Building Safety Bill (Fourth sitting)

Shaun Bailey Excerpts

Tuesday 14th September 2021 Public Bill Committees

[Ms Rimmer]

Q Thank you. Do you concur, Dr Glen?

Dr Glen: I do. As we discussed earlier, if you look at the Law Commission reforms on enfranchisement, right to manage and promoting commonhold, you see that a drive of Government is for self-determination of a block. Looking at future blocks, where you have lay boards trying to unpick something that happened 12 years ago with a plc developer, I do not see that as a realistic scenario, so I do not think the Bill works.

The other issue is that there are many things in the Bill and in the Hackitt reforms that are admirable in helping, protecting and improving safety for new builds going forward, but what on earth do we do with the 4.6 million-plus leaseholds that we currently have?

Martin Boyd: May I add one thing? We have a problem in this country. If you buy a leasehold flat that is new, it is never surveyed. You do not have a survey of that building. In other countries that have a commonhold system, part of the conditions of the initial purchase is that a completely independent survey is carried out that validates that the building has been created to a reasonable standard. We are proposing part of that within the Building Safety Regulator, but there does not seem to be a final sign-off that says, “Here you are, Mr Customer. We have checked the building for you as the customer.” That would make things an awful lot easier than creating yet another ombudsman, who in reality will do like most other ombudsmen do, which is reach some small decisions but find it very difficult to reach big decisions.

[Shaun Bailey (West Bromwich West) (Con)]

Q Forgive my ignorance in asking some of these questions, but I want to go back to your response to my colleague Siobhan Baillie and look a little more at the responsibilities of the freeholder. My experience and understanding is that developers sometimes sell freehold a block that they develop. I am conscious that there are many different ownership structures and different types of freeholder, and I am acutely aware, for example, of the pressures on social landlords. As part of the broader conversation that the Bill is bringing about, do we need to re-examine how we look at freeholders? I want to try to square this circle a bit. If I am a freeholder with a lucrative portfolio of tower blocks and properties, how do we square that with the pact with taxpayers, particularly in my constituency, which is the 14th most deprived borough in the country, who would look at that and say, “We are paying to remediate this for you?”

Martin Boyd: A similar issue cropped up during the passage of the Water Bill, where it was argued that leasehold properties should be excluded from the protections of Flood Re because it was a commercial policy taken out by the freeholder. Everyone in the leasehold sector tried to explain to the Government at the time that that is not how it works. The bills are all being paid by the leaseholders; it is just that the landlord is deemed to pass this on.

The difficulty we have with freeholders in the leasehold system—you heard from Richard Silver this morning—is that they have no interest whatsoever in the quality of the building. It makes not a cent of difference to their profit line whether that building is falling down or is in pristine condition. The only people who are concerned about it are those who live in it. The freeholders will say, “We have a long-term interest in the estate,” which is rather interesting because Long Harbour has been in existence for less time than we have, and we have not been around for a huge amount of time. I have owned my flat for twice as long as Long Harbour has been in existence. So you have the problem that until we move to a commonhold structure, you have a conflict of interest between somebody deemed to be the building owner, who is only interested in how they make a profit from the building. and all the people who live in the building, who want to ensure that it works for them. Some will want to reduce costs, some will want to invest for the future, but they will all have an interest in the building and about the fact that it is in good condition.

Dr Glen: As I mentioned earlier, it is a very complex situation. If we look at the portfolio of ARMA members, where we know who owns the building—is it leaseholder-organised, with residential management companies and right-to-manage companies, or is it third-party landlord? —in 60% of the cases we know about, there is a leaseholder structure. So when you say the landlord should pay, in many cases that is going to be the leaseholders, because they actually own the freehold.

I remember an interesting discussion I had with a colleague of yours, Hilary Benn, about the idea of a compulsory purchase order. We took him through the economics. As Martin alluded to earlier, you see this big building and you think “Gosh, that must be worth a fortune,” whereas in fact it is really a financial instrument. The value of that to the freeholder is typically what the ground rent is over a certain period of time. If the ground rent is £200 and there are a hundred units there, that is £20,000 a year. So if you go to somebody and say, “Unless you pay £2 million to remediate this building, I will compulsory purchase order you,” and that somebody is thinking, “Well, I only get £20,000 a year,” that person will kiss you and say, “Give me market rate, CPO me, and you have now just taken on a £2 million problem.”

So although it sounds good, I do not think that is the route. The danger is that by saying “Ooh, yes, we can get the freeholders to do it,” unfortunately all that means is that it gives false hope because there is not that bucket of money there. So again, be careful, because many RMCs and RTMs are also the freeholder and we do not want to put them in the firing line either.

[Shaun Bailey]

Q That is really useful. Coming back to a point that Mr Boyd made, which I wrote down, would you say that one of the things that we have to combat with this Bill and subsequent legislation is around “market culture”? That is what I wrote down. Effectively, Mr Boyd, you said in your comments that a freeholder does not really care about the condition of that building. It does not matter because the profit margins are still the same. It ties in with the point you made, Dr Glen, about commonhold, in that it is this engagement piece and the power structure. We lauded commonhold when that first came out as a brand new, fantastic way we were going to do this, but if we are being honest, it has flopped, has it not? It has not really been taken up in the way anyone thought it would be. Do you think there is scope here, or should there be some way we can mandate better engagement between those different structures—developer, freeholder and leaseholder? Do you think that would go some way to deal with that market culture—those behaviours that really do seem to be at the core of some of these issues?

Martin Boyd: I have to declare an interest in this. When we started the meetings in Parliament in 2014 that looked at commonhold again, we were quite agnostic. The view was it had failed in this country, and we were quite surprised when we got to our first meeting and while the officials all told us “No, the market does not want this,” the whole sector told us that the Government had messed up the legislation; it did not work. So the initial big developments that were started in Milton Keynes had to be stopped halfway through because the law just could not cope.

I do not think that there is ever a way of joining the interest of the landlord and the tenant; very often, they have fundamentally opposing interests. I am part of the landlord of our site. We bought our site from our previous landlord for £900,000 in 2013, after several years of court battle. The site is worth about a quarter of a billion pounds. We still hold our freehold on the books at £900,000, but it is now actually worth diddly squat, to use an inappropriate phrase, because we commuted the ground rent. We therefore do not have an asset in the freehold. All the asset is held within the flats. We have a structure that copes within the leasehold system, but it would work much more effectively if it was a commonhold system.

[Shaun Bailey]

Q Dr Glen, do you have anything to add?

Dr Glen: I am a bit wary about looking at the ownership structure, simply because if we waved a magic wand and all those buildings were today commonhold, everybody living in them would be in exactly in the same position. It does not solve anything. You can argue, “If it was commonhold, they could maybe sell some air space and generate a few million,” but that is sort of selling the family silver. You could do that to put new boilers in.

More generally, there are things that legislation can do. I am a big fan of mandatory, independently set reserve funds because buildings deteriorate after a time. Naturally, people say, “You want me to pay for something that won’t happen for 25 years. I’m going to be out of here in five, so I don’t want to pay towards that.” We see that when dealing with boards, which naturally look at whether they can put a sticking plaster on something rather than committing to major expenditure. Other things can be done to help.

How can you resolve the relationship between landlords and leaseholders? As Martin says, sometimes their interests are diametrically opposed, and they are within the organisation. I am painfully aware of many RMCs—my firm almost used to do nothing but RMCs—where you have a dichotomy between the buy-to-lets, who want the minimum service charge possible, and the people who live there, who want the place to be nice and cleaned every single day. You will still get that conflict. The problem is people who are not related living together in close proximity. Communal living is one of the issues. I do not have an answer for you.

[Daisy Cooper]

Q I think it was Martin who, answering an earlier question, said that under the commonhold system, there is a requirement to provide a full, independent survey, and that that provides a level of accountability to leaseholders. Do either of you have any suggestions about how you would embed the residents’ voice and accountability to leaseholders and residents through the new scheme, whether in legislation or the new regulatory system? We have been grappling with that throughout the evidence sessions.

Martin Boyd: Unfortunately, my view is that the residents’ voice section of the Bill and the HSE’s current work is the weakest element of the whole process. The Government have not dealt with the issue of the residents’ voice particularly well for a very long time. There is no system at all in either the social or the private sector for the proper representation of everyone’s interests.

As we said, the landlord is obviously sitting in conflict. Under the Bill, I get to sit in conflict with my leaseholders because I have become the accountable person. Under me, I have a responsible person—one of Nigel’s managing agents—who will employ the building safety manager. With my landlord’s hat on, I am liable if things go wrong, but I have no responsibility for any of the costs. All the residents have full responsibility for the costs, but no control. It is only because I am a landlord and a leaseholder that we get that common interest. In both the social and private sector, we have had landlords who have undermined effective resident engagement for decades.

Early in the Bill’s passage, we set out a proposal for a formalised system to create a residents’ group on every site, and the view at the time was that that sat outside the Bill’s purview, but there is no point in setting up a system for cosy little decisions to be made that filter down to the residents, where you hand them a nice little infographic saying, “Please don’t store petrol in your flat.” That is what has been done. The social sector best practice group has produced an infographic, and one of the diagrams says, “Don’t keep petrol in your flats.” Well, if that is our view of the intelligence of people who live in flats, we have a very, very long way to go.

We need to take a very different approach to resident engagement, and what I have said to officials is that, rather than take a top-down approach—assuming that we call the landlord the top of the system—it should start at the bottom with people who actually live in the buildings. Give them the facility to organise themselves and represent their common interests.

Dr Glen: As a managing agent, I would much rather deal with a representative committee of residents than each resident individually, because obviously time is involved in that. It would be nice to think that those residents will represent everybody—that would be nirvana—although it will not always be the case.

This is a really difficult issue. It is always a surprise that people do not realise that managing agents often do not know who the resident is. Somebody will hide the fact that they are sub-letting, for a variety of reasons. They might not want the taxman to know that they are receiving rental income. They might not want to pay a sub-letting fee, or they might not bother to get around to it.

It is difficult to engage with residents when you do not know who they are, but capturing their voice means we have to do that. We also have to filter it. I will give you an unfortunate example that I read about on LinkedIn over the weekend. A firm that specialises in out-of-hours said that they had had a complaint from a gentleman. It was about an issue that did not need instant attention, because that would cost four times as much and he could wait until Monday. The firm received 155 phone calls from that person over two days, most of which were abusive.

Something I put in my paper was that we need somehow to figure out how to filter this. The example I gave was someone saying, “It’s a bit dark in this corridor.” Is that a complaint? Is it just ruefully saying, “My eyes are getting old,” or do I, as a managing agent, have to log that, report it to the regulator, track it and bring in somebody to install new lighting at the cost of £2,000 that weekend? I do not know.

This is a difficult area to get into, but the more we, as managing agents, can get a collective response, the less admin you are doing trying to deal with absolutely everybody.

--- Later in debate ---

[Brendan Clarke-Smith (Bassetlaw) (Con)]

Q There was mention earlier about pressures on funding and capacity, and so on, and you were asked whether there was anything that you would add to the Bill or that is missing in terms of relieving pressure. Do you not feel that the Fire Safety Act 2021 adequately dealt with many things?

Mr Wrack: I think we welcome both as steps forward. As I say, hopefully this is a turning point in the debate on public safety and building safety in Britain; however, I do not think there has been the relief on the financial pressure on fire and rescue services that I mentioned, and that runs as a theme throughout this.

I do not see how you can cut in the London Fire Brigade, for example, 25% of your fire safety inspectors and not think that that will have implications for public safety. Something like 20% to 25% of fire safety inspecting officers have gone over the past 11 years, and something like 40% over the past 20 years. That is a very significant reduction, and it clearly will have, and has had, an impact on the ability of fire and rescue services to conduct the level of inspections or audits that people would want them to undertake. We welcome that legislation and this Bill, but—you would not expect us to say any different—we think it should go further.

[Shaun Bailey]

Q I wanted to touch on accountable persons, because the Bill creates that role. One of the things that you have talked about throughout your evidence is the relationships that the fire service has to build with different stakeholders. What pressures do you think your members will have in terms of this new category of person? Notwithstanding what you said about resource, if tomorrow you had to build those relationships, operationally what would your members have to do? What pieces would they have to move around to ensure that they could adequately build those relationships with the accountable persons, who have this quite significant responsibility on their shoulders?

Mr Wrack: First, I welcome the accountable person role. I think that is a step forward, as one of the problems that we have had in terms of building safety is identifying who the relevant party is. It will create big challenges for various bodies in local government, and certainly for the fire and rescue service because there clearly are large numbers of such buildings—although they are concentrated, particularly with the 18-metre limit, in particular parts of the country.

It will create a significant challenge for the London Fire Brigade, for example, to monitor and keep adequate records of who the relevant accountable person is, and the relevant building safety manager who sits underneath them once the building is occupied. There are lots of operational challenges. Those points have been made by the National Fire Chiefs Council and others. I will keep banging on that it does raise significant resource implications, inevitably, for us.

[Kate Osborne]

Q Hi, Matt. Nice to see you. I was interested in the comments that you, and previous panellists, made on the mantra around fire risk. I was at one of the fire stations in my constituency within the last week, and one of the firefighters there was talking to me about how much more flammable both building materials and the furniture within are. Do you agree?

Mr Wrack: There are loads of things that come out of that. Building construction is always changing. A long time ago, as recruit firefighters, we were taught about building construction, but that was the building construction of the time—of the 1970s and ’80s. Things have changed and as I say I do not think that enough horizon-scanning goes on about the emerging risks in how we build and alter buildings, and what we put in them.

On the question of furniture, again, my union has a very proud record. We led campaigns, including here, about foam-filled furniture and requirements to provide measures to address the impact that it was having in domestic fires. However, what is emerging today is a growing concern, across the world, around the contaminants that might be involved in fire-suppressing materials within foam-filled furniture—you solve one problem, but you may create another. There is a lot of work to be done.

On research, again, I think one problem that we have in the UK is a low level of public research into fire safety matters. Over the decades, we have worked with people at the BRE and so on, but much more needs to be done on that front. The fire risks are changing; the materials that we put into and on to buildings have changed, so they affect how buildings react in a fire.

--- Later in debate ---

[The Chair]

Thank you. The sound is still a bit faint, so if you could make a point of speaking up, we would all be grateful. We are going to start with Shaun Bailey.

[Shaun Bailey]

Q Thank you for being here today. I want to go back to a point that was touched on in our earlier session about market culture. The narrative that we have seen painted so far is that the present structure is pitting freeholders and developers against tenants and creating structural inequality. From your perspective, how far does the Bill go to balance that out when it comes to safety? Particularly thinking of your members and the stakeholders that you deal with, how far do you think the Bill goes and how much further should it go to try to address that and balance the playing field?

Eric Leenders: I think our primary interest, like the rationale for drafting the Bill, is to ensure adequate safety and protection for homeowners, so we all buy into that. To the extent that the Building Safety Bill gives voice to homeowners and perhaps particularly to leaseholders, we think it is very important. There are some details of the Bill we are likely to come on to discuss where other experts can support homeowners and leaseholders, particularly regarding safety standards. Our primary interest as lenders, of course, is to ensure that homeowners, particularly those who require mortgage finance, are able to afford the borrowing they take on, and that includes potential remediation costs if they are necessary for particular properties. Work in the Bill and work undertaken by the Ministry of Housing, Communities and Local Government outside the auspices of the Bill are helpful in that regard.

[Mike Amesbury]

Q What is missing from the Bill?

Eric Leenders: Experts are probably better placed to consider the dimensions of the Bill, but I did mention the work that the MHCLG has done, which looks to support those who have been classified as cladding prisoners. I understand that in working through the detail of the support for those in properties of 11 to 18 metres, it was found that there could be some complexities in the security arrangements for any lending and the allocating of responsibility for any lending to a property or an individual or leaseholder and so on. The Bill could provide a platform for some of those technicalities to be worked through so that there is a sound legislative footing.