11 September 2020
A hot button issue for the property market in Edinburgh and Glasgow prior to lockdown. With the market’s re-emergence, what can those selling flats with cladding in Scotland now do to plan ahead? What do those purchasing a flat with cladding need to consider?
A brief recap
The risk of external ACM cladding in Scotland was brought into sharp focus by the Grenfell tragedy in the summer of 2017. The incident prompted an urgent review of fire assessment for high rise buildings throughout Scotland and the rest of the UK.
In 2019, Ministry of Housing, Communities and Local Government (MHCLG) issued guidance on the subject causing mainstream UK lenders to treat any residential high rise, with cladding in excess of 18 metres, with caution.
The lenders reaction resulted in some sellers receiving ‘zero valuations’ on their Home Reports, effectively prohibiting their ability to sell, especially to any purchaser requiring mortgage funding. This was subsequently revised to include a normal valuation, albeit with a warning note on the Home Report of the existence of potentially combustible cladding.
As a solution, in December 2019, the Royal Institute of Chartered Surveyors published the Form EWS1: External Wall Fire Review. This form is designed to be used by a certified expert to record their assessment of the external wall construction of residential apartment buildings. The Law Society of Scotland subsequently followed with their own ‘Cladding Update’ confirming the EWS1 as the required format for certification, but also highlighting issues around the commissioning of such reports.
Indeed, subsequent use of this report has not been without issues such as who is required to instruct and pay for such a report, and who is covered by the report in terms of professional liability.
Where are we just now?
At this stage, a clear way forward is still to emerge, yet progress is being made. Where cladding has been identified as an issue, some developers have stepped forward to confirm they will carry out necessary works without charge to the flat owners. On 30th March 2020 a Technical Working Group was launched by the Scottish Government charged with drafting a Scottish Advice Note in respect of External Wall Systems. To date a draft version has been produced and is available on the government website suggesting interim actions to ensure safety for occupants and residents. I would also like to mention the High-Rise Scotland Action Group as a useful source of rolling updates as solutions unfold.
For now, however, preparation is key to a successful sale should you have a cladding issue with your property.
"some developers of flats with cladding have stepped forward to confirm they will carry out necessary works without charge to the flat owners."
Preparing your sale
The first step is to find out if your property is likely to fall within the category of being at risk due to cladding. You may have already had this confirmed by your Home Report. Either way speak with your factor and, if your property does fall within the category, enquire as to whether an EWS1 report has been carried out or if there are any plans to do so.
If so, here difficulty can lie in timings, cost, and seeking the agreement of all co-owners as typically factors do not have the power to instruct a report of their own volition.
The next step is to consider the findings of the report, and who is covered by the assessor’s professional indemnity. Purchaser’s and their lenders will want to be covered so being able to establish and confirm the same will help provide more certainty to purchasers. Provide any such report early so the purchaser’s lender can confirm whether this is acceptable to avoid wasting time if not.
Ready answers to questions about cladding risk will help you attract the right purchaser and avoid disappointment on both sides.
You may discover no ready solution is available, however, for example if a report is yet to be instructed or has been completed and indicates substantial works are required to the building.
In this scenario you may decide to wait until a clear solution is available or, if time is of the essence, this generally means looking cash purchasers who are prepared to take the risk. Instructing your estate agents of this approach will help them narrow in on the right purchasers for you.
What do Purchasers need to consider?
Grenfell was the catalyst for this issue and it is worth keeping in mind the real risk is to health and safety, not the property value. However, whilst properties were being valued at £0.00, I cannot find anything at present to suggest owners are being advised to vacate their homes due to the risk.
If you are a cash purchaser the decision is yours as to what risk you are willing to take. However, it is also worthwhile considering the resale potential of the property, should this issue remain unresolved.
If you require a mortgage to fund the purchase, your lender will also need to be prepared to lend. At this time the majority of lenders require at a minimum, a clear EWS1 report.
A final word on negotiation
In essence, both sellers and purchasers need to find out as much information as they can. Purchasers relying on mortgages will eventually find themselves at a dead end if their lender refuses to offer them a loan on the property so establishing this early is key.
For the rest, it will eventually boil down to negotiation and I wanted to include a reminder of this for anybody seeing no way out of their predicament. Price, timing, and risk will all be factors to consider and hopefully this article can give you an idea of what you and your solicitor should be considering with any transaction involving cladding during this time.
Piers Baylis, Solicitor E: email@example.com T: 0141 225 4842