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Tall Stories – Forms, Laws and Retribution 

by Shoosmiths LLP

Published: October, 2021

Submission: October, 2021

 



Whether you are a property professional or otherwise, you would have had to have lived in a hole to have missed the EWS1 saga. In the four years following the tragic Grenfell disaster, the industry and the government have been grappling with how to deal with a generation of potentially defective tall buildings.


The response has been multi-faceted, with government and professional bodies (including RICS) providing detailed advice and guidance to building owners as what steps they should take to examine the make-up of their external wall systems, and the circumstances in which remedial works will be necessary.


For many tenants, purchasers and funders, a key document in understanding the risks associated with the façade of a building is the EWS1 form (“EWS1”).


EWS1 – looking back

EWS1 forms are certificates produced by a qualified professional certifying whether there are fire risks associated with the external wall systems of residential buildings. They are not required as a matter of law but have been created as an industry response to the problems associated with some building cladding systems, building insulation, fire-break systems and vertically stacked balconies made from or connected by combustible materials – together referred to as external wall systems.


They were introduced by RICS in December 2019 primarily as a result of concerns that lenders did not have sufficient information about the fire safety risks of tall buildings when providing funding for flats being bought and sold. Since then, they have become a widely used tool for buyers, investors and lenders wanting to see a completed EWS1 for a building before buying, investing in or lending on. The EWS1 form provides information as to whether the building could require potentially high future replacement and maintenance costs if the external wall systems presented a fire risk. Fire risks will, of course, have an impact on the value of the building.


From the outset, RICS issued guidance on when an EWS1 form is required, confirming that they were primarily for tall buildings (over 18 metres) or where specific concerns existed. However, almost immediately, buyers, investors and lenders started to request EWS1 in more situations than RICS originally intended, often leading to arguments between buyers and sellers as to whether the form was necessary for any particular transaction.


On 21 July 2021, the government issued further guidance stressing that an EWS1 should only be required for buildings over 18 metres high. HSBC, Barclays, Lloyds and others have said that the expert advice and the government’s clear response paves the way for EWS1 to no longer be required for buildings below 18 metres. It is hoped that other lenders, together with buyers and investors, will accept the latest guidance from the government.


However, this has still not resolved the issues we are facing on the ground as RICS is yet to change its guidance to its members. It has said that: “In light of this announcement from government, RICS will work with all stakeholders (fire safety bodies, lenders, insurers, valuers, leaseholders and others), to consider the impact on our guidance to valuers.  If amendments are needed to RICS’ guidance they would be developed through a consultative process and decided on by the independently led RICS Standards and Regulation Board which is responsible for ensuring our regulation is undertaken in the public interest.  In the meantime, our existing guidance remains in place and RICS valuers should continue to fulfil their professional obligations to advise lenders and purchasers, accurately on a property’s market value.”


As such, the clarity the government hoped to provide has not universally occurred. The guidance will, we suspect, assist sellers and lenders of residential flats and stop some unnecessary impediments to the issue of residential mortgages. However, issues of fire safety are not limited to buildings over 18 metres and, for some buildings at least, purchasers will still wish to know the extent of the risks they are buying into when acquiring property. 


When is an EWS1 required?

An EWS1 applies to the building as a whole and should be obtained by the building owner. It lasts for a period of five years. In theory, it is required in the following circumstances:


Type of building


EWS1 required?


But consider…


Tall residential building over 18m.


Constructed pursuant to the Building (Amendment) Regulations 2018 in England or the Building (Amendment) (Wales) Regulations 2019 (in Wales) (the ‘New Regulations’) i.e., no combustible material used in the external wall systems.


No


 


It should not be necessary to require the production of an EWS1. However, a purchaser of the building will want to undertake due diligence to ensure the building complies with the new regulations. For the present, there is no consistent approach (although the position may improve once the Building Safety Bill is passed).


 


Tall residential building over 18m.


Not constructed pursuant to the New Regulations.


 Yes

This category is the only one which appears to be categorical.


 


Tall residential building under 18m.


No

Following recent government guidance, it no longer seems appropriate to require an EWS1 where a building is less than 18 metres high, even where it is currently classified by RICS as an ‘at risk’ building. However, many purchasers will still expect evidence of the condition of the external wall system.


Hotel over 18m.


No

No EWS1 should be required on the development of a hotel of any height.


However, purchasers will still likely expect evidence of the condition of the external wall system.


Hotel under 18m.


 No

No EWS1 should be required on the development of a hotel of any height.



Nevertheless, tall building developers and owners will still have to watch this space as we are in a period of adjustment where lenders are reviewing their policies. However, it is worth noting the following points:


  • As the market begins to understand the risks associated, more lenders will understand the information they need before lending. It is positive that many lenders appear to be willing to adhere to the government advice.
  • EWS1 forms are simply pieces of evidence. There is nothing to stop a buyer or lender asking for one, even if the government guidance says it is not needed. If an EWS1 certificate isn’t provided, some buyers will want alternative evidence.
  • The fact that a building doesn’t need an EWS1 is separate from a building owner’s obligations to ensure it is compliant with fire safety regulations. Proper fire risk assessments will be needed even if an ESW1 isn’t.

Gateway one – looking forward

So what next for tall buildings, following Dame Judith Hackitt's review into the Grenfell disaster, the so called "Planning Gateway One" is now in force. This is one of three gateways - or checks and balances - to regulate the life of a new higher risk building. The new planning obligations apply to higher risk buildings (being those higher than 18 metres or over seven storeys) and have two components:


  • A requirement to submit a fire statement with a planning application for relevant developments; and
  • To establish the Health and Safety Executive as a statutory consultee for relevant planning applications.

This change in law will affect many living sector stakeholders (although not care homes and hotels currently).


RDPT – so who pays?

Understandably, there is a lot of rhetoric about who should pay for the cladding crisis, particularly in light of tragic stories in the press of those individuals affected. Retribution needs to be seen to have been done for the shocking mess we find ourselves in with respect to flammable high-rise buildings. We have looked back at the “quick fix” EWS1 form and the future of buildings regulations, but that leaves the question for the government of who pays for this? Their answer is a tax on residential property developers.


Developers are easy pickings, criticised for everything at the best of times, from land banking and causing the housing shortage to playing fast and loose with tenant safety post-Grenfell. A popular scapegoat with deep pockets and, of course, preferable to unwitting flat buyers who cannot be left to bear the cost of remediation via sky high service charges.


The Residential Developer’s Property Tax is proposed as one solution, but what do we know currently about the tax? We recently wrote this piece on the draft legislation which probes the plans in more detail, but in short we know this:


  • The tax will be imposed from 1 April 2022.
  • Companies will be subject to the tax as residential property developers (“RPDs”) if they are within the UK corporation tax net, carry on ‘RPD activities’ relating to residential property development and have – or had – any interest in the land on which the activities are carried out (excluding a licence or security interest).
  • Care homes and student accommodation will not be included, provided the students live there for at least 165 days a year.

For now, it does not tell us the rate of taxation, which will be announced in the Autumn Budget. However, what is clear is that property developers operating in the housing sphere need to have this in bold, red and italics on their risk registers.



This article appears in our Investing in Living report. To access the full report, please click on the link to the right of this page.


 



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