Fire safety disclaimers and covenants for flatowners

The facts of the 2017 Grenfell fire and the ensuing combustible cladding scandal hardly need rehearsing: they are notorious. In brief, it has been estimated in the wake of the tragedy that there are thousands of buildings in this country which incorporate combustible cladding, or lack adequate fire stopping, or both. Many of these are residential tower blocks, with the consequence that millions of flatowners have to depend at best on fire marshal patrols for their safety, and are unable to sell or to remortgage their flats, while building owners experience difficulty with insurance. As EG reported on 18 January, “Sales of flats have halved as buyers are put off by the continuing cladding scandal.” The piece went on to note the latest Land Registry figures showing that flat transactions worth £1.6bn were lost in September, while 1.3m homes are said to be unmortgagable. In the cases of newer buildings, the flatowners may have some recourse against the developers or their contractors or professionals, or pursuant to new home warranties. For the majority, however, there is no such recourse. In the typical case, to make matters worse, the freehold will be owned by a successor in title to the original developer (and sometimes by a company controlled by the flatowners). In such circumstances, neither the flatowners nor the freeholder will be responsible for the plight in which they find themselves. The government has taken some steps to ameliorate this predicament. In March 2020, it introduced a £1bn building safety fund to support remediation of certain types of unsafe cladding on residential buildings over 18m high. The problem has been worsened by further government advice issued in January 2020, based on the views of its independent expert advisory panel, that building owners should now check buildings of any height (save those without any cladding). In July 2020, the government published a draft Building Safety Bill, which provides for the implication into residential leases of covenants by the landlord to comply with building safety measures, the cost of compliance with which was intended to be met by the tenants. It will clearly be some time before any legislative solution arrives – even if it is one that is attractive to flatowners. In the meantime, there may be pressing needs for the flatowners to sell or remortgage. In the current climate, however, it must be doubted whether the affected flats will be saleable. Moreover, there are also considerable questions as to which flats are actually affected by relevant problems. A potential remedy… It was in a bid to resolve this problem that an industry grouping comprising the RICS, the Building Societies Association and UK Finance launched a scheme in December 2019. This provides for the commissioning of an external wall fire review, to be carried out by a qualified and accredited engineer, involving a searching investigation into the structure of buildings thought to contain relevant defects. Buildings that pass this test are certified accordingly by an EWS1 form. Buildings that have been built in accordance with the standards laid down by the Building (Amendment) Regulations 2018 will obviously not need to go through this process. However, buildings that do not so comply, and which are thought to be defective, will need to go through the process if they are to stand any chance of sale or refinancing. So far so good? Well, it is important to note some limitations to the scheme. First, because the inspection involves a searching physical examination of the external structure, it can only be commissioned by the building owner – not by the flatowners. Secondly, and possibly for that reason, the EWS1 Form is directed to the building owner or developer, and not the flatowners, who may not even be entitled to see it. Thirdly, and building on the first two points, the form clearly specifies that it is for the sole and exclusive use of the organisation to which it is directed. It continues: “No responsibility is accepted to any third party for the whole or any part of its contents”. A note to the form adds: “Should there be a desire for a third party to rely on this form, they should contact the signatory’s organisation”. Lastly, for what it is worth, although the scheme is supported by the government, it is not endorsed by it. … but can it be relied on? This creates a potential headache for flatowners, or their purchasers should they be able to sell. Although it seems that, without an EWS1 form, flats will be extremely difficult to sell or mortgage, flatowners are not themselves entitled either to procure, or to see, or to rely on, the form itself. So if it transpires that the inspection was carried out negligently, with the result that the form is ineffective, any person who has been willing to purchase a flat in reliance on it (and the building society that may have granted a mortgage on the strength of it) may be left without a remedy. So much was confirmed by the House of Lords in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, in which it held that a party that had lost money by relying on a negligently given credit reference was unable to recover, because of the disclaimer of responsibility by the referee. Such disclaimers must of course satisfy the requirement of reasonableness imposed by the Unfair Contract Terms Act 1977, and there may be considerable arguments over whether the disclaimer in the EWS1 satisfies that test (see Smith v Eric S Bush (a firm) [1989] 1 EGLR 169, in which the House of Lords held that a purchaser was entitled to rely on a valuation procured for its vendor’s mortgage, notwithstanding a disclaimer of responsibility). Accordingly, although the RICS notes that the scheme “will be used by valuers, lenders, building owners and fire safety experts in the valuation of high-rise properties”, it is debatable whether it may safely be relied on by those most principally concerned: the flatowners themselves. In those circumstances, even with an EWS1 for the building, a flat may still be impossible to sell unless the benefit of the EWS1, and satisfactory reassurance as to the identity and insurance position of the certifier, is made available to any purchaser. Guy Fetherstonhaugh QC and Joe Ollech are barristers at Falcon Chambers