Buying or selling a flat with cladding?
The issue of building cladding is a complex and technical one. In this post we will try and give a simple overview for the non-technical. And we’ll try and answer the question: Can you buy or sell a flat with cladding problems?
Cladding in different forms has been used on buildings for decades, possibly longer. However the Grenfell Tower fire of 2017 brought the issue of building cladding and fire safety sharply into focus. It made it an issue that must be seriously considered, when either buying or selling affected properties, for the first time.
A quick explanation of the cladding issue
First let us consider why cladding has been used on both new and refurbished blocks of flats as well as other buildings. Cladding is a cost effective alternative to bricks or concrete. Cladding is intended to improve the insulation and weatherproofing of a building. Cladding also has a cosmetic use – it has been used to improve the appearance of 1960s/70s brutalist-style concrete buildings.
There are many types of building cladding including timber, concrete, UPVC and glass but Grenfell exposed a particular problem with what is known as ACM or Aluminium Composite Material cladding. ACM panels consist of two aluminium sheets with some form of insulating material between them. Although these products may have been tested in a laboratory the Grenfell fire (plus a number of other similar fires worldwide) demonstrated the serious fire safety risks they can potentially involve in a real fire.
A further issue is that there are different types of ACM cladding, and different types of fixing and utilising it, which may be appropriate to some types of buildings but not others. Some other types of cladding have since been found to be problematic, and with some buildings it is not clear exactly what cladding has been used.
How cladding impacts buying and selling
Now to look at how this impacts buying and selling – quite apart from the very serious potential safety risk of course. As always lenders want to know that a property they are lending on is structurally sound. Once the problem with this type of cladding became clear lenders became reluctant to lend on any property that might be affected thus making it hard to buy and sell.
In 2018 the Government issued guidance on cladding and fire safety by means of something known as Advice Note 14. This crystallised the issue and made fire safety something that owners, and by implication buyers, sellers and lenders on property with any type of cladding, must take into account.
A partial solution came with the introduction of the External Wall Fire Review process and EWS1 form in 2019. This process allows for the cladding used on a building and the related fire risk to be assessed by a suitably qualified surveyor. Subject to a satisfactory assessment the issuing of an EWS1 form makes it possible to obtain finance and so buy and sell affected property. The EWS survey, however, is costly. There has been debate about when and for which buildings they should be required. There has also been a lack of suitably qualified people to conduct them.
Very significantly, where an assessment of cladding and fire safety work shows that rectification work is needed the cost has so far tended to fall on the individual leasehold owners of flats in many cases.
Can you buy or sell a flat with a cladding issue ?
Now to try and answer the question as to whether you can buy or sell a flat or apartment with a cladding issue. The answer is there is actually nothing to stop you selling or buying such property .... but only in theory.
The problem for sellers is finding a buyer who is willing and able to buy. The availability of an EWS1 will make it easier for a buyer to obtain finance. Otherwise it will depend on being able to find a cash buyer and one who is willing to take on the risks and any liability for rectification. That would most likely involve selling at a discounted valuation .... although affected properties are extremely difficult to value in the first place.
For buyers, the problem will be obtaining finance on a flat with cladding issues and taking on unknown liabilities.
For most owner-occupiers it may be some time before they can buy such properties with any confidence. Everyone will hope that eventually there will be a satisfactory outcome that will allow sellers to sell and buyers to buy in an equitable way.
Cash buyers and investors will be in a different situation however. Investors who see property as a long term, 10-20 year, investment may be able to buy affected property at a favourable price now. Then wait for a solution to emerge and benefit from potentially strong price appreciation assuming it does. In the meantime, depending on the nature of the issue, these properties could still be very lettable and return a good yield.
For investors the issue of buying or selling property that is affected by a cladding issue might be comparable to buying or selling properties with other kinds of structural defects or of non-standard construction. That is, there are solutions for those who are willing to take the risk and think and finance creatively.
A further problem related to the cladding issue is that the situation is still very much evolving. The Government has proposed various methods of funding, or partly funding, the cost of rectifying defective cladding. However, nobody knows as yet how these will pan out.