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Landlords and leaseholders find themselves stuck in a frustrating limbo, as the government and trade organisations lock horns over the requirement for leaseholders to provide an up-to-date EWS1 form when a property is valued.
The EWS1 fiasco looks set to continue into 2022, with the government, lenders and trade bodies all guilty of passing on responsibility at the expense of leaseholders. Even recent attempts to rectify the current regulatory quagmire have only helped to further complicate the issue.
Government Gave Guidance on EWS1 in July 2021
As recently as July 2021, the government took steps to resolve the fiasco by advising that EWS1 forms should not be a requirement on buildings less than 18 metres tall. The hope was that this would provide much needed clarification and free the UK’s 60,000-70,000 medium rise blocks from further onerous requirements. The updated guidance was welcomed by both the National Fire Chiefs Council (NFCF) and Institute of Fire Engineers (ICE) and follows from an independent expert report which indicated that the vast majority of medium rise blocks of flats are free from serious fire safety risks.
“As government, we are clear that we support the expert advice and the position that EWS1s should not be needed for buildings less than 18m. This position is a significant step and one supported by the National Fire Chiefs Council and the Institute of Fire Engineers.”
Former Secretary of State for Housing, Robert Jenrick MP
RICS’ Conflicting Guidelines
However, legally, a ministerial statement is not considered to be law or formal government guidance. With this in mind, the Royal Institute of Chartered Surveyors (RICS) has chosen to ‘pin its colours to the mast’ and reiterate its current guidance, which requires EWS1 forms even in blocks with as few as four or less floors. RICS argue that their guidance is necessary to protect both the general public and the property market as a whole.
“Our role within RICS is to safeguard the public interest and the Board decided that, to do this, guidance needs to stay in place at this time. This is so that purchasers do not risk finding themselves trapped in flats of any height because potentially crippling costs are ignored and passed unwittingly on to them, which so many current owners have discovered too late.”
Chair of RICS’ Independent Standards & Regulations Board, Dame Janet Paraskeva
How the ESW1 Fiasco has Impacted Leaseholders
Unfortunately, none of this provides any comfort or alleviation for the thousands of leaseholders who are expected to derive meaning from the madness. In some cases, the recent interventions have only worsened the situation with leaseholders. Some leaseholders have found themselves trapped in a property situated in a medium-rise block where the management agents and freehold owners are refusing to sanction paying for an EWS1 based off recent government statements, with valuers and lenders continuing to require such forms. Whilst there are some lenders that may be willing to look past the ESW1 requirement in some cases, generally the lending market on such properties is either highly restricted or non-existent, making them effectively un-mortgageable.
ESW 1 Arose from the Cladding Crisis
Following the tragedy of the Grenfell Tower Fire in 2017, the government commissioned a wholesale investigation into the types and prevalence of aluminium cladding materials (ACM) on high-rise buildings. Initially, the Building Safety Programme sought to conduct remedial fire safety works on 446 residential and publicly owned buildings over 18 metres in height with ACM cladding systems unlikely to meet Building Regulations.
Further high-profile fires, including one at the Bolton Cube in November 2019 (a block less than 18 metres tall) led to the government expanding the scope and nature of the investigation away from ACM related cladding and towards more general fire safety and combustible materials. The government found a range of fire safety risks brought about by further combustible materials, improper design, and non-compliant building products. Expanding the scope of the fire safety investigations is thought to have affected over 250,000 high-rise properties and potentially up to 3.7 million properties in blocks between 10 and 18 metres tall, according to analysis by the New Build Database and the Daily Telegraph.
Fire Safety Following the Cladding Crisis
The ensuing cladding crisis has brought financial and mental turmoil to thousands of innocent leaseholders. Buildings which do not meet the new minimum fire safety standards are required to implement emergency contingency measures and pay for remedial work to rectify the issues. In the interim, many blocks required 24 hour fire wardens to be on site at an average cost of £137 per dwelling per month to leaseholders. The remedial work alone is expected to cost up to £15bn, with the government having only pledged £5bn in support as of February 2021. For many leaseholders, this has resulted in skyrocketing service charges.
To make matters worse, the broadened scope of fire safety risks had knock on repercussions with lenders. The risk of blocks of all sizes requiring significant remedial works meant that many lenders withdrew from lending on residential apartments, preventing leaseholders from re-mortgaging and severely hindering the sale of such properties. In response to this, the government introduced EWS1 assessments to provide lenders with the security needed to lend on properties within residential blocks.
What Are EWS1 Forms?
External Wall Fire Reviews (EWS1 Forms) were introduced in December 2019 with the intention of alleviating the problem of lenders giving high-rise apartments a zero-valuation. Initially, they were intended only for residential blocks which were 18 metres or taller to reassure lenders that there were no combustible materials present. However, the government updated its guidance a mere month later to broaden the scope to include all buildings with external wall systems, irrespective of the height.
The scheme encountered a number of problems from the get-go, with a lack of accredited assessors contributing to spiralling costs and significant backlogs. What is more, the forms themselves typically cost leaseholders between £6,000 and £28,000 per block, adding to the costs of any recommended remedial works.
Implications of ESW1 for the Wider Housing Market
Understandably, the majority of the media attention surrounding the cladding crisis has focused both on the need to enhance fire safety and, on the other side of the fence, the financial, emotional and mental toll it has taken on some leaseholders. However, the effect the scandal has had on the UK’s property market has been equally worrying.
As a nation, the UK suffers from a perpetual deficit between the demand for homes and the number of new properties being developed. Simply, we don’t build enough properties in desirable locations. It’s understandable, there is only a finite amount of land, and this is especially the case in premium locations. In recent decades, this has led to the development of higher density housing – flats being the prime example.
Ideally, we need more affordable flats in desirable locations. We need landlords willing to let the properties out, so that tenants can have the flexibility to move, grow and scale. We need a ready supply of properties for first-time buyers and the new landlords of tomorrow. Yet, we face both the short-term and long-term repercussions of the cladding crisis.
The Future of the Housing Market Under ESW1
In the short term, thousands of leaseholders are trapped in their properties, forced to carry a significant financial burden. However, in the longer-term buyers are likely to remember the costs and downsides of owning an apartment in a residential block. Those landlords owning such properties may see their valuations stall for years to come, whilst service charges continue to tighten yields. Developers will find it more difficult to shift flats and generate returns, with the potential of less being built in the future.
The pains of leaseholders and first-time buyers may prove to be a short-term boom for freeholders and landlords, with the price of entry-level houses continuing to rise and a growing proportion of the population forced into renting. However, in the longer-term a dysfunctional housing market will harm far more than it will benefit. It will only encourage further regulatory pressures on landlords and political clamour for wealth and property taxes. This should be a cause of worry for everyone, not just those leaseholders unfortunate enough to be embroiled in the Cladding Crisis and EWS1 fiasco.
References
Independent Review of Building Regulations and Fire Safety, 2021. Independent expert statement in building safety in medium and lower-rise blocks of flats. [Online]
Available at: https://www.gov.uk/government/publications/independent-expert-statement-on-building-safety-in-medium-and-lower-rise-block-of-flats
Ministry of Housing, Communities & Local Government , 2021. Major intervention from government and lenders to support leaseholders. [Online]
Available at: https://www.gov.uk/government/news/major-intervention-from-government-and-lenders-to-support-leaseholders
Ministry of Housing, Communities & Local Government and The Rt Hon Robert Jenrick MP, 2021. Written statement to Parliament: Proportionality in building safety. [Online]
Available at: https://www.gov.uk/government/speeches/proportionality-in-building-safety
Ministry of Housing, Communities & Local Government, 2021. Building Safety Programme: estimates of EWS1 requirements on residential buildings in England. [Online]
Available at: https://www.gov.uk/government/publications/building-safety-programme-estimates-of-ews1-requirements-on-residential-buildings-in-england/building-safety-programme-estimates-of-ews1-requirements-on-residential-buildings-in-england
Royal Institute of Chartered Surveyors (RICS), 2021. RICS safeguards homebuyers for buildings with cladding. [Online]
Available at: https://www.rics.org/uk/news-insight/latest-news/press/press-releases/rics-safeguards-homebuyers-for-buildings-with-cladding/
Royal Institute of Chartered Surveyors (RICS), 2021. Valuation of properties in multi-storey, multi-occupancy residential buildings with cladding. [Online]
Available at: https://www.rics.org/globalassets/rics-website/media/news/news–opinion/fire-safety/valuation-of-properties-in-multi-storey_-multi-occupancy-residential-buildings-with-cladding.pdf
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