My Lords, in moving Amendment 24 in my name and that of my noble friend Lord Blencathra, I will also speak to Amendment 130 and touch on my noble friend’s amendments. I begin by welcoming the fact that he and Michael Gove have made substantial advance on the Government’s initial response to the cladding crisis. I am very grateful for that and for the role he has played.
For the leaseholders involved, this group of amendments is probably the most important in the whole Bill. The object of my amendments is to deliver the Government’s policy that, so far as historical defects are concerned, the polluter should pay and not the leaseholder. I begin by reminding the Committee of the explicit commitments given by the Secretary of State that underpin that policy. In his Statement on 10 January, he said:
“We will take action to end the scandal and protect leaseholders … We will make industry pay to fix all of the remaining problems and help to cover the range of costs facing leaseholders.”
When pressed by an opposition MP, the Secretary of State said in reply:
“She specifically requested that we provide amendments to the Building Safety Bill to ensure that there is statutory protection for leaseholders. That is our intention—we intend to bring forward those amendments—and I look forward to working with her and colleagues across the House to provide the most robust legal protection.”
Later he clarified what he meant by statutory protection:
“First, we will make sure that we provide leaseholders with statutory protection—that is what we aim to do and we will work with colleagues across the House to ensure that that statutory protection extends to all the work required to make buildings safe.”—[Official Report, Commons, 10/1/22; cols. 284-291]
Finally, in his evidence earlier this week to the Select Committee in another place, the Secretary of State said:
“The approach that we have put forward is one that provides them”—
that is, the leaseholders—
“with the maximum available level of protection.”
We need to build on the substantial advance that I mentioned earlier, because the amendments tabled by the Government so far do not deliver the policy I have just quoted: statutory protection that
“extends to all the work required to make buildings safe.”—[Official Report, Commons, 10/1/22; col. 291]
The amendments proposed are not “the most robust”, and nor do they provide
“the maximum … level of protection.”
Why is that? It is because not all relevant buildings, leaseholders and defects are covered. The object of my amendments and those of others is to deliver the policy, fill in the gaps and make the protection more robust.
I have one other objective. I believe that in cases where the Government are unable to persuade those responsible to do the work voluntarily—I suspect there will be many—remedial work should commence promptly, without waiting for the proceeds of the levy to come in or for people to be fined after protracted litigation. It is crucial to make the buildings safe sooner, to lift the blight on sales and to let people get on with their lives. Under the current government
proposals, where the developer will not fund the work, nothing happens until all the money is in place, including the contributions that the Government expect leaseholders to pay, which many will not be able to afford. We cannot wait that long.
My amendments are designed to provide a speedy and efficient route to getting buildings remediated at the cost of the person responsible and, when that is not possible, by a levy on the industry. I claim no exclusivity as to how this is done. We may need to pick and mix with some of the other proposals in this group, particularly those in the name of my noble friend Lord Blencathra and the noble Earl, Lord Lytton, who brings to this issue the wealth of professional expertise. I am grateful to Sue Bright and Liam Spender, who have given me advice in a personal capacity, and to the Leasehold Knowledge Partnership, which services the all-party group on this subject.
My proposal would operate by inserting provisions into the Building Act 1984 and, as my noble friend reminded me, in an earlier incarnation I put that on the statute book. At some point, I hope that the statute of limitations will kick in and hold me not responsible for all the things I may have done in the past. That amendment, however, would enable an appropriate authority, either the Secretary of State or the building control authority, to serve a notice on those responsible for fire safety defects that are in breach of either building regulations or the “fit for human habitation” requirements in the Defective Premises Act 1972, which I did not put on the statute book. Leaseholders can also start that process and request a relevant authority to act. When the polluter no longer owns the building, the relevant authority can recover the money from the polluter and require the work to be done. If the polluter cannot or will not pay, the resources to do the work come from the building safety indemnity scheme established under Amendment 130.
The amendment also proposes an absolute prohibition on any of these costs being passed on to long leaseholders through variable service charges, filling in one of the gaps I referred to earlier. There are penalties on the polluter for noncompliance with a remediation notice; they are also liable to pay the costs of mitigating measures in the meantime. These provisions incentivise prompt action rather than protracted delay. In the event of a dispute as to whether the work contravenes building regulations, this will be decided by a technical committee, the decision of which will be binding. Any challenge to its decision can be referred to arbitration. I believe this is quicker and cheaper than the complex dispute process in government Amendment 108.
These changes to the Building Act will require money to pay for remedial works while the authorities step in, which brings me to Amendment 130. This would create a comprehensive levy scheme to be established. Contributors to the scheme would include all applicants for building control approval and suppliers of construction products. Leaseholders and a relevant authority, acting under Section 36A, would be able to apply for grants under the scheme. I cannot claim authorship of this part of the proposal; it simply mirrors the Government’s own idea of linking future building control approval to payments into the scheme.
The amendment proposes that anyone who does not pay a levy when due cannot receive building control approval for any works.
Those are my proposals, and I turn now to the Government’s amendments, covering some 24 pages of legal text. The Government’s objective, although not spelt out in these terms, is to create what has been called a statutory waterfall. The waterfall is intended to work as follows: develops and cladding manufacturers are expected to pay first; for cladding remediation, government funding then kicks in through the building safety fund, then freeholders are expected to pay next. Finally come the leaseholders, who are expected to pay only a capped amount towards non-cladding costs.
Each layer of the waterfall has to be put in place before you get to the next one. Its aim is to ensure that any contributions from leaseholders become, legally, the last resort. This addresses the conflict of interest inherent in the current leasehold system. At the moment, landlords can spend leaseholders’ money without any effective control. The fact that freeholders will be on the hook to pay will concentrate their minds on the question of cost-benefit analysis. Are the works that they deemed necessary really necessary when they did not have to pay? Are they still necessary when they do?
The current Bill and the government amendments do not have adequate measures to ensure that the developer responsible for the defects must pay. With no voluntary settlement, the only route to recover would be through costly and risky litigation, with the leaseholders or freeholders responsible for pursuing a well-resourced developer through the courts, potentially delaying remediation for years and incurring higher insurance premiums and, in some cases, waking watches. Amendment 24 avoids this.
There are a number of other problems with the Government’s approach. I start with putting freeholders in the firing line. Where the developer is the freeholder, that is wholly understandable, but resident-owned buildings are excluded from the Government’s proposed protection by Amendment 63. That is because leaseholders in those buildings are also the freeholders—they have enfranchised. It is then up to the residents to sort out their claims against those responsible. When there is no one to claim against, this may mean that those residents must finance all the non-cladding remediation costs themselves. This is plainly wrong. Many leaseholders have used legislation—which, I confess, I put on the statute book—encouraging them to enfranchise and buy the freeholds. This is a welcome step away from the feudal system of leasehold, which the Government have pledged to abolish, and towards commonhold. However, those leaseholders who have enfranchised are every bit as innocent as those who have not, yet they are excluded from the support in the government amendments.
Other freeholders now find themselves in the line of fire. Freeholds are often owned by housing associations, charities, local authorities and pension funds, which have bought freeholds and their ground rents—in the case of pension funds, to match their liabilities on annuities. They have found themselves exposed to major costs, although they were not responsible for the defects. It is not clear why pension savers should
pay if they did not pollute. These freeholders, like the leaseholders, bear no responsibility for causing building safety defects, and they should not bear the cost. In some cases, the costs of remediation will outweigh the balance sheet of the freeholder, threatening insolvency. Has this all been thought through? A solution would be for the Government to propose to meet any costs not met by the developer, including cladding repairs in particular.
Under the government amendments, a developer must pay only if it is still the landlord. If it has sold the building, it is off the hook, under Amendment 76. If the polluter is to pay, it is not clear why there should be these exclusions, and there must be a direct route to hold polluters responsible that does not depend on leaseholders bringing claims under the Defective Premises Act. Even if the developer is the landlord, it can recover costs from all leaseholders who are not capped by the capping provisions—another important deviation from the policy of protecting the leaseholder. This is the case even though the developer is responsible for the defect and has, for example, failed to install cavity barriers. That is likely to be a common scenario.
There are other important exclusions which breach the policy that the polluter, not the leaseholder, should pay. Where a building has non-cladding defects and is more than 11 metres tall, leaseholders have to pay up to £10,000 outside London and £15,000 in it. Under Amendment 92, these payments can be spread over five years, but that conflicts with the requirement for all funds to be in place before the work can commence. Who will fund the difference? There may be buildings where there are only non-cladding defects. If the bill for remediation is £10 million and there are 250 flats, leaseholders must pay £40,000 each. They are subject to a cap of £10,000, but where does the missing £30,000 come from—£7.5 million for the whole building? I see that I have already caused some consternation on the Front Bench.
A further important exclusion is for buildings under 11 metres. Leaseholders in those buildings, or buildings with fewer than five storeys, get no assistance for cladding or non-cladding remedial works and are exposed to unlimited costs. The Government’s view is that such buildings are not at sufficient risk to justify remediation, but this will be a bitter disappointment when leaseholders in those buildings who are not responsible for the defects face costs. It is incompatible with the principles I set out earlier.
Another exclusion is for those who have invested in buy to let who have more than one such property. The press release that the Government published on 14 February, along with the amendment, said:
“New clauses will also enshrine in law the commitment the Levelling Up Secretary made in the House of Commons last month that no leaseholder living in their own home, or sub-letting in a building over 11m, ever pays a penny for the removal of dangerous cladding.”
Amendment 64 contradicts that assurance for those buy-to-let landlords who own more than one such property, the majority of whom are individuals and not property barons. They bear no responsibility for the defects. I think that Amendment 65 addresses that issue in a later group.
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Finally, when the leaseholder is in a block owned by a social landlord, non-cladding costs above the level of the cap are to be met in full by the social housing landlords, whether they are the landlord or developer. But what if they cannot afford it or simply pass on the costs? Noble Lords may have received a substantial document entitled Dereliction of Duty: How Housing Associations Failed Leaseholders Trapped in the Building Safety Crisis, by End Our Cladding Scandal. What happens if, as is happening at the moment, housing associations simply pass on the costs to the leaseholder? Contrary to advice from Ministers, housing associations are doing exactly that: passing on remedial costs and service charges, often unaffordable. What steps are the Government taking to deal with that?
To conclude, we have come a long way but we are not there yet. There is a gap between what the Government have promised and what they are offering. I want to help them to bridge that gap and freely admit that, while I believe my proposals to be workable, there may be variations that improve them or alternative solutions. I hope in his reply that the Minister will exhibit some flexibility and indicate a willingness to engage with me and others before Report to remediate the defects in the Bill as it stands. I beg to move.