Readers may have seen yesterday’s Sunday Times the interview feature, Sky News’ Sophy Ridge on Sunday and today’s Times article with the Secretary of State for Levelling Up, Housing and Communities (DLUHC), Michael Gove, and the resulting media coverage that has followed some of his key statements and announcements on building safety and leasehold reform, including an acknowledgement that the government system of building safety regulation and enforcement was wrong and inadequate – a first from any minister.
Below, we have summarised the announcements, many of which The Property Institute (TPI) has been forward-signalling and keeping its members updated on in recent months, which include:
- The publication of the long-awaited developer remediation contract to pay for and complete life-critical fire safety repairs on 11m+ buildings;
- The announcement of a new Responsible Actors Scheme under the Building Safety Act which places restrictions on those who don’t sign the contract to operate in the housing market, including, ultimately, being prevented from developing land in England until they comply;
- Planned action on insurance commissions and making service charges more transparent for leaseholders;
- A pledge by Michael Gove to reform the leasehold system at the end of the year
DEVELOPER REMEDIATION CONTRACT & RESPONSIBLE ACTORS SCHEME
Today (Monday 30th January), Richard Goodman, Director General at DLUHC, wrote to developers with a copy of the legally binding remediation contract that will commit them to pay for life-critical fire-safety repairs on their buildings over 11m, and reimburse taxpayers where public money has been used to fix unsafe buildings, requesting that developers respond with their intentions and timeline for signing the contract by 10th February, and a six-week deadline (by Monday 13th March) to sign the contract.
This follows Secretary of State for Levelling Up, Housing and Communities, Michael Gove, demanding developers are held to account, which led to public pledges from 49 of the country’s leading developers that they would take responsibility to fix their own buildings, which will now be turned into legally binding commitments.
The government is warning that companies who fail to sign and comply with the terms of the contract will face significant consequences. A Responsible Actors Scheme (RAS) in England, pursuant to Sections 126-129 of the Building Safety Act 2022, is to be brought forward in the Spring, to give the Secretary of State powers to prevent developers from operating freely in the housing market by blocking building control approval if they fail to sign and comply with the remediation contract. The operational details of the scheme will be set out in regulations, which may also include requirements in relation to fit and proper persons.
TPI is pleased to see Government now applying pressure to get buildings fixed and safe, but it will be interesting to see how the developers respond to the contract terms and the deadline, given that other stakeholders, including construction material manufacturers are not coming under the same pressure or scrutiny, and the fact that Gove has himself admitted that Government failed to regulate the system effectively.
Upon reviewing the new contract, TPI remains concerned about the gap between ‘life-critical’ work and the Building Safety Act requirements for holistic ‘structural and fire safety’, which will be certified by the Building Safety Regulator.
Under the contract, developers will commit an estimated £2 billion or more for repairs to buildings they developed or refurbished over the past 30 years. This means that together with the Building Safety Levy, the industry is directly paying an estimated £5 billion to make their buildings safe. The contract also requires developers to reimburse taxpayers where public funds have been used to fix unsafe buildings.
This follows confirmation from six major lenders earlier this month that they are now able to consider mortgage applications on properties that are covered by the leaseholder protections in the Building Safety Act, or where the building is eligible for a government or developer remediation scheme.
Once the remediation contract is signed by developers, leaseholders will benefit from a common framework of rights and responsibilities that will get their buildings fixed, without them having to pay and will require developers to inform residents in affected buildings how they will be meeting these commitments.
Read the full DLUHC press announcement here and access Richard Goodman’s letter to developers and the full developer remediation contract here
INSURANCE COMMISSIONS
As part of the publication of the developers remediation contract and the announcements of the new Responsible Actors Scheme, DLUHC has also announced action on buildings insurance commissions, in response to the Financial Conduct Authority’s review into the market last year, which suggested commissions make up almost a third of premiums. This is a concern which ARMA, IRPM and TPI has been signalling clearly to the industry for some time, encouraging members to ensure transparency and proportionate charges.
Michael Gove has today responded to the FCA and its report, confirming that he shares the concerns highlighted by the investigation, particularly in regards to the evidence of weak competition in the market and unacceptable issues faced by leaseholders around the transparency of their insurance costs. Gove also states that he is concerned about the lack of regulatory protections for leaseholders under FCA rules and confirmed that ensuring that buildings insurance is widely available, is affordable and offers fair value to leaseholders is one of his top priorities.
Within his letter, Gove has asked to be updated on progress on these key issues, including the launch of an industry-led scheme for buildings with significant fire safety issues, by summer 2023, and has set a deadline of the end of February 2023 for a new code for fire safety risk data collection from ABI and BIBA.
The letter, alongside today’s press notice, confirmed that the Secretary of State intends to legislate to ban managing agents, landlords and freeholders from receiving commissions and other payments from insurers and insurance brokers, replacing these with more transparent fees. Gove will also arm leaseholders with more information to enable them to better scrutinise their insurance costs and rebalance the legal costs regime to give leaseholders greater confidence to challenge their insurance costs.
TPI has clearly indicated that measures to ban commissions were likely coming, so this announcement should be no surprise to industry. To be clear, TPI will be seeking assurance that reasonable fees for the work done must be due to managing agents and support the principle of transparency generally and around building insurance specifically.
LEASHOLD REFORM
In his interview on sky News’ Sophy Ridge on Sunday and in The Times article today, Michael Gove announced his intentions to reform the leasehold system, with planned new legislation to be introduced in the final Parliamentary session, at the end of this year.
Whilst there is little detail at this stage, we know that following the announcement of the developer contract and clamping down on insurance commissions in relation to building safety, DLUHC intend to bring in further measures to make service charges more transparent and empower leaseholders who want to challenge their bills.
It has also been reported that ministers are preparing to ditch rules that bar flat owners from buying the freehold to their property if a small part of their building is given over to commercial use, such as shops.
The government also intends to make it much easier for leaseholders in flats to take over their buildings and bring them into common ownership.
When asked if he wants to abolish the leasehold system – which he described as “an outdated feudal system” – he unambiguously declared: “Yes”.
Talking about the timescales of reform, Gove made his position on leasehold clear:
“It’s not easy in legal terms. When you’ve got a tangle of property laws going back hundreds of years, unstitching all of that is difficult. But the fundamental thing is that leasehold is just an unfair form of property ownership. In crude terms if you buy a flat, that should be yours. You shouldn’t be on the hook for charges which managing agents and other people can land you with.”
