Building Safety Bill

Written evidence submitted by Albanwise Wallace Estates Limited, Wallace Partnership Group Limited.

( BS B 06 ).

Company background

Wallace Partnership Group Limited owns and manages some 106,000 freehold titles in England and Wales, 99% of which are financed by pension funds. Wallace consists of a number of freeholder companies, as well as a management company (Simarc Property Management Limited) and an insurance brokerage (Cox Braithwaite). Simarc appoints third party property managers on behalf of the freeholder, where under the terms of the lease, the freeholder is responsible for property management; it ensures that the obligations within the individual leases are fulfilled by both freeholders and leaseholders. Cox Braithwaite places buildings insurance on apartment blocks where the freeholder has this obligation under the terms of the leases.

Executive Summary

Wallace Partnership Group welcomes the Building Safety Bill and the Public Bill Committee’s examination of this important legislation

Since it became clear that the current building regulations were unfit for purpose, we have spoken with a wide range of relevant stakeholders across Government, Parliament and industry and submitted evidence to a series of Committee inquiries relevant to our business, including the consultation on the Draft Building Safety Bill in September 2020. The majority of this evidence has focussed on the evolving role of a professional freeholder under a new regulatory regime.

Our main concern – which is shared by other operators in this space – is that the Government has not given enough consideration to who will be responsible for the oversight of building safety. Running concurrently with this legislation, the Government is introducing reforms that will ultimately remove professional freeholders from the residential market, passing numerous responsibilities, liabilities, and obligations on to residents.

While Government and its associated Committees/working groups recognise the provision of stewardship by professional freeholders – as demonstrated by the fact this Bill seeks to develop their role further – the leasehold reform agenda and the current Leasehold Reform (Ground Rent) Bill moving through Parliament will force professional operators such as ourselves out of the market. Ultimately, this will make reforms to building safety harder, more complicated to deliver, and more expensive for consumers.

Professional freeholders, backed by institutional investors, will cease to invest in residential apartment blocks if ground rent is removed. This will have significant implications for building safety in apartment blocks, especially once new building safety legislation, which effectively enshrines freeholder responsibilities in law, comes into effect. The absence of freeholders will leave leaseholders to take on a myriad of financial and legal responsibilities for complex apartment buildings.

The Government can solve this by implementing an exemption for complex apartment buildings in the Leasehold Reform (Ground Rent) Bill; a solution with which the HCLG Select Committee Inquiry into Leasehold Reform agreed. The Committee clearly understood the difference between apartments and houses and recommended different treatment. This point was also raised in the House of Lords Third Reading of the Leasehold Reform (Ground Rent) Bill in July 2021 by the Earl of Lytton. It is vital that this point is not overlooked in the legislative process.

We are therefore requesting that the Committee consider our submission in the context of the policies pursued by this Government to the wider housing market and take a holistic view of what these changes to legislation will mean for consumers. Put simply, the Building Safety Bill will not be able to deliver on its stated objectives effectively if professional building managers and owners are removed from the market.

Detailed observations

Role of the freeholder

Professional freeholders have a long-term interest in the buildings they own, and it is their role to protect the interests of leaseholders and, above all, ensure they are kept safe.

This role, however, encompasses not just building safety, but also maintenance, putting provisions in place for future events, emergency response, insurance, dispute resolution, future development and balancing the needs of various parties who have a vested interest in the building.

Professional freeholders have significant expertise and qualifications to perform this role and hold all parties to account, including managing agents. This is the role that we currently play across all of our sites and would argue that this is precisely the role that a responsible professional freeholder with our expertise and operational experience should play. A legal extension of these responsibilities to formalise our role as the ‘Accountable Person’ would only increase the levels of accountability and drive-up standards, protecting the end-consumer.

Building Safety Bill and accountability in high-rise apartment buildings

The Building Safety Bill proposes a new regime for the management of higher-risk buildings, including new roles of an Accountable Person and Building Safety Manager who will have an ongoing duty to manage to the safety of the building and maintain a Safety Case Report. The Accountable Person will also have to produce a Resident Engagement Strategy and allow for residents to be able to request specific information. As part of this, the Accountable Person must also put a complaints process in place, which includes the potential for escalation to the Building Safety Regulator. To make sure this is implemented, an enforcement regime is due to be implemented.

As professional freeholders, we have been urging the Government to introduce robust regulation for building owners like ourselves, and managing agents, for the past three years. We therefore welcome the introduction of an Accountable Person and the appointment of a Building Safety Manager, and believe we are well-placed to carry out this role.

Implications of the Leasehold Reform (Ground Rent) Bill for building safety

The Government’s Leasehold Reform agenda and the Leasehold Reform (Ground Rent) Bill, which is currently moving through Parliament, threatens our ability to fulfil the roles described under the Building Safety Bill. With the country in the midst of a national cladding crisis, brought about by a failed regulatory system, policymakers should be asking serious questions about whether it is appropriate to remove the option of professional oversight of large apartment buildings and force residents to manage large and complex apartment buildings by themselves, especially if the associated obligations are being increased through this Bill.

A snap poll conducted by Savanta in December 2020 indicates that only 31% of residents would willingly take on the responsibility for managing their block (which would be the case if freeholders were no longer in the market), and 1 in 3 would consider selling if faced with increased obligations (including criminal liabilities) under the proposed Building Safety legislation. An accompanying report which was commissioned by the UK’s largest professional freeholders, including Wallace Partnership Group, found that many residents are reluctant to accept the role of Accountable Person due to concerns around competence, legal exposure and the time commitment required. Of the 1,000 leaseholders interviewed, 75% felt negatively about the new obligations they would have in this position, and 67% were worried about their building not being maintained properly, as well as health and safety issues presented by the proposed leasehold reforms at the time.

In our experience, residents who are responsible for managing their development are not aware of their responsibilities for health and safety and other management matters, and therefore appoint poor quality property managers. Naturally, resident decision making is also often driven by cost and personal interests rather than safety requirements. This has been demonstrated in Scotland where in 2012 legislation was introduced which replaced the equivalent leasehold system with commonhold, thereby removing freeholders. Since then, research from the Royal Institute of Chartered Surveyors (RICS) has found that 80% of buildings are in need of some form of repair and leaseholders are unable to source funding for the £2bn needed for remedial works. It is widely accepted that the Scottish model has had a negative impact on building maintenance, and the lifespan of residential buildings has shortened significantly.

It is important that the impact of the Leasehold Reform (Ground Rent) Bill is considered carefully as part of the scrutiny of the Building Safety Bill. If residents are unwilling or unable to take on these responsibilities then it would be ill-judged to simply impose these responsibilities on them, in some cases making residents criminally liable.

The cost of the new regime for leaseholders and fire safety costs

The introduction of a Building Safety Charge (BSC) has the potential to be a positive change that will ensure certain charges levied on leaseholders are more transparent.

However, the current Landlord and Tenant legislation around service charges already contains protections to ensure that leaseholders do not face excessive charges and that their funds are properly managed. To the extent that the current costs associated with building safety are already being dealt with in this fashion, it is unclear what the Government hopes to achieve through the introduction of a separate BSC. Indeed, costs such as central monitoring, smoke alarm systems, lighting systems, fire suppressant systems, fire hydrants and extinguishers, fire doors and emergency power systems all currently fall into a service charge.

On a more general note, it is clear that the combined impact of the Building Safety Bill and the Leasehold Reform (Ground Rent) Bill implies increased costs for residents, either through additional time spent in managing their building or through increased expenditure. Under current legislation, residents have the choice of self-management or access to a professional freeholder, with a large level of legislative protection in place to ensure service charge costs are kept at a reasonable level. The removal of professional freeholders through the abolition of ground rent will force residents to fend for themselves without this protection and inevitably their costs will increase.

The Government’s own Impact Assessment on the Leasehold Reform (Ground Rent) Bill demonstrates additional negative impacts this legislation will have on the housing market, notably increasing house prices and creating more barriers to entry for consumers trying to get on the property ladder, which will far outweigh any perceived benefits in abolishing ground rent. Research has found that removing ground rent will lead to an increase in the price of flats by over 3%, as the payment of ground rent will now essentially happen at the point of purchase. The report also concedes that removing ground rent will require future buyers to have higher deposits, or borrow more, and accepts this "may not be viable" for all potential buyers.

Conclusion

The Building Safety Bill needs to be carefully considered in the context of other policies pursued by this Government; specifically, Leasehold Reform. The compounding effects of this legislation could have far-reaching implications on building management, accountability and, crucially, the safety of apartment buildings. This will have a detrimental impact on consumers and undermine what the Government is trying to achieve through this Bill.

Monday 23rd August 2021.