Property litigator, Daniel Stern answers an important question in relation to cladding on properties post-Grenfell, as featured in The Sunday Times on 11th December 2017.
Q. I’ve been trying to buy a two-year-old flat since June. Everything is in place and we are ready to exchange contracts, but there is a problem. The seven-storey building has cladding on the sixth and seventh floors. After the Grenfell Tower fire, this cladding failed safety checks, although I have been assured by the managing agent that the building is low-risk and has fire doors, smoke detectors and so on.
Even though the flat I hope to buy is on the second floor, my mortgage lender is refusing to proceed until it has confirmation regarding costs and responsibilities for dealing with the issue. The management company says the cladding will be replaced or sprinklers installed, but it is too soon to say which, as government guidelines are constantly changing. It hasn’t yet confirmed whether the cost will be passed on to the leaseholders.
The building is covered by the NHBC warranty, but nobody is certain if this issue is included. Indeed, nobody is admitting responsibility. My mortgage offer will expire in the new year, but this matter keeps rumbling on. How should it be dealt with?
A. As you may be aware, when buying a property, you must raise any questions which you want answers to (the principle known as “Caveat Emptor” – Buyer Beware). You are correct to raise this as an issue. It is a potentially expensive and serious concern for long leasehold tenants in apartment blocks.
Essentially you can be made liable for the cost of replacing the cladding or installing sprinklers if the apartment’s lease allows the landlord to recover it from you. The cost can be large and disproportionate to the value of the property. It is highly unlikely that the landlord will agree to pay this for you if it is not obliged to.
You could try to prepare for it now by asking your solicitor to request an indemnity from the seller in the event that you are forced to contribute towards the cost of replacing the cladding, retro-fitting sprinklers. You could also try to negotiate a reduction in the purchase price to account for it (although of course you won’t know what the cost will be). The management company will not confirm that the leaseholders won’t bear the cost as it is highly likely that it will in fact be passed on.
Your lender is concerned about this potential additional liability as, if the cost is significant and you cannot afford to pay it, it could put their security at risk if the landlord determines your lease for your non-payment (assuming the lease permits this).
The NHBC policy will not cover you for the cost of replacing the cladding or retro-fitting sprinklers if the building was constructed in accordance with the relevant fire and building regulations in force at the time the block was built.
Your concerns should not stop with the cost of replacing the cladding or retro-fitting sprinklers as many buildings which have this suspect cladding have employed fire wardens to monitor the building at significant cost to the leaseholders until the defective cladding can be replaced.
In summary, if the seller is not prepared to give you an indemnity or agree to a reduction in the sale price then you should reconsider your purchase and look elsewhere. You should certainly proceed with caution and take considered legal advice.