October 20, 2021 - Milton Keynes, England
Tall Stories – Forms, Laws and Retribution
by Shoosmiths LLP
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:
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:
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:
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.
Read full article at: https://www.shoosmiths.co.uk/insights/comment/tall-stories-forms-laws-and-retribution