Since the Grenfell tragedy in 2017 the fire risk associated with cladding has made it difficult, if not impossible, for many flat owners to sell or re-mortgage their properties. Family lawyers should be alive to problems this could cause in the context of separation.
Scope of the problem
Multi-storey buildings of any height with cladding or other external wall systems (“EWS”), such as wooden balconies are an issue unless lenders and would-be buyers see fire safety paperwork that says otherwise. Currently Surveyors record the “real” value of the property in home reports and mark the EWS as a category 2 or 3 issue. To overcome this, homeowners must instruct a new fire-risk assessment called an “EWS survey” by a “qualified professional” who then signs an EWS1 form. This will either confirm that the EWS contains no combustible materials (and is safe) or that remediation works are required (as it is potentially dangerous). Without the EWS1 most lenders refuse to mortgage multi-storey properties with any EWS, and Surveyors are forced to report a £0 valuation to the lender in the transcript of their survey until the lender confirms their satisfaction with the said paperwork. Obtaining an EWS1 form is expensive, with each homeowner having to instruct their own report from a small pool of qualified professionals at not insignificant cost. The question of who should pay in the context of a separation could result in dispute and further delay, particularly where one party is reluctant to engage. If parties are unsure whether an EWS survey is needed for their property, a practical solution would be to obtain a draft Home Report first (that way it doesn’t expire) and thereafter instruct a EWS1 if the surveyor raises concerns.
Limited options
Lenders will be reluctant to transfer or vary existing mortgages due to the perceived financial risk of remediation works, and will not do so without satisfactory EWS1 certification in place. The upshot is that a transfer between spouses might not be feasible where there is a joint mortgage unless they bear the cost of an EWS1. The situation becomes more difficult if substantial remediation works are required. In Scotland this is less likely to be a common issue due to the lower number of buildings thought to have Grenfell-style cladding however the risk is worth considering from a family law perspective. Who is liable for the cost of making the building safe for its residents (and are they solvent)? That question would merit its own proceedings. And whilst the hope is that public funding will be made available for expensive remediation in due course, owners could be in limbo for years to come – a reality that is at odds with a clean break divorce. It is vital that we alert clients to the potential risk and liability before agreeing any deal involving a clad property. Any agreement should be conditional upon satisfactory EWS1 being provided and, where there is borrowing, an offer of loan from the lender – two crucial points that could be missed when instructed to act on an implementation only basis.
Valuation
Valuation could be contentious, especially if satisfactory EWS1 certification cannot be obtained or if the parties separated pre-Grenfell. If there is “no willing buyer at any price” due to dangerous cladding, could it be argued that working to a valuation above £0 is a “fictional exercise” (per Lady Clark’s comments in M v M [2011] pp 125 – 126) pending remediation works? Perhaps not but there is scope for dispute. In the latter situation if one party is seeking a transfer, recourse may be the Family Law (Scotland) Act 1985 s10(3A) which allows the use of the current valuation. If however the property is to be retained by a sole owner and there has been a significant drop in the value of the property and/or it has effectively become an illiquid asset since the emergence of the cladding issue then there will require to be consideration given to their respective resources in terms of s8(2)(b) of the same Act. Delaying settlement until the policy on funding for remediation is finalised may be the most practical option, where possible.
Risk management
Clad properties are a recent addition to an evolving list of assets that cause additional cost and complexity for separating couples. The issues are often similar; practical issues around additional paperwork and coordination at a time of strained relations and competing priorities, disputes about costs, problems with identifying a true and fair valuation, liquidity and an overlay and interlinking with current affairs, law and politics. A timely reminder that family law does not exist in a vacuum.
