Q Good morning to both of you. This is a question for Richard. In paragraph 11 of your written evidence, you said:
“We all know that these problems have been caused by historic regulatory failures, dating back decades. We need to be careful that the solution doesn’t simply absolve the Government of its responsibilities and pass them on to consumers, whether that’s existing or future residents.”
If that is not the solution, then what do you think the solution should be?
Thank you for the question. It goes to the heart of our role in this sector. As a freeholder, we do not develop, build, design or sign off on these buildings. We effectively, under the new regime, take ownership of them post gateway 3, when they are fit for occupation. The Bill, in many respects, is an excellent starting point and provides a good framework for looking forward. The problem is, what are we going to do about the existing stock that is in a mess? Our view is, simply, that there are three areas where this should be addressed.
The Government should be commended for trying to fix a problem that successive Governments have caused through a defective regulatory regime, whether that is from a construction perspective, or by signing off on materials and building systems. In that context, I think the Government should underwrite the process of fixing the existing stock.
That is not to say that taxpayers should foot the bill for everything. The Government should take responsibility —they are starting to do that through the presentation of this Bill—and then look at recourse from those who created the mess. The Government’s culpability lies in the regulatory regime and the failure there, although there are bad actors in the construction industry and the product manufacturing industry, and the Government should go after them to recoup as much of the investment as needed to bring existing stock up to standard.
There is a final and third point that will be less popular from a leaseholder perspective, but it is important to articulate. When investigations are made into an unsafe cladding system in a defective building, and the cladding is taken off, other historical problems will be identified. Not all of those are caused by shoddy workmanship or defective materials; they may be due to a lack of investment in the life cycle and maintenance of those buildings. We advocate a mandatory reserve regime—a bit like in the States—in which a periodic assessment is carried out independently, not by the managing agent or building owner, which in this context could be a commonhold association, a residents’ management company or right-to-manage company, or a freeholder, but by an independent assessor, who looks at short, medium and long-term requirements for reserve funding and regular life cycle maintenance for that building. The leaseholders then contribute to that over the super-long term, based on various apportionments under the service charge regime.
This is a long-winded answer, but it is an important point. For example, every 25 years, a block of flats will need a new roof; it is not a building safety issue, but a maintenance issue. If someone lives in that block for 20 years and then sells, but no provision has been made, is it fair for the buyer to be hit with a massive bill a few years later, when they have not enjoyed the life cycle of living there? Anyone who owns a property should make that provision, and it should be mandated as opposed to voluntary.
Q Does the Bill ensure that key stakeholders in your industry, rather than the leaseholders, are paying their fair share for a mess that was created over a series of decades?
If you are referring to whether building owners should pay to fix the existing stock, a distinction should be drawn between the responsibility for maintaining the existing stock and the liability to pay; I covered the liability to pay in my previous answer. The responsibility should absolutely lie with the accountable person, under the new regime. Historically, the accountable person has been either the freeholder, where there is a two party lease, or, where the building is resident-controlled—as roughly two thirds of our portfolio is—the RMC or the RTM. In the future, when the Law Commission’s proposals are brought into legislation, it could be the commonhold association. They are responsible, with emphasis on the word “responsibility”, for the maintenance and repair of buildings. It is a complicated answer, but it does go to the Building Safety Bill, and the question of who will be accountable in the future.
It is an interesting debate. We have to ask ourselves whether members of an RMC or a commonhold association have time, expertise and willingness to do that work. Certainly, our research suggests that people do not want to do it, for a whole bunch of reasons. Forget criminal and civil liability—it is about having the time. People have other things to do. In the context of the Bill, among the wider Government reforms on leasehold, we need to focus on the fact that the role of the freeholder will become redundant. That is unambiguous from the leasehold reform agenda proposed. That means that the work done by my building safety team—it includes chartered fire engineers and surveyors—for the leaseholders and at no cost to them, save a modest ground rent, will become redundant. So this part of the Bill needs to be really carefully looked at. Who wants to do this role, absent the professional landlord?
I would be inclined to agree with Richard on the accountable persons piece, moving forward. If I understood the question correctly, you are really asking whether costs are fair and proportionate for historical issues and for historical defective buildings. It is very difficult to answer, if I am honest with you. As has been mentioned already this morning, you have some really good practice going on in the industry in terms of the developers and construction companies, and you have some culprits in there as well. We know that as a trade body and as an industry. Similarly, the manufacturing process and the manufacturing companies also have some culprits.
It is difficult, therefore, to nail down whether costs are fair and proportionate. Obviously, as of next year, our industry will feel the impact of the residential property developer tax, as well as the building safety levy. Time will tell whether that is fair and proportionate. Obviously, the building safety levy is subject to consultation at the moment. I think that closes in mid-October and we are busily compiling responses to it. Within that scenario, some companies, responsible persons and organisations will pay part of, some of or none of the building safety levy, while others will pay the full residential property developer tax as well.
Time will tell whether costs are fair and proportionate, but I certainly think that things are moving in the right direction in respect of the Bill itself and in terms of levying costs.
Q I have listened to your comments, but are the Government right to introduce the building safety charge on residents, by which building owners can recover the cost of building safety measures? If not, could that be done through the existing service charge instead?
It is a very good point. We engage with a lot of the managing agents who manage our blocks on a day-to-day basis and I think that there needs to be clarity on this point in the Bill. A separate regime for levying a charge to residents living in a block comes with cost and complexity; people need to understand what it is for.
It is a difficult one. There is service charge legislation in existence. There is a regime for it, with all of the reasonableness tests, information, budgeting, finalising of accounts and so on. I think that is probably quite a neat place for the building safety charge to become a specific sub-item within the overall service charge budget. Then, you are not really giving residents extra information—they are not understanding what the extra charge is really for—and it also helps to mask any chasm that might be in place between life-cycle maintenance and building safety maintenance, and where there is a crossover. It can become a bit ambiguous.
So long as the regime is clear, understood and, frankly, does not increase the financial burden on people living in their own homes, that is where the focus should be.
The way that I read the Bill, the historical costs are, to be frank, left firmly at the door of the leaseholders, so it does not protect them at all. Again, this goes back to my first answer to Daisy Cooper: there are probably more equitable ways of trying to get the existing stock up to scratch.
Once all of the stock is where it should be, with a full suite of goals and a set of further information, with a clear and unambiguous accountable person and a building safety manager appointed—let us assume that it will take 10 or 15 years to get all of that infrastructure in place for existing stock—I think that the regulator’s role will cover all stock, whether existing or new build. But the transition period is really important—there is not enough clarity in the Bill, frankly.
There is lack of detail at this stage. Clearly, the service charge legislation gives residents that means of redress and the ability to query and question stuff. If that is replicated in the building safety charge regime, wherever that sits ultimately, whether in this Bill or other existing legislation, hopefully that will be fit for purpose.
My first question is to Richard. I am particularly interested in the reforms to the building control profession. Do you think that the problems identified by Dame Judith Hackitt have been addressed in the Bill? In particular, I am interested in the Government’s right to retain the power of duty holders to choose their own building control bodyQ .
The Bill is an excellent framework in lots of different areas, but it is a framework. As Justin Bates said in his evidence last week, it is a good and admirable starting point but there are lots of areas, lots of limbs within the Bill, that, quite understandably, because we cannot foresee every situation, will need to be dealt with as specific areas are developed and understood, consultations undertaken, experts work with MHCLG officials, and so on, to bring precise details of policy forward. I am not an expert in the certification and qualifications arena, but you have heard from the previous panel and you had fire experts last week.
What I do know is that, in our business, meaningfully and more explicitly post Grenfell, but for longer than that— in our resident engagements, we interact with 90,000 residents every year at some level—we have put in place a specific and dedicated fire life safety team in HomeGround. In that team, there are chartered fire surveyors, ex-London Fire Brigade officers, building surveyors and a small legal team. Their role, in collaboration with our estates management team, is to work closely together.
Our estates management team will basically audit all the managing agents who are responsible for the day-to-day running of our blocks around the country. Where there are clearly some deficiencies in, for example, fire risk assessments or, frankly, poor stewardship by the managing agent—that happens in all industries—our fire life safety team will go in and work with the managing agent to put special measures in place to get that building fit for purpose. That comes at a cost. Some of these things, by the way, are just bad life-cycle maintenance stuff—things that should have been replaced five years ago. That is a legitimate cost for the residents who live there.
That team has been inundated over the past 18 months. We have been trying to secure funding from the building safety fund and the ACM cladding remediation fund, which are very welcome funding pools, to get the bigger picture and to get the higher-risk buildings fixed. We have gone out and hired the best people we can find—by the way, it is a tough market out there, because not a lot of people are qualified to do a lot of this stuff—but until there are more specific guidelines from the regulator and the regulatory regime on what the qualifications need to be, I do not know whether they are fully qualified or not.
I would reinforce the point that Richard has just made. As we have seen with the communal wall service—the EWS1 form and the cladding external wall system—and its evolution since July 2019, it has been difficult to get hold not only of people but of people who can then be insured to carry out things like EWS1 surveys or fire assessments in the first place. There is a real shortage of people out there who are able to undertake that. Again, to reinforce Richard’s point, it is quite ambiguous as to exactly what qualifications are needed/accepted if we are going to undertake the assessments.
Q What would be the one thing you would want to see improved in the Bill?
For me, our membership and our industry, it would be the gateway 2 side. The Bill proposes that all information for gateway 2—meaning, in effect, post-planning, post-reconstruction and moving to detailed design—be submitted early doors, at the initial stage. Historically, the industry works with a number of contractors, suppliers and designers, and tenders information on a live basis. In order to get all that information delivered up front as developers enter gateway 2, quite a bit of information will have to be designed and procured at risk during that transition between gateway 1 approval and going to gateway 2. Within that, given the subcontractor market and potential changes in materials due to imports, exports and price fluctuations, you could end up having to revisit change management and the gateway 2 process and to go almost in a circular manner back to the regulator to seek change and improvements.
We would like to see—as we currently see, to a certain extent—a number of approved inspectors in the industry where we have a staged planned submission and staged planned approval process based on your sub-structure, superstructure, finishing trades, mechanical, electrical, finishes and cladding.
Q I direct my question to Kieran. Will the Bill change the culture of profit over safety that has pervaded the industry for so long and caused the likes of the Grenfell disaster? The second part of my question is about the use of special purpose vehicles and accountability. Do you feel that the Bill tackles the way in which SPVs are used to close down an issue, resulting in the complete lack of accountability of the people involved? Should the Bill be amended to tackle that?
I will answer the first question first, if I may. I certainly think that the Bill will change the culture of the industry and make clearer the key stages— the milestones—for people in the process of building the buildings in scope or tall buildings. In the past, quite ambiguous information has been submitted and responded to in the planning stage, which does not necessarily regulate, mandate or cover key items such as vehicle access tracking or incumbent water pressures in the proximity of those buildings.
Within gateway 2, I think we will see a lot more stringent approaches to material information and detail design being submitted to the regulator. That is a positive thing. In terms of duty holders and clear lines of responsibility, I definitely think that that is positive. As an industry, we support that clarity and those clear and mandated lines of responsibility and communication. I think we will see an improvement in the industry as a whole, and the key to that is the fact that we have this clear framework.
It is difficult to answer your question about special purpose vehicles, to be honest. I am not trying to avoid an answer, but we do not necessarily have much information on special purpose vehicles. How they are regulated and administered is quite varied. We have worked with a number of special purpose vehicles in the past, but going back to my first point, I think that the Bill will make lines of responsibility and regulation a lot clearer for them, to avoid the potential and opportunity for them to disappear as soon as the keys are handed over to the final property in the block.
On the second point about the special purpose vehicles, whoever incorporates an SPV to develop a higher-risk project that the Bill is aimed at, ultimately the regulator will say yes or no. It is the regulator and the regulatory regimes for gateways 1, 2 and probably 3 —fit for occupation—that will ultimately say, “Yes, this process has worked. That SPV is fit for purpose and will deliver a solid product.”
The problem is what happens in the future if, God forbid, something slips through the net of the regulatory regime or fails. When these things do fail, you know about it only over time. The Bill extends the provisions of the Defective Premises Act 1972 so that you have 15 years to go after developers, as opposed to six. That is all well and good, but in the real world it will have limited or minimal impact—it will be the same—for anybody who needs to take advantage of that new provision.
The Bill’s proposed regulatory regime is robust—details will follow, obviously—but ultimately, the regulator can have sanctions on it. If a large plc housebuilder that has, historically, built mixed-used, large-scale developments—high-risk buildings, in the context of the Bill—through a series of SPVs, the regulator will have to have an opinion on that, I am afraid.
Mr Walker, what key lessons have your members taken away from this process about how Government works with the sector, and what can we collectively do better in future?Q
I think the key lessons are really about getting information and clear lines of communication as quickly as possible. The introduction of the Bill is, as I have mentioned, welcomed by our members and the industry as a whole, because it gives clear a framework and responsibility for duty holders, as well as a process that I do not think we have had in the past. I do not think that is necessarily the fault of industry. In the past, it has almost been an assumption that A will follow B will follow C—that is part of the lessons learned. Mistakes have been made in the past, not just in the house building industry but across the piece, to be honest. The main lesson learned is that we should perhaps have had that framework sooner, but hindsight is a wonderful thing—we are where we are in that respect. Would you mind repeating the second part of the question, please?
I think resource and expertise are a big part of this, as is generally having clear and defined methods and processes in perpetuity for the handover of buildings. In the past, we have seen quite loose arrangements in that respect, from developers to management agents. I also think that expertise and training the skills in the sector are important, not just in the latter ends of the building management side, but within local planning authorities, so that planning officers and planning departments understand better the implications of tall buildings, whether from an access perspective, an evacuation perspective or any other matter.
In the detailed design phase, as we will see moving forward, we will need to upskill very rapidly the expertise and resource within the regulator itself, because it is a very complex niche of the market—tall buildings, fire and structure are not just a black-and-white area; it can be quite grey. The upskilling of the workforce, from professionals right down to skilled trades, is one lesson that I think we can all learn.
Q This question is to Kieran Walker. You mentioned that you would have liked to have seen the framework sooner. Have the Government published enough detail about the new regime, on the roles and responsibilities of duty holders, the golden thread and the gateway process, for example?
There could be more—I would be keen to see more and our industry would be keen to see more. There is probably more to come through secondary legislation on the duties of key roles and responsibilities, as well as on the golden thread. I agree that we could see more there.
Subject to resource and expertise being there from the regulator’s perspective, I think the industry is ready. Gateway 1—the planning stage gateway—was introduced on
Order. Kieran, I am sorry to cut across you, but I am afraid that that brings us to the end of the time allocated for the Committee to ask questions. I thank our witnesses on behalf of the Committee.