My Lords, as it is my first contribution in this part of the Bill, I must necessarily declare my interests as a practising chartered surveyor, a member of the RICS and a patron of the Charted Association of Building Engineers. I am also a member of the Built Environment Select Committee, chaired by the doughty noble Baroness, Lady Neville-Rolfe, who keeps us all in order. I think she is splendid and I do not say that for want of any favours. I also own residential rented property: no flats, no high-rise, thank goodness.
I pay tribute to the Minister for the meetings he has arranged, the dialogue in which he has been willing to engage and his untiring efforts and those of his Bill team. It is fair to say that we have come an enormous way in this Bill and that is in large part, if not solely, because of the drive the Minister has put into this. I am pleased that he has clarified the limited partnerships and provided the other clarifications in the amendments he has introduced. I also pay tribute to all noble Lords around the House who have stuck with the principle that the innocent should not be made to pay for the mistakes of the developers and constructors.
I will just deal, if I may, with Amendments 201 and 202, which are in my name and on which I will not be seeking the opinion of the House. They relate to a matter I referred to in Committee, which is insolvent landlords and their interests being escheated to the Crown. That means that potentially, there is no landlord as such to organise remediation work, leaving remediation in limbo and responsibility for costs uncertain. That follows on from what the noble Lord, Lord Young of Cookham, set out with, I may say, a degree of piercing clarity which I found unchallengeable. I will outline the differences between my further amendments and his, but not on these ones.
The sole purpose of my Amendment 201 is to clarify the Crown responsibility. Amendment 202 covers where a superior leaseholder defaults and as a result the liability potentially passes to others. This amendment would serve to prevent a lease being disclaimed, thereby creating another loophole and another piece of loose liability floating around the system.
Amendment 229 in my name is another probing amendment; I hope it is self-explanatory. It attempts to deal with a perceived problem of delay by landlords and agents in accepting first funding agreements for remediation. The matter was highlighted in a recent edition of Inside Housing. Reference was made to the logjam created because managing agents were reluctant to sign off on remediation contracts without knowing who would be paying for the work or, indeed, when. That effectively stalled the first funding offer acceptance.
It was thought that the matter had been resolved; according to the Inside Housing article, the Minister confirmed in December that the logjam had been cleared. Notwithstanding this, the article said, the problems persist. It reported cases in St Albans, London
and Manchester; in other words, all over the country. It is known that there are few enough contractors ready and willing to take on the—quite demanding in some cases—work of remediation, which this Bill addresses. Delay will simply cause contractors to go elsewhere and opportunities to be lost. This prejudices both leaseholder and, ultimately, I suspect, freeholder. It makes no sense. There may be many reasons for this—usually, I suspect, surrounding the landlord’s own tactical and financial advantage—but none can justify the excessive delay that this amendment seeks to avoid.
There seems to be a bit of a blame game going on between the department on the one hand and block management interests on the other. I am reluctant to take sides on that. This amendment intends to treat the symptoms by setting a time limit on acceptance of the offer so that things cannot be spun out. I hope that it will have the effect of concentrating minds and will be conducive to good order for that reason.
I now turn to Amendments 234 to 237 in my name. I make it clear that, subject to what I may hear from the Minister, I may need to test the opinion of the House on these amendments. They would have a similar effect to Amendment 233 in the name of the noble Lord, Lord Young; namely, to relieve leaseholders and freeholders of what many of us feel is an unjust imposition. Much of what we have been discussing arises because the Government believe, as I do, that, given the 30 years during which certain bad practices have taken root in construction quality, not every defect will have an identifiable perpetrator or associate currently in existence, solvent and with sufficient assets to make a claim a practical possibility. The Government seek to ensure that, if a construction defect exists which does not fall within their scheme of financial support for remediation and there is no perpetrator to be found, the public interest that buildings are made safe will persist. In their view, the only other possible sources of remediation funding are the freeholders and leaseholders.
I think it is fair to say that the noble Lords, Lord Young and Lord Blencathra, and I have been in a sort of huddle since Grand Committee. We all believe that the fallback should be the perpetrator of the situation. The amendment in the name of the noble Lord, Lord Young, proposes falling back on the local authority or the Secretary of State—AKA the taxpayer. I am aware that the Treasury has said, in fairly blunt terms, “We have made an allocation of £5.1 billion and that is it.” That means no more money unless it comes out of the departmental budget, impinging on other important work that the department might wish to take place. I take it that this is one reason, among many, why the Secretary of State has taken the initiative to protect the departmental budget by seeking voluntary contributions from the construction industry for a further £4 billion for other defects—good on the Secretary of State for doing that.
The first question I have for the Minister is: can he update us on how things are progressing on that voluntary scheme? Certainly, the industry’s initial response was not very fulsome, and the Secretary of State made what one might describe as a somewhat sterner demand—
and very rightly too. The Minister’s answer is pivotal to how likely it is that property owners will have to fork out for these defects and thus require the protections he seeks to build into this Bill.
If the perpetrator, as defined, cannot be found, then it becomes a test of what is “just and equitable”—to use the words in the Bill—in apportioning the orphaned responsibility and cost between two groups of property owners, who, in the main, are likely to be completely innocent of the construction-related defects and for whom arguably it is neither just nor equitable that they should bear that responsibility and cost at all. Of course, that circumvents what I understand to be meant by the perpetrator pays principle, and results in the passing back of both responsibility and cost—the two are not exactly the same—to the innocent.
Given the Government’s insistence on this approach, I conclude that the deficit between what can be claimed from extant, solvent and legally liable developers on the one hand, and the true remediation cost on the other, is likely to be significant; otherwise, why would we be here? Meanwhile, I sense the industry is telling us, in the blunt cant of the trade, that we can whistle for it.
The Government’s remediation model of liabilities, exemptions, cost controls, means testing, tiered contributions by property value, appeals to courts and much chasing of tails withal is certainly not straight-forward. Any one of the procedural steps is contestable to some degree and contested they will undoubtedly be. So, while the many leaseholder protections are welcome, such as cladding on buildings over 11 metres, building safety levy backstops on cladding costs, exemptions for sub-£175,000—or £325,000 in London—properties, and non-cladding remediation where the landlord is or was connected to developer.
These are very welcome, but the model is incomplete and there remain significant exclusions. Properties under 11 metres are certainly one of them, but we will have to wait until we get to Amendment 115 in a later group to discuss that. There is also the question of buy-to-let landlords with more than three properties, but we will have to wait until we get to Amendment 123 to consider that. There is no backstop for non-cladding remediation costs. Leaseholders in enfranchised or commonhold blocks, as discussed in Amendment 117, may get some support for cladding remediation from the building safety fund, but I question whether they will get everything they are due under a true perpetrator pays principle.
Some issues have not necessarily been eliminated, despite what the Government claim. The noble Lord, Lord Young, referred to the waterfall, so I can skip my explanation as he has explained it much better than I would. Establishing cost liability does not of itself generate funds for remediation if those liable to pay are broke. It is a very important principle, because if the guys made responsible have no assets or cannot get at their assets because they are mortgaged up to the hilt and there is no equity, then what is the purpose of placing this onus on them in the first place?
The Government are taking a substantial risk in leaving it to the courts to decide whether it would be “just and equitable” as regards their various proposed
orders. That seems to be tantamount to an invitation for further litigation, delay, uncertainty, risks, and so on. There will be applications for remediation orders, remediation cost orders, building liability orders, and litigation under the Defective Premises Act—my mind freezes over when I see that list.
There is no bridging funding facility in any of this, so unless the Secretary of State steps in or some other funding is levered in, remediation cannot take place. People cannot simply buy in on spec some large amount of a contractor’s time and substance; it is just not going to happen. Some of those who might, I suppose, be in line to be contributors to this just and equitable approach to splitting it between innocent parties—and I am sorry to go on about that—are not going to be there. Some buy-to-let investors will be denied any protections, and some landlords will fail the cost contribution test; I tried to make that clear when we were dealing with this in Committee. If you multiply the number of properties that they hold by £2 million per property, you will very often find that the total figure is greater than their capitalised worth—ergo, they drop out of responsibility.
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A landlord—bless ’em—cannot, at risk perhaps even of insolvency, proceed to take legal action against third parties willy-nilly; that is not going to happen. If the developer is not in existence any more, and the landlord is in a similar, not particularly flush position, what funds will they have to underwrite the risks of pursuing other options? I do not think that it will bring certainty to the mortgage market or necessarily improve insurance risk in the short term. The real point is that it is just basically unjust. A substantial part of the costs will fall on innocent parties, with no connection to the developer; blameless buy-to-let landlords will be hit simply because they happen to own several properties. That looks a bit more like someone looking for a deep pocket, wherever they might find it, than the just deserts of those who gave rise to these problems in the first place.
The waterfall is incomplete—and if anybody wishes to cast doubt on what I am saying, they should not just listen to me but look at the analysis by Liam Spender of the Leasehold Knowledge Partnership, who produced a wonderful chart setting this out. I have a copy somewhere here—it used up most of the coloured ink in my printer, but never mind that. Then there are also the comments of the Mayor of London and the scores of emails that I have received, begging me to get this fixed.
The Government suggested that my earlier “perpetrator pays” approach would produce precisely the undesirable outcomes that independent commentators now say beset the Government’s own proposals. However, there has been a bit of a misunderstanding here. Landlords are already required by the department to undertake building-by-building assessments to ensure resident safety for the purposes of building safety fund applications. If a relevant and material construction fault has not been established by technical examination, clearly there is no claim that you can make, and no liability arises.
When I am told that my proposals would require a building-by-building assessment, I say yes, but how do you propose to establish any liability or any causation unless you get in and make an inspection? It just does not happen. I have not spent all these decades as a chartered surveyor without understanding that principle. It may be that the cost of the initial inspection to find out what is the problem is large, and that might be something that leaseholders and freeholders have to bear—but, I say again, if developers cannot verify that the work was correctly done, I do not see that that gets them off the hook. That must be part of what they should be responsible for paying. In effect, they have implicitly warranted that a building has complied. It is an industry that has given rise to the problem.
My Amendments 234 to 237 aim to address this issue. Effectively, they would require a Secretary of State to set up a fund financed from a wide industry levy, leaving the Secretary of State free to make the necessary regulatory arrangements for which powers in the Bill already exist. The basic premise is that the Government set up a building safety cost panel, funded out of an industry levy, to address the funding shortfall that I have referred to.
Amendment 234 sets in place provision for a building safety cost order made by a panel. The only trigger required is that the application to the panel must be made by an interested person, as defined. It covers the effects of the building safety cost order and guides the regulations to be made as to the form of order, service, enforcement, appeals, interim payments and so on. It is essentially facilitative, and it is for Secretary of State by regulation to decide the detail.
The definition of “relevant building” is deliberately wider than that in Clause 120 of the Bill, in including all buildings and not just those over 11 metres. This is because bad construction does not recognise height limits. The dreadful effects on those living in buildings with defects are not made any better by being nearer to the ground.
Amendment 235 sets up the membership of the building safety cost panel. It does not require this to be a government body or that money has to be channelled through government. Provisionally, I envisage that membership might include a fire-risk assessor or fire engineer, a building-control specialist and an actuary. The amendment sets in place certain administrative details relating to the functions, powers and obligations towards the panel, with default offences for non-co-operation.
Amendment 236 covers liabilities and how the panel is to determine those, including whether the fund should meet the remediation cost, as opposed to some other person or body. Proposed new subsection (4) covers situations where there is a form of warranty in the leases granted by the developer—namely, that there was compliance with the statutory standards. I believe that Royal Artillery Quays is one area where such clauses exist in leases. That would be a matter for this body to deal with.
Amendment 237 sets up the building safety cost fund itself, secured by a levy on the industry. Again, this is not prescriptive as to the detail and it does not say precisely how the levy shall be imposed. There are
all sorts of possibilities. It might be, as the Mayor of London suggests, a development charge, or it might be a charge—ha!—on all those consented but long unbuilt residential plots that we keep hearing about. Would that not be a good thing? It might be a larger-developer turnover levy, or a specific charge on those whose poor standards have already been shown to have caused loss, in addition to direct remediation responsibility where proven. I happen to think that putting this on the statute book might be an encouragement for the industry to take greater voluntary steps pursuant to the exhortation from the Secretary of State. In other words, it is putting the Secretary of State’s voluntary scheme into a mandatory form.
I am advised on good authority of parliamentary counsel that there is nothing about this approach that is inconsistent with the other powers of the Secretary of State proposed in the Bill. Together these would procure some material changes.
First, they would pass the otherwise unattached responsibility for meeting remediation cost in those cases where a perpetrator or an associate no longer exists to the industry whose practices gave rise to the problem. Secondly, they would provide delivery on protecting innocent owners from unfair impositions, promised by the Government and demanded by all noble Lords in debates on previous stages of the Bill. Thirdly, they would set in place a clear line of funding without taxpayer burdens. Fourthly, they would not encounter the complex exclusions, conditionality and potential for cost and delay of the Government’s own waterfall approach, and could be designed to make early and substantial contributions towards remediation costs. Finally, they would be an ongoing reminder that bad commercial practices in construction will be called out by government and Parliament, thus providing a disincentive to further perpetuation of careless practice and passing the devastating outcomes on to wider society for the future.
It is necessary for me to invite the Minister to explain why the Bill provides for the innocent to bear the responsibilities properly attributable to the developer and the construction sector, and more particularly, why putting that onus back onto the industry is unjust, unacceptable or wrong in policy terms.