Cladding and external wall systems – an update

The Grenfell Tower fire broke out on 14 June 2017. It caused the deaths of 72 people and injuries to more than 70 more. 

Today, four years on, the fallout from the tragedy continues as society seeks to learn lessons from it.

Set up to examine all the circumstances leading to and surrounding the events of that fateful night, the Grenfell Tower Inquiry continues to take evidence from all parties concerned.

What became immediately apparent, however, was that people's homes, considered by most to be their ultimate place of sanctuary, might not in fact be so.

The Scottish Government (“SG”) set up the Ministerial Working Group on Building & Fire Safety in 2017 to “oversee a review of building and fire safety regulatory frameworks, and any other relevant matters, to help ensure people are safe in Scotland's buildings, and to make any recommendations for improvement as required”.

From this the High Rise Inventory (“HRI”) was established. It seeks to provide information on all high rise domestic buildings in Scotland. At that time Scottish building regulations defined high rise as being higher than 18m. The regulations have subsequently lowered this definition to 11m. The HRI was compiled from information supplied by all of Scotland's building standards departments.

This desk-top exercise identified 774 buildings as being high rise, 48% of them in Glasgow. Of the 774, a relatively small number – 51 – were identified as containing aluminium composite material (“ACM”) – the same material as on the Grenfell cladding. Registered social landlords and local authorities were found to own the majority, with about one third in private ownership.

The HRI is to be an annual undertaking, and is the main source of data for the number and location of high rise buildings in Scotland and of construction issues relating to fire safety.

An initial conclusion from the HRI seems to have been that the prevalence of ACM in Scotland was relatively limited and that our building standards regulations were more robust than those south of the border. Consequently the risk of similar events happening in Scotland was not perceived by Government to be as high as that in England. Nonetheless, there were clearly some buildings where remediation was going to be required to deal with ACM cladding. The most prominent at the time was Glasgow Harbour, where Taylor Wimpey, the builder, did step in and instigate remediation works.

The UK Government was also looking at post-Grenfell issues in England. The Hackitt Review was established to review building regulations and fire safety and to make recommendations. Its report was published in May 2018.

AN14: causing waves

In December 2019 the Ministry of Housing, Communities & Local Government (MHCLG) published its Advice Note 14 (“AN14”), the latest of a series dealing with building and fire safety, and relating to external wall systems (“EWS”). This had been in development for some time prior to its release, so its contents were in the public eye even before the final version was published. This guidance applied to England only.

It sought to provide building owners with guidance on what to do with buildings with flammable materials. However it expanded the scope of the issue beyond ACM to other potentially flammable materials, and from purely cladding to the entire external wall system. It applied to buildings over 18m in height. AN14 gave building owners guidance as to how to make their building “safe”. This included ensuring that the materials on the building were of limited combustibility and had been tested to meet BR135 classification. It also required building owners to have an up to date fire risk assessment (“FRA”) for their building.

At this point we should note the difference in land tenure south of the border. AN14 was directed at the building owner and not at the leaseholders of the individual flats. However, in implementing these duties the building owner would pass on costs in terms of common charges, so leaseholders ultimately bore both the personal safety and financial risks.

AN14 caused waves. It was apparent that some form of inspection and certification system would be required and, given that the issue now extended beyond ACM, huge resource issues were anticipated in this.

In autumn 2019, mortgage lenders and surveyors began to consider their positions in light of AN14. Valuers felt they could not value a building in the absence of suitable certification. Lenders felt they could not be seen to be lending to an individual who might buy a property which carried an inherent fire safety risk. Lenders saw an issue both from the perspective of duty of care to the borrower and also risk to themselves from repossession and potentially incurring financial liabilities.

Various lenders began to seek certification of fire safety before they would lend on potentially affected buildings. They instructed their valuers to put a zero valuation on properties unless there was satisfactory certification. Their lending policies were common north and south of the border. Accordingly AN14 had a practical effect in Scotland as well. In some cases, lending simply dried up for flats in buildings above a certain height identified as potentially having flammable cladding. 

RICS, UK Finance and other bodies started looking at some form of certification and developed the EWS1 scheme. This requires certification by a suitably qualified professional of the EWS of the building. There are various categories into which these can be determined to fall. A1 or A2 will generally allow the mortgage lender to proceed with a mortgage offer. Other categories will require review and likely a decline of the mortgage if remediation is found to be required. This system does seem to be working to help some sales move, at least in respect of the so-called “green-flagged” properties, although it leaves others with no clear path forward.

In early 2020, MHCLG updated AN14, removing its applicability to buildings above 18m only and extending it to all properties in multiple ownership.

Scottish Government moves

The UK Government has announced several rounds of funding towards remediation works which run into the billions of pounds. That has generally been on a first come, first served basis. It is the building owners who apply for funding and arrange remediation rather than leaseholders who, in many cases, are stuck in their flats unable to sell until the building owner gets remediation completed.

SG initially called a meeting of interested parties to look into the matter and its effect on the mortgage and house sale process in Scotland. This led to the setting up of the Ministerial Working Group on Mortgage Lending & Cladding (“MWG”), on which I represented the Law Society of Scotland as a member of the Property Law Committee.

With a membership representing a wide and comprehensive range of affected interests, including flat owners, the group shared broad agreement on the issues and was unanimous on the way ahead. The recommendations reflected the Scotland-specific issues. The safety of those living in flats which could have fire safety issues was always at the forefront of deliberations.

There are issues which are unique to Scotland.

Tenure is one. Unlike in England, there is no single building owner but multiple co-owners. Factors have no power to instruct inspections or reports without an appropriate majority of co-owners authorising that. Professional indemnity insurers have declined to agree cover to suitably qualified professionals to carry out EWS1 certification other than to an individual owner. This has resulted in an ad hoc system where individual flat owners each to have to commission a separate EWS1 when they wish to sell or remortgage. 

When we get to the remediation stage, this is likely to prove an issue also in terms of getting agreement for works. Primary legislation is likely to be required to address this issue.

SG has had a clear view from the get-go that it wants to use its Barnett consequential share of the UK funding fairly and on the basis of need, rather than first come, first served. SG is also reluctant to commit to remediation costs until it is clear as to the costs and the actual UK funding being made available. There may be some lack of clarity as to the extent of that funding until it is clear what is new money, attracting Barnett consequentials to Scotland, and what has been diverted from other budgets.

Single building assessments

MWG members had a clear view from the outset that in order to find a solution to the problem you need to understand the nature and extent of it. They also considered that the issue had to be addressed in a wider sense than simply trying to get the mortgage market moving along again to some degree.

In its final report the MWG recommended a system of single building assessments (SBAs) and a register of these to start to “traffic light” buildings, identify those without issues and seek to establish the extent of remediation required in those with issues.

SG accepted this recommendation, agreed to fund SBAs fully and has already started work inviting expressions of interest from flat owners and factors and speccing the SBA. It is hoped that the inspections will commence in the autumn.

There are issues around resource to carry out SBAs, but SG is looking at funding to train professionals to do this and the UK Government is looking at ways to ensure that PI cover will be in place for them.

It is hoped that these SBAs can, in time, take the place of the EWS1 from a lender's or buyer's perspective, but clearly that can't happen until they are in place and being carried out.

The SBAs will build on the HRI to try to create a comprehensive database of affected buildings so that SG can then devise a remediation programme from that and seek to allocate the funding it has available for it.

EWS1: where are we now?

Meantime there have been a couple of developments which will hopefully smooth the existing EWS1 system a little.

RICS issued guidance to its members in April this year on identifying EWS issues which might have fire safety implications, to try to limit the number of buildings in respect of which an EWS1 was being called for.

SG is to issue a Scottish Advice Note (SAN) on external wall systems. This will form the basis for good practice going forward, and builders and developers will need to follow that. It will ensure that future buildings will not be affected by the same issues. It is expected that this will be released imminently.

The SG reports I have referred to can all be found at www.gov.scot/publications

That's an overview of recent developments, but where are things at from a practical point of view?

1. EWS1 does seems to have settled in as a means of getting some buildings assessed satisfactorily and moving through the sales and mortgage system. It is really just a sticking plaster though, and hopefully the SBA scheme will properly identify which buildings are actually a risk and which are not. Realistically this is going to take some time – years rather than months, I suspect.
2. Multiple EWS1 in respect of a single building remains an issue, exacerbated in cases where different inspectors come to different conclusions in respect of the same block. 
3. Hopefully the RICS guidance will help in terms of identifying potentially affected blocks, as valuers have been inconsistent in their reporting of cladding issues. I have read that some lenders down south are still looking for EWS1 even where the valuer does not identify an issue. That causes issues where building owners are not willing to commission and pay for a report where it is not required. At least, north of the border, flat sellers in that situation can still go ahead and commission their own report if they feel that is going to help their sale.
4. It makes logical sense that a buyer would wish the EWS1 to be addressed to them, to give them some sort of benefit from the duty of care arising from it. Some providers indicate they will do that as a matter of course; others charge a further fee for it. Providers' fees do need to be looked at in the round on this issue. It would be for others than us lowly residential conveyancers to advise on whether or not there is actually any meaningful benefit or enforceable remedy flowing from the duty of care in an EWS1 and thus the actual benefit of having that duty of care. Even if the buyer can't negotiate to get the EWS1 issued in their name, practitioners would be advised to cover this point off in writing with their client.
5. With regard to new-build flats, it seems sensible asking developers to provide an EWS1. They should be able to arrange a single one for the whole block anyway as the single owner. It should be that any blocks built under a building warrant issued after the Scottish Advice Note on EWS has been issued should be in conformity with that, so at some point this should cease to be an issue with new build.

EWS is still an ongoing issue and will be for quite some time. The positive news is that SG is now taking the lead in assessing the extent of the issue and formulating a remediation scheme. Personally I feel that only Government can lead on an issue like this, so that is good. But Government never moves quickly. The Property Law Committee will always welcome feedback on any further developments and issues to take up with the appropriate parties, so please do feel free to provide that feedback.