EWS1: Who Pays the Price?
Legal Director Phil Parkinson and Associate Katie Edwards, our leading experts in all matters related to building safety, comment on recent government guidance in relation to the External Wall Fire Review process (EWS1) and the implications for “building owners”.
Context & Background
Three years on from the Grenfell Tower fire, the issue of building safety remains as prevalent today as it was in the aftermath of the tragedy. This has recently been highlighted in the government’s guidance on maintaining remediation work through the COVID-19 crisis and the progress of the Fire Safety Bill which is now at its second reading. Last week saw the publication of the long awaited prospectus for the new £1bn remediation fund and a response to consultation on the previous funding scope and processes. Following revised government guidance, in recent months we have also seen increasing debate around the implications to leaseholders on the potential value of their property where fire risk assessment or remedial work is deemed necessary - and mounting confusion on where the cost liability for such work should be attributed.
EWS1 and the Mortgage Trap
Given increasing concerns regarding the potential length of time needed to commission and conduct the work with a finite pool of qualified expertise available, an emerging issue is that mortgage lenders have been unwilling to lend money on flats in such buildings unless they receive a confirmation of what the external wall system consists of. Failure to provide this statement is leading to many potential sales and remortgages falling through, leaving owners and prospective buyers frustrated, seemingly trapped by some valuers placing £0 value rating on a property – widely referred to as the mortgage trap. In addressing this dilemma, the Royal Institution of Chartered Surveyors (RICS), the UK Finance Association and the Building Societies Association developed the External Wall Fire Review (EWS1) form in December 2019, designed to standardise the reporting of what materials make up an external wall system and assessing the suitability lending purposes based on a "qualified professional" conducting a fire-risk assessment, before signing the form which is then valid for five years.
Although the introduction of the EWS1 has been a welcome step in attempting to unblock the market and reduce the zero value ratings, there are still areas of concern that need clarification. Many of these issues centre upon the definitions used in recent guidance. In January 2020, the Government published a new Advice Note (Building safety advice for building owners, including fire doors) on providing guidance for anyone responsible for, or advising on, the fire safety of external wall systems of residential buildings 18 metres or above in height. The note states that the owners of all multi-storey, multi-occupied residential buildings should investigate and remedy the risks of combustible cladding.
“Building owner” has therefore become something of a catch all term, but it’s not that simple. Who is an owner? A freeholder in a two party lease? What about three party leases where the freeholder may have no relationship, liabilities or automatic permissions with regard to a property? What about Right to Manage (RTM) companies where leaseholders have acquired the landlord’s management functions by transfer to a company set up by them? Similarly how does the definition apply to comonhold arrangements and the unit holders therein?
Avoiding Mixed Messages
Whilst the Housing Secretary has reiterated that leaseholders will not be expected to meet the costs of remediation which will fall to building owners under the new £1bn fund, it is important to highlight the need to specify that the term building owners includes responsible persons when looking at the EWS1. In the context of the concerns raised above, the term “building owners” has indirectly caused confusion and concern around sole liability that could, on face value, be seen to apply to freeholders only and prevent the recoverability of costs. Perhaps, and as made explicit in the RICS website (https://www.rics.org/uk/news-insight/latest-news/fire-safety/cladding-qa/), it may have been advisable to be more specific in the Advice Note, using a similar description to that put forward by the Institute (toward the end of May):
“The seller should request that their building owner or managing agent commission an EWS assessment for those buildings in scope. The building owner or managing agent is responsible for confirming what materials are on their building. In respect to the EWS form, the person responsible for the building needs to confirm what the wall system is made up of and whether an assessment is required”.
January’s revised Advice Note, outside the main body of the text, does however provide a footnote which states that for the purposes of the document a building owners is “the owner of the building or the person, group, company or other entity on whom duties are imposed or enforcement action could be taken under the following legislation: (i) the Housing Act 2004 in relation to certain hazards; or (ii) the Regulatory Reform (Fire Safety) Order 2005 to ensure the safety of occupants of a building from fire (see Articles 3 & 5 of Regulatory Reform (Fire Safety) Order 2005 for those with duties)”.
Again, specifying that this encompasses and refers to owners, responsible individuals or managing agents, may have mitigated further confusion - and may be worth clarification in subsequent modifications to the guidance. It is also noteworthy, that the prospectus published last week for £1bn Building Safety Fund is clearer in this definition, (although in the content of eligibility for the capital remediation and associated costs only), the document states:
“In the private sector, registration is open to building owners, freeholders or the responsible entity ( A responsible entity is the body that has the legal right to carry out the remediation works and to legally recover the costs from leaseholders as service charge) for buildings within scope that
Advice: Who Pays the Price?
On the assumption that the term “building owner” does indeed encompass freeholders, managing agents and RTMs as responsible persons, there is the question of clarifying who will bear the cost of an EWS1 assessment by a suitably qualified individual.
As in many cases, this will depend on the lease. Leaseholders should always look carefully at the provisions of their leases and the extent to which they are liable to contribute to the costs of any works the landlord carries out such as the EWS1 assessment and other safety measures. If such work falls under the definition of the services the landlord is obliged to provide then leaseholders may be required to contribute to the cost of the works through the service charge.
Additionally, contingency for the assessment and certification may be provided for landlords and managing agents within the schedules of their insurance policies, and if suitably comprehensive with regard to building safety matters, may not necessarily represent a potential increase in premiums.
Whilst debate continues, it is also worth noting that the majority of residential landlords and managing agents will have undertaken safety checks as a norm, with many buildings signed off by the appropriate building control authority in accordance with building regulations at the time of construction. These regular checks will have identified and allowed the effective management of safety risks, including planning, budgeting and providing notice for any work required and apportionment of costs incurred for which notice would have been served.
Debate around the practicality of obtaining expert advice to conduce EWS1 assessment continues, with the Association of Residential Managing Agents (ARMA) estimating many months delay given the potentially intrusive nature of work, restricted access due to Covid-19 and a limited pool of qualified experts to draw upon. Given the urgency reiterated by the government, it is likely we will soon see further measures, amendments – and clarifications - to facilitate the certification process in supporting leaseholders and “building owners” alike. We will keep watching and keep you updated.
If you are experiencing challenges with regard to building safety matters or EWS1, please contact us:
Phil Parkinson, Legal Director: email@example.com
Katie Edwards, Associate: firstname.lastname@example.org