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Articles Real Estate 12th Dec 2019

Freeths Real Estate Law Blog: Cladding Fund December Deadline Draws Closer

Government Cladding Fund for the removal of ACM Cladding

Following the catastrophic fire at the Grenfell Tower in 2017, it has been widely reported that the Aluminium Composite Material (ACM) cladding used on the building contributed to the spread of the fire.

As part of the Government’s wider Building Safety Programme that was established to ensure residents of high-rise buildings are safe, the Government announced in May 2019 that they would be setting up a fund. This fund would make around £200 million available to cover the reasonable costs of replacing unsafe ACM cladding on private high-rise residential buildings above 18 metres in height in England.

Access to the fund opened in September 2019 for a period of three months. The deadline for applying is the end of December 2019.

Who can apply?

Applications can only be made by the person who has a legal responsibility for the repair and condition of the building and a right to recover the cost through a service charge (“the Responsible Entity”). This may be the building freeholder, head leaseholder or management company with primary responsibility for the repair of the property. Although the application is made by the Responsible Entity, the fund is for the benefit of leaseholders who would otherwise incur the remediation costs in their service charge.

The fund is available for buildings regardless of whether or not the Responsible Entity has commenced remediation works and is even available where remediation works have already been completed.

Where remediation works have started but are not yet complete, the Government will provide funding for the value of the qualifying works already completed (subject to them receiving the PC certificate) as well as for the works that still need to be completed.

Where remediation works have completed, the Government will provide funding for the value of such qualifying works, subject to them receiving the PC certificate.

As the funding is classed as “State Aid”, the scheme requires all leaseholders of the building to complete a declaration before the government is able to grant funding.

Exclusions

The fund is not available for the following:

  • non-residential buildings;
  • buildings under 18 metres in height;
  • non-ACM cladding;
  • structural works not directly related to the replacement of unsafe ACM cladding;
  • buildings where a warranty claim for the full costs of remediation has been accepted;
  • costs which are not recoverable from residential leaseholders through the service charge; and
  • buildings owned by social sector landlords.

The application process

The Government set out eligibility criteria that a Responsible Entity must meet in order to be eligible to apply to the fund.  These are:

  • confirmation that they will replace unsafe ACM cladding with materials of limited combustibility that are classified as European Class A1 or A2-s1, D0;
  • identifying and pursuing all reasonable claims against those who are responsible for the presence of the ACM cladding (and pursuing insurance and warranty claims).  If any claims are successful, the Government will require some or all of the proceeds to be returned.

In addition to meeting the eligibility criteria, the Government also require the Responsible Entity to:

  • enter into a funding agreement;
  • obtain signed State Aid forms from each of the leaseholders in the building;
  • inform all leaseholders that they are applying for the fund, the nature of any works they intend to carry out and provide regular updates on the progress of the application and remediation works;
  • refund the leaseholders for the amount equivalent to the benefit they would receive if they have already paid for the remediation works through their service charge.

The application is a two-stage process.  The first stage involves verifying that the building, the leaseholders and the Responsible Entity fall within the scope of the fund.  The second stage, which commences once an in-principle agreement is in place, involves assessing the proposed solution and costs, undertaking due diligence and checking that all State Aid forms are in place.

Failure to apply

If a Responsible Entity fails to apply for funding and refuses to replace ACM cladding, the Government expects local authorities and fire and rescue services to take enforcement action.

The deadline for applying to the fund is fast approaching, so if you are a Responsible Entity and have not yet applied, you should consider getting in touch with the Ministry of Housing, Communities & Local Government and making an application.

Why Does it Matter?

Ignoring this issue is not an option.  Other than the very obvious concern of safety to residents, this issue is now a major concern for insurers. Word from the market is that insurance premiums are rising drastically where a building has ACM cladding and some buildings may struggle to obtain insurance if the relevant works are not done.

If you require any further assistance please contact David Marsden on 0845 404 1757.

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The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.

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