Dealing with a Cladding Crisis: A Landlord’s Risk

Following the tragic events that occurred at Grenfell Tower, issues relating to the cladding of residential premises have been a pertinent and serious issue for landlords. The question remains: how does this affect landlords of large residential blocks and what can be done to avoid such recurrence? Consideration of the obligations and associated risks is a complicated exercise. Where cladding is deemed unacceptable, generally by reason of failing stringent testing, and requires replacement, the cost can be significant – for large blocks it can comfortably reach seven figures. Subsequent consideration then logically turns to funding the works and recovering the costs of the works. As set out below, however, the path to recovery can be uncertain.
Recovery of replacement costs via the service charge
An initial view of recovery suggests that the service charge mechanisms within residential leases are a viable option for supporting payment of cladding replacement works. A more detailed analysis can lead to alternative conclusions depending on the circumstances, however. For example, a relatively new building with cladding that, whilst falling foul of the fire safety testing, remains in repair, often cannot merit use of the landlord’s repairing obligations under a lease. Accordingly, where a service charge mechanism is set up to solely deal with the landlord’s repairing obligations, recovery of renewal or replacement of the cladding could fall foul, resulting in potentially large liabilities for the landlord. Even with more extensive service charge schemes, careful attention needs to be paid to the specificity of the items of recoverability including questions such as: Is the cladding included? Are the associated professionals’ costs included? What clause within the lease covers this specific circumstance? And, what level of warranties are permitted?
In view of the above, it is difficult to recommend any landlord or management company liable for implementing replacement cladding, should do so without first seeking a determination from the First-tier Tribunal (Property Chamber) (“FTT”) for a determination that the sums are recoverable and reasonable. Successfully obtaining such a decision takes away a significant amount of risk and potential monetary loss.
Where works are urgent, consideration must always be given to whether an application for dispensation under s20ZA Landlord & Tenant Act 1985 is required. Almost all cladding cases will trigger a liability in excess of £250 per lessee, thereby triggering the statutory protection and, in non-urgent circumstances, requiring statutory consultation. When a degree of urgency is added due to the existence of potentially combustible materials within the cladding, it often cannot be possible to afford the time period required when consulting with lessees. In such cases, applications to the FTT are generally swiftly and fairly dealt with, there is an understanding that such cases are genuinely urgent.
Further to the above it must be noted, however, that the advent of cladding renewal cases in such numbers is relatively new and reported decisions will begin to filter through in the near future. Until any specific guidance is given through caselaw our general advice is to treat such matters with caution and prudently make any necessary pre-requisite applications to the FTT.

 

Article by JB Leitch, Associate Founding Members of TAF