils. I do believe that construction warranty providers have some co-responsibility here.
The PI—professional indemnity—insurers, of course, may have some exposure in relation to professionals acting in the matter. I do not know about that, but I do know that these are powerful and well-funded interests. In order to break this logjam, it would require significant legal change. I think it would be necessary to lift what is known as the “corporate veil” to remove the assumption of “buyer beware”. These two matters in themselves would open up a whole area of wider responsibility which may yet have other serious implications.
I agree that the vulnerable and invariably innocent leaseholders and tenants should not pay twice. But if not them or the developer—who? Management is likely to have no asset beyond the management and maintenance generated via the service charge and guaranteed in terms of recovery from the occupiers, be they leaseholders or tenants. Freehold owners of the long-leasehold flats have an interest which, in general terms, is some multiple of the cumulative ground rent, so they do not have an interest of any significant value. The likelihood is that both management functions and freehold ownership are themselves vested in corporate structures for precisely the same reasons of delimiting potential liabilities to individuals that, of course, are common with special-purpose vehicles. Of course, the freeholder may not even be the original developer; they may have purchased in good faith.
I have written to the Minister previously to express my fears about orphan liabilities. This amendment allows us to consider the whole range of issues that arise if we are trying to establish or apportion liability. While everyone is saying “not me”, there is a real concern that the focus will not end up where it ought to be. Some sort of government initiative is needed unless the Minister can reassure us that something is already happening to try to resolve this.
I have enormous sympathy with the sentiments behind this amendment, but I do not think it works. Liability cannot fall on one person without establishing where else it might fall and what the consequences might be.
My Lords, it is a pleasure to follow the contributions of my noble friends Lady Pinnock and Lord Shipley and to support this amendment. I hope the Minister will see the strength of the argument and accept the amendment. If not, I regret that I shall also be seeking the opinion of the House on the matter.
I thank the noble Earl, Lord Lytton, for his—as ever—very thoughtful and constructive contribution. I am sure the Minister is aware that this is a complex and difficult question with many different moving parts, which the noble Earl so eloquently summarised. The one set of people who are not moving are the tenants and leaseholders stuck in flats which they cannot sell. They may be putting themselves at considerable personal as well as financial risk. These tenants, residents and leaseholders have no control over the circumstances in which they find themselves. They played no part in the decision-making—or lack of it—that has left them stranded. They are the vulnerable people whom the mighty, the powerful, the professionals and those with big pockets have left stranded. Our amendment is saying, “Right, let us at least fix this bit of the moving parts—these bits of the equation.”
I agree with the noble Earl, Lord Lytton, that there is a much bigger set of problems to be confronted. I hope that the Minister will accept this and will say that the Government are going to launch a wholesale consideration. I suspect that this is of concern far beyond the Home Office. Perhaps some prime ministerial attention can be given to sorting out this difficult and complex area.
The key question is: who will pay for the necessary works? Our amendment is simple and, I hope, clear. The innocent occupiers—the renters and leaseholders of millions of homes across the country—should not be held to ransom by building owners. They should not be forced to pay for making their homes safe, when they should have been safe from the start.
I know that the Government have begun to face up to the excessive costs facing leaseholders. The Minister has a well-tried set of statistics which he will give us again. The noble Baroness, Lady Pinnock, ticked that box for him by recounting them. I know the Minister believes—as I do—that far more remains to be done.
The noble Earl, Lord Lytton, mentioned the construction warranty guarantees. Most of them are turning out to be virtually worthless. At the same time, they are often sold to residents and leaseholders as though they were some kind of guarantee that, if things went wrong, they would be compensated. This is not so. For the moment, at least, they are not delivering. The rush of people disclaiming that their warranty warrants anything is remarkable.
That puts an interesting light on something the Minister said in discussion of the previous group. He said that we did not need registers or government oversight because self-regulation would deal with it. He said that was the way to go and they did not want to increase the regulatory burden on anyone. I know that is the Government’s mantra in general, but one of the few positive things to come out of Grenfell was the tearing up of that whole story—that regulation was for losers—and the understanding that regulation provides a safety net that secures people’s future. This is just another case where self-regulation failed and none of the industrial, insurance and construction sectors stepped up to regulate their own behaviour and safeguard tenants. No case at all, therefore, can be made that tenants and leaseholders should be the ones collecting the bill.
I shall not rehearse any of the hard-luck stories that we are familiar with, but a straightforward case can be made to the Treasury: the longer this issue hangs around, the longer it will take to put all the remedial work in hand. If there are arguments over who pays, it will not be done and, if it is not being done, the risk of another major incident—and all the public money that will be spent on that—looms in the distance. And it is not just that, of course: there are also the long-term costs of health and stress that will be loaded on to the NHS as a result of thousands, or hundreds of thousands, of people finding that the home they live in is worthless. I wonder how many bankruptcies there will be. If you are a sole trader and the bank has a guarantee on your home, what is your position when you cannot get an EWS1 form? How does that leave you in terms of business survivability?
Today the Minister has talked about phasing things, going slowly and proportionately, and getting fire tests and so on, but every time that we have looked further than the end of our noses we have discovered that there is more stuff to do—an estimated 750,000 fire doors around the country, just for starters.
I hope, therefore, that the Minister can give millions of leaseholders some words of comfort and support in backing our amendment. If not, I fear that I shall join my noble friends in testing the opinion of the House.
My Lords, Amendment 13, tabled by the noble Baroness, Lady Pinnock, adds a new clause to the Bill that would prohibit the owner of the building from passing the cost of any remedial work attributable to the requirement of the Act on to leaseholders or tenants, except where the leaseholder is also the owner of the building.
As the noble Baroness has said, these leaseholders have done absolutely nothing wrong. They have actually done everything right: they have bought their property and are paying their mortgage, and they are being penalised for the failure of others. That surely cannot be right. The fact that their building has been given dangerous cladding has made their flats worthless. They cannot sell them but they still need to pay their mortgage. They cannot get the work done. They may be paying for a waking watch.
In some cases, these properties will have guarantees on them; there will be warranties for the work done. As the noble Earl, Lord Lytton, said, the people who have done nothing wrong are the leaseholders or tenants in the flats. We should all stand up to support the leaseholders and tenants, and get those who have done the work to accept their responsibility and put this right. Whether it is the individual builder or the company or organisation, it cannot be right for these people to wriggle out of their responsibility.
The Government need to take firm action. I hope the Minister will set out for us now what action they will take to support leaseholders, who are in a terrible situation. If he does not do that, I and other noble Lords on these Benches will certainly be joining the noble Baroness, Lady Pinnock, in supporting this amendment.
My Lords, I thank the noble Baroness, Lady Pinnock, and the noble Lord, Lord Shipley, for their Amendment 13 on remediation costs. I often think that we need to apply a Daily Mail test to discover whether the opinion of the House will be tested. We have had an article in the Mirror from Pippa Crerar indicating one Division, and an article on this amendment from a different Mirror journalist—the online political editor. So I am not surprised that there will be a test of the opinion of the House.
I want to make clear the sincerity of our view that we need to understand the scale of the problem. Removing the cladding is like unpeeling an orange. You then find greater defects: the internal compartmentation issues, the missing firebreaks, and the issues around fire doors and wooden balconies. These historic structural defects will involve a colossal sum of money. We do not know how much; there are estimates and there are guesstimates, but we accept that there is a significant job of work to be done to deal with the historic defects that have accrued over many, many years.
As the Minister with responsibility for building—as well as fire—safety, I am regularly in contact with leaseholders hit with high bills for remediation to help make their homes safer. I fully understand the anxiety and distress that these people are going through. These are people who have done the right thing, investing their hard-earned savings into a home for themselves and their families, yet now many of them are facing unaffordable bills. I fully understand the intention behind this amendment, and I want to assure noble Lords that we are working very hard in the Ministry of Housing, Communities and Local Government to improve the situation that people find themselves in.
Finally, we have already committed £1.6 billion to fund the removal and replacement of unsafe cladding on high-rise residential buildings, and we have been putting pressure on building owners to step up to the plate, as well as using warranties and recovering costs from contractors for incorrect or poor work.
However, I can assure noble Lords that we want to go further to protect people from unaffordable costs. Noble Lords will be aware that we published the draft building safety Bill on
My right honourable friend the Secretary of State for Housing, Communities and Local Government is committed to updating our position on remediation costs when the building safety Bill returns to Parliament. Michael Wade, senior adviser to MHCLG, is accelerating work with leaseholders and the financial sector to identify financing solutions that protect leaseholders from unaffordable costs while ensuring that the bill does not fall entirely on taxpayers. We have had regular meetings with leaseholder groups, on this and a range of other issues, since the draft Bill was published.
While I support the underlying intention to protect leaseholders and have gone on the record today saying so, this amendment falls down in three main areas, which might make the problem worse rather than better.
First, the safety of residents in their homes is of the highest priority. This is the intention behind today’s Bill and all the Government’s wider work on building safety. There is a range of options for meeting the costs of safety-critical remediation work, which will be appropriate in different circumstances. It would be irresponsible to close off one of the potential routes to funding these works. This amendment risks leaving a building with known fire risks in a position where the work is not taken forward.
Secondly, this new clause would stop all remediation costs from being passed on to leaseholders. For example, service and maintenance charges would at present meet the cost of safety work required as a result of routine wear and tear, such as worn fire door closers. These costs would now fall to building owners—who are, in many cases, also not responsible for original building defects, as they did not build the property—rather than being determined by the terms of the lease.
Thirdly, the fire safety order is not the appropriate legislative framework to resolve remediation costs. The primary focus of the fire safety order is to place duties on any person who has some level of control in a premises—the responsible person or the dutyholder—to ensure that they identify the fire safety risks for the buildings they are responsible for and, if necessary, put in place general fire precautions. As I have said, we are looking to the building safety Bill to address the issues raised in this amendment.
I thank the noble Earl, Lord Lytton, for his comment about orphan liability. He underlined the point that we need to keep the options open. I also thank the noble Lord, Lord Stunell, for his comment about construction warranties. Typically, the market leader is the NHBC. I met the council very recently and, effectively, that is only a 10-year protection: two years for defects, with eight years insurance-based. While we are looking at ways of increasing the compliance period to align with the 10 years, it would be possible through other legislative means to extend the period, because I do not see why someone who has put their life savings into a home has such minimal protection when they purchase a property. I buy a pair of tweezers to take the hair out of my ears and they have a lifetime guarantee. When someone puts their entire savings into a home, they deserve protection over time. That is something we as a Government need to look to do, and will do in due course. This is not the moment to resolve this particular issue, but it is well noted.
I ask that your Lordships’ House recognises the complexity of this policy area, which cannot be solved through this amendment, and considers the assurances I have given today. For the reasons set out in my response, I ask the noble Baroness to withdraw her amendment.
My Lords, I thank the Minister for his response and all noble Lords who have contributed to this debate. This is about saving thousands of householders from crippling debts when none of the fault for this awful situation is of their making: none of it. I accept what the Minister has said; this is a problem that is hugely costly and complex. However, Governments regularly—daily, probably—have to find solutions to complex and costly issues, and this is one. I trust that the Minister can find a fair and just solution to it.
I again thank the noble Earl, Lord Lytton, in particular for sharing his expertise in this matter. He has rightly pointed out that this is a difficult, complicated and knotty problem, but the principle must be right: somewhere in government legislation we need the principle to be accepted that these leaseholders and tenants have, in good faith, bought a flat, or are tenants or residents of a flat, and that these problems have arisen through no fault of their own. They should not, as my noble friend Lord Stunell said, be held to ransom for these problems when it is not their issue. They have every right to expect, as my noble friend said, to have bought a home that is safe, when they have all the guarantees and insurances in place.
I thank the noble Lord, Lord Kennedy, who spoke about flats that are worthless and residents who are being penalised through no fault of their own. I thank the Minister for his reply, and I know that this is difficult. What I want him to do is to accept that the principle we are putting forward is the fair and just one. It is no good, to my mind, saying that nobody is going to expect house owners to have to pay anything more than is affordable, whatever that means. Worse still came from the lips of the Minister when he said that what is happening is that, when they take off the cladding, they are revealing and exposing further terrible defects. Frankly, that makes matters worse and the principle of what the amendment proposes more just.
I fully understand the Government’s intention to try and find a fair way to pay for this. My view, and the view of my colleagues, is that the costs should not fall on those who in good faith have bought their home and, through no fault of their own, are in this terrible and difficult situation. Good intentions are okay but the path to hell, as they say, is paved with good intentions. In this regard, good intentions are not sufficient. We need the principle to be accepted that none of the costs of the remediation of poor building works or poor standards and fire hazards should fall on leaseholders or tenants. Given that I have not had a sufficient reassurance from the Minister, I wish to test the opinion of the House.
Ayes 275, Noes 262.