Residential property
17 Jan 2020 News

Cladding continues to cause concern

Over two years since the Grenfell Tower fire, issues affecting the housebuilding and construction sector continue to emerge. In the weeks and months that followed the fire much scrutiny was directed at the building’s cladding, which had inevitably caused the uncontrollable spread of the fire. This immediately caused concerns for UK housebuilders who had used similar cladding on private developments across the country.

While housebuilders and their solicitors will have dealt with a large number of enquiries about cladding on their properties since then, these have significantly reduced over the last twelve months. However, the issue has returned, this time prompted by financial institutions.

Lenders such as Halifax and NatWest have refused to offer funds on properties where any cladding has been applied to a building, unless this can be certified as safe by a fire inspector. If this cannot be achieved, then surveyors acting for lenders have returned a nil-valuation of such properties.

On top of causing anxiety to owners of properties which suddenly are of no value and cannot be sold, the prospect of nil valuations could have a severe effect on the housing supply chain in Scotland. Housebuilders are often dependent on clients being able to sell properties to enable them to buy a newbuild home, delays or cancellations caused by nil valuations could result in cash-flow and planning issues for builders.

Builders and their solicitors will also have to exercise extreme caution when it comes to part-exchange transactions. Since there is no lender involvement when a builder purchases a property in part-exchange, it may not be apparent from the title examination alone that an issue exists. In order to avoid situations where a builder is contractually obliged to acquire a property in part-exchange that they cannot sell on to a third party, it will be vitally important that a surveyor gives an opinion on any cladding.  This will allow either all required supporting information to satisfy a lender is obtained, or for the builder to walk away from the transaction before missives are concluded.

There is also the risk of reputational damage to housebuilders, even where they have complied with all safety requirements and the cladding on their historic developments is safe. To avoid issues and reputational fallout, developers may wish to be proactive in preparing technical information for their own previous developments to deal with the concerns of existing homeowners, should enquiries be made.

The issue is now being discussed with Homes for Scotland, the Scottish Government and RICS.  A new External Wall Fire Review process, applicable to both new-build and second-hand high-rise blocks, is to be introduced to offer comfort to lenders. A fire safety assessment will be conducted by a qualified professional and if cladding is found to be non-combustible, a certificate will be issued to confirm it, allowing a full valuation to be produced. If, however, the cladding is found to be combustible, then a further inspection must be carried out to assess whether remedial works are required.

While this will provide the answers required to lenders, it could lead to delays in the supply chain. Builders, solicitors and purchasers should ensure they are up to speed to allow any issues with properties to be identified and dealt with at an early stage in transactions.  This will help avoid commercial issues for housebuilders and potential anxiety for buyers during what is often a stressful time.

Andrew Leslie, Associate – Housebuilder, Gillespie Macandrew

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