Whose liability is it anyway?
I published an article (click here) on 08 February 2022 on the subject of liability for damages arising from defective cladding installation on tower blocks sharing my view that it would be very difficult to impose such liability on contractors who had complied with all the relevant provisions of the underlying construction contract and Building Regulations. On 13th February Lord David Pannick QC was reported in The Times to hold the same view, although his reasons were not stated.
In this new article, I’m looking at other aspects of the cladding issue in relation to residential property. If installers did not comply with their construction contract and applicable building regulations it would be straightforward for the property owner who commissioned the work to bring a claim for damages for breach of contract, subject to any applicable limitation period. If that owner had subsequently sold the building then it would be imperative to establish whether the seller’s rights under the contract had been assigned to the buyer and whether notice of the assignment had been given to the contractor.
Enquiries should also be made to establish whether the contractor had insurance cover, and if so on what terms.
Mr Gove has announced that he will be proposing amendments to the Building Safety Bill which is currently before Parliament. Those amendments include extending building contract limitation periods to 30 years, as opposed to the current six and giving current leaseholders a right to sue the contractors. The extension of the limitation period will require contractors working on any building to amend their insurance cover and bear the cost of the inevitable premium increase. Contractors will also need to disclose to their insurers all contracts completed within the last 30 years and presumably pay a significant one-off bulk premium. The cost may be prohibitive in which case the issue of solvency arises.
Again, the granting of a right to tenants to claim appears to be a knee-jerk reaction, unsound in law.
Under current jurisprudence it is impossible to found a basis for such a claim: there was never a contract between any leaseholder and the contractor, and if the leaseholder obtained their lease after the installation of the cladding, the contractor did not owe that leaseholder a duty of care. The original tenant may have long gone or died or prove to be untraceable. To introduce a new basis of liability currently unknown to English law would mean that we are all potentially at risk from the same action being taken to cover entirely different issues, as yet unidentified.
It is therefore important to follow the Bill’s progress closely.
Presumably the current route for imposing liability on tenants to meet repair costs is the usual service charge mechanism, whereby tenants reimburse freeholders for costs incurred in maintaining the fabric of their building. In figures often quoted it appears that full recovery of costs is required in one lump sum. Clearly this will, and has already, caused extreme financial difficulties. It would not be unreasonable to introduce legislation requiring landlords to take out a loan facility over (say) twenty years and for tenants to pay the charges over that period. The liability to repay would be assumed by new tenants of a property and this may have a knock-on effect on value.
If Mr Gove is true to his word, no leaseholder living in a building more than 11 metres high will ever face any costs. This is fine as far as it goes, but who will pay them? If it is to be the freeholder, then there may again be a knock-on effect on value. At 11 metres or less the position is as outlined above.
Given the complexity of all issues concerning cladding it would be sensible for the Government to convene a forum of industry specialists including contractors, property owners and investors, bankers, and (dare I say it?) lawyers. People who know their subject, can advise on the implications and potentially help to establish a sustainable and fair way of moving forward what it becoming a divisive issue for the construction sector.
For more information on any commercial matters, contact David Ashcroft (david.ashcroft@bpe.co.uk 01242 248490).
These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.