Leaseholder protections on building safety costs: frequently asked questions

The leaseholder protections in the Building Safety Act came into force yesterday. This means qualifying leaseholders in England can no longer be charged for cladding remediation, and there are legal protections in place for non-cladding costs.

Qualifying leaseholders can only be asked to share capped non-cladding costs in certain circumstances and there will be clear transparency and financial reporting requirements for building owners. Further detail on how costs are to be divided between the freeholder and any superior landlords will be set out in regulations. Parliament will deciding on these next month.

In the meantime, the government has provided the following information that you may find useful.

Who do these protections apply to?

• The protections will apply to leaseholders whose property is in a building above 11m (or 5 storeys), and where, on 14 February 2022:
  • the property was the leaseholder’s main home, or
  • the leaseholder owned no more than 3 UK residential properties in total.
• Where the property was not the leaseholder’s main home on 14 February 2022 because they had to move out and sublet, it will be covered if the criteria above are met.
• The protections will automatically transfer to any future buyers of the property. This means that all new owners of a property that was eligible for the protections on 14 February 2022 will be covered, even if you have bought it since then.

If I meet the criteria above, who is liable to pay for building safety repairs on my building?

• The Building Safety Act means that building owners and landlords are now liable to pay to fix historical fire safety defects if:
  • they are (or are linked to) the developer of a building with fire safety defects, or
  • they meet a certain wealth threshold
• If the building owners and landlords do not meet these tests, they will only be able to pass on non-cladding costs up to a cap. The cap is normally £10,000 (£15,000 in Greater London) – the cap may be higher or zero, depending on how much you paid for your property.
• It is now illegal for building owners and landlords to pass on costs above the cap to qualifying leaseholders. The cap applies retrospectively, which means it includes money you have spent so far on relevant costs.
• The Act makes it illegal to pass on any costs to remove unsafe cladding to qualifying leaseholders,
• The cap covers costs for unsafe non-cladding defects, as well as interim fire-safety measures on your home.
• These measures mean you will no longer be the first port of call to pay for repairs.

How these repairs are paid for will depend on the type of fire safety defect and how your building is owned. Building owners and higher landlords are legally responsible and must ensure the building is safe.

What costs do these protections apply to?

• The leaseholder protections cover work to fix a building safety risk, as defined in the Building Safety Act.
• In simple terms, this includes any defect caused during the construction or refurbishment of a building in the past 30 years that causes a risk to people’s safety from the spread of fire or the collapse of some or all of the building.

Do I have to pay building safety bills on service charge invoices from before 28 June?

• No. The Building Safety Act protects qualifying leaseholders from costs and is fully retrospective. This means it applies to bills irrespective of when they were issued.
• Should building owners be legally entitled to recover some historical building safety costs from qualifying leaseholders, they will have to issue new invoices for any such charges and prove that they are legally entitled to do so now that the law has fundamentally changed.
• Outstanding invoices for historical cladding or non-cladding building safety costs caused during construction or refurbishment are void and should be disregarded, even where they were issued before the Act came into force. Any landlord or agent who seeks to enforce them could be committing a criminal offence.
• Before a landlord can charge any historical non-cladding costs, they must fulfil a series of transparency and financial reporting requirements that will be set out in regulations during July. If they do not, the law requires them to pay all building safety costs in full, with no charges at all for leaseholders.
• Leaseholders will be able to confirm their new legal rights through a short form that will be available on GOV.UK once new regulations become law during July. They should not pay any historical cladding or non-cladding costs before landlords can provide a formal legal certificate that shows they have met their transparency and financial reporting requirements, or can demonstrate that the costs do not relate to works covered by the Act.
• The government will act vigorously to pursue those who try to charge leaseholders illegally, using the powers available to it and through the courts.

How do I know how tall my building is?

• The Act defines the height of the building as from the ground level to the surface of the floor of the top storey (excluding any floor that is simply machinery or plant rooms).
• For counting the number of storeys in a building, you do not include any below ground, but do include any mezzanine, if its floor area is at least half that of the other floors.
• Your building owner or managing agent should be able to confirm the height and number of storeys in your building, if you are unsure.

Cladding repairs

How will cladding repairs on my building be paid for?

• You will no longer pay to fix unsafe cladding on your building.
• Where a developer or a linked company still owns a building with unsafe cladding, it cannot pass on any costs and must pay for the removal itself.
• More than 45 of the UK’s biggest house builders have pledged to take responsibility for all necessary work to address life-critical fire safety defects on buildings over 11m that they had a role in developing or refurbishing over the last 30 years, even where they no longer own them.
• This means they will cover the costs to repair all life-critical fire safety defects on your building arising from the original design, construction or refurbishment, including replacing unsafe cladding and addressing non-cladding defects

What if the developer of my building cannot be identified or refuses to pay to fix unsafe cladding?

• Where a developer cannot be identified or has not yet agreed to pay for its own buildings, funding will be made available directly to pay for cladding repairs. This will ensure no leaseholder in buildings above 11m faces costs to fix unsafe cladding on their building.
• For buildings 11-18m in height: a new scheme, funded by developers through the Building Safety Levy, will pay for eligible work to fix unsafe cladding.
• For buildings over 18m with unsafe cladding: building owners can apply to the government’s Building Safety Fund shortly when it reopens.

How will developers and building owners be made to pay?

• Where building owners refuse to fulfil their responsibilities, enforcement bodies (the fire and rescue authorities, local authorities, the Building Safety Regulator or the Secretary of State), as well as leaseholders, will also be able to take them and their parent companies to court so they can be made to fix buildings and pay for repairs.

The developer of my building is an overseas company – are they required to pay?

• Yes. Court action to require the funding of remediation will be capable of enforcement overseas, so those responsible will not be able to escape their responsibilities.

Non-cladding fire safety defects

What about non-cladding fire safety defects? How am I protected from these repair costs?

• The protections in the Act protect qualifying leaseholders from non-cladding costs, such as the replacement of inadequate fire doors or fixing missing compartmentation.
• Your developer or building owner will be required by law to pay in full to fix historical building safety issues on your building – including non-cladding safety defects and interim fire safety measures – if they meet the following criteria:
  • the developer still owns the building that they built or refurbished
  • the landlord or building owner are linked to the original developer
• Your building owner cannot pass on any costs to qualifying leaseholders if they meet a wealth threshold set out in law. If they or their wider company group have net wealth of more than £2m per building they own, they cannot pass on the costs. Building owners will have to fulfil a series of transparency and financial reporting requirements, to be agreed by Parliament, to pass on these costs, and you should not pay any invoices relating to relevant historical remediation costs until they have done so.
• Even if the developer no longer owns your building, the Government still expects them to do the right thing and put right defective properties they have developed. Many of the UK’s biggest house builders have pledged to fix historical life-critical fire safety issues on all buildings over 11m that they had a role in developing or refurbishing over the last 30 years.
• This means that, if the developer of your building has signed the pledge, they will cover the costs to fix historical life-critical fire safety issues on your building arising from the original design, construction or refurbishment – including non-cladding related defects. We are bringing forward measures to hold those that refuse to account.

What happens if my developer cannot be held responsible or my building owner does not meet the wealth threshold? Who will pay to fix non-cladding fire safety defects then?

• As a last resort, if your developer cannot be held responsible and your building owner does not meet the specified wealth threshold – you will be protected by a cap on how much you pay to fix non-cladding fire safety defects.
• These capped costs will be payable over 10 years, so you cannot be asked to pay them all at once. They will also include costs you have already paid for interim safety measures in the last 5 years – such as waking watch.
• Building owners will have to fulfil a series of transparency and financial reporting requirements, to be agreed by Parliament, to pass on these costs, and you should not pay any invoices relating to relevant historical remediation costs until they have done so.

How will this cap work?

• You will be able to affirm your eligibility for the protections using a simple form, to be published during July. You will calculate the value of your property for the purposes of the caps using a simple sum, based on the average change in the value of flats in the years since you bought the property.
• If your property is worth less than £175,000 (£325,000 in London), your cap is set at zero – you cannot be asked to share any costs.
• For most properties above that value, the cap will be £10,000 (£15,000 in London).
• If your property is worth over £1 million, your cap limit is £50,000. If is worth over £2m, your cap is £100,000.
• If you own your property under shared ownership, the cap will be proportionate to your equity stake in the property. For example, if you are a 50% shared owner outside of London you could pay £5,000 over 10 years – depending on whether you have already paid out money for interim fire safety measures, such as waking watch.
• Building owners and landlords will be liable to meet any remaining costs once the capped leaseholder contributions have been reached.

What if the caps mean that the amount leaseholders contribute is not enough to meet the cost of remediation work? Who will pay if the freeholder does not meet the wealth test?

Building owners must always ensure work is done to keep buildings safe. This is a legal requirement.

Building owners must therefore always cover all costs that they are not entitled to pass on. The wealth test only determines if they cannot pass on any costs to qualifying leaseholders.

Interim fire safety measures

What about interim fire safety measures such as waking watch – will I still need to pay these costs?

• Costs for interim fire safety measures are covered by the new statutory protections and are treated the same as other non-cladding costs. This means that these costs fall under the same protections as non-cladding repair work, as listed here
• If, as a last resort, you need to pay towards non-cladding repairs, up to your cap limit, any costs you have already paid for interim safety measures like waking watch over the last five years will count towards the amount you pay. Once the cap limit has been met, building owners will be required to pay any remaining costs – including those for interim fire safety measures.

Who will pay for our waking watch if leaseholder costs are capped?

• Building owners are legally responsible for ensuring their buildings are safe. If leaseholders are protected by the caps in the Act, then building owners and landlords must meet the costs.
• The government is committed to tackling the ongoing overuse of waking watches (and threats to ‘decant’ buildings without proper engagement with residents), which remains unacceptable.
• However, in the exceptional cases where such measures are required, building owners and landlords must pay these costs even where they cannot pass them on.

Next steps

When do these protections start?

• The financial protections for leaseholders under the Building Safety Act came into force on 28 June 2022.

How can I find out what protections apply to my building?

• These protections automatically apply to in buildings over 11m (or with at least five storeys) with historical fire safety defects, as set out above.

What if I own a share of the building/if leaseholders in my building have enfranchised? Will these protections apply to me then?

• The financial protections under the Building Safety Act cannot apply to buildings where leaseholders have collectively enfranchised and own the building itself.
• This is because the leaseholders in this situation are the freeholder and there is no separate party with which the costs can be shared.
• The government will consult shortly to understand better how these buildings, which are typically lower-rise, are affected.

When will work to fix my building start?

• Building owners are responsible for the safety of their building and must keep you regularly updated on the progress of essential fire safety repair works on your building. We recommend that you raise this with your building owner if they have not provided the latest update.
• Developers that have signed the pledge have committed to starting and completing work as quickly as possible. The government expects these developers to demonstrate that work is being progressed and keep leaseholders and residents regularly informed.

My building owner can afford to cover the costs but they are still charging me for costs to fix fire safety defects – what should I do?

• It is illegal for your landlord or building owner to pass these costs to you if you are a qualifying leaseholder and they meet a certain wealth threshold or if they are (or are linked to) the developer.
• Costs to fix unsafe cladding can no longer be passed to leaseholders.
• It is illegal for building owners or landlords to attempt to pass costs on to you above the caps, or where they meet the conditions above. Those who knowingly do so will be committing an offence.
• Building owners will have to fulfil a series of transparency and financial reporting requirements, to be agreed by Parliament, to pass on any costs, and you should not pay any invoices relating to relevant historical remediation costs until they have done so.

An application has been made to the Building Safety Fund for my building, but I have not yet received the outcome of my application – what should I do?

• You can check the status of your building’s application to the Building Safety Fund via our resident and leaseholder service.
• Building owners are expected wherever possible to share information on the status of their building’s application with their leaseholders.
• We continue to work with building owners to progress their application to the Building Safety Fund as quickly as possible.
• If the developer of your building has pledged to fix historical life-critical fire safety defects – they will fund work to remediate unsafe cladding, instead of the government’s Building Safety Fund.
• Your building owner should update you if this is the case or you can contact them directly to find out if the developer has pledged to fix any fire safety defects

My building needs to apply to the Building Safety Fund. When will it reopen?

• The Building Safety Fund will reopen shortly, to make sure that those buildings that still need to apply for funding can do so.
• If you think this is the case for your building, you may want to contact your building owner to ensure that they are prepared to apply when they are able.

My building owner is not doing work that I think is necessary. What should I do?

• Building owners have a legal duty to ensure their buildings are safe.
• If you have reminded them of these responsibilities and believe they are still failing to do necessary work, LEASE (the leasehold advisory service) will be able to let you know how best to take the matter further.

Buildings under 11m

My building is under 11m – do these protections apply to me?

• The leaseholder protections do not apply below 11m. If your building is below 11m then lower-cost mitigations such as fire alarms are likely to be far more appropriate and proportionate.
• We will continue to investigate individual cases of buildings under 11 metres where costly remediation is being commissioned to understand why the building owner is doing this work.

Shared ownership and subletters

I bought my home as shared-ownership – do these protections apply to me?

• If you bought your home under a shared ownership scheme in a building 11m and over, and are a qualifying leaseholder, you will be covered by all the protections listed above, on a pro rata basis, for the cost of fixing historical safety defects on your home.

I bought my home as shared ownership, but my developer cannot be made to pay to fix my building and my building owner does not pass the wealth threshold to cover the costs. How will the cap apply to me?

• As a last resort, if your developer cannot be held responsible and your building owner cannot afford to pay to historical non-cladding related defects on your building in full, you will be protected by a cap on how much you pay for these costs.
• Should you need to pay costs towards non-cladding repairs, this will be set in proportion to the equity stake you own in your property, subject to any cap.
• For example, if you are a 50% shared owner outside of London (where the cost cap is £10,000) you could pay £5,000 spread over 10 years with £500 payable per year. Any money you have already paid out for interim fire safety measures such as waking watch or towards repair work on building safety defects can be deducted from this £5,000.
• Please see more information on these protections here.

Right to Manage (RTM) and Resident Management Companies (RMC)

Am I covered by the protections if leaseholders in my building have exercised the right to manage or formed a resident management company?

• Qualifying leaseholders in buildings where the Right to Manage has been exercised, or a Residents Management Company has been formed, have the same protections as those in other buildings.
• The Act moves the liability to landlords, and protects qualifying leaseholders.

SOURCE: Property Industry Eye | JUNE 29, 2022 | MARC DA SILVA