Adding up the Cladding

On 14th June 2017, along with the rest of the UK, I watched the horrific scenes of the terrible fire raging through the apartment block Grenfell Tower in London, which killed 72 people.

The fire had likely been started by a faulty fridge-freezer but it was the insulating cladding material on the outside of the building – supposedly having passed stringent fire safety tests – which was found to be flammable and instead of slowing down the spread of flames, actually contributed to the rapid spread of the fire.

Questions were asked and it became evident that Grenfell Tower’s flammable cladding was not an isolated case and that many other buildings in the UK incorporated this unsafe material.

The government deemed that all resident apartment buildings were to be made safe and any dangerous cladding material had to be removed.

With a sense of dread, I wondered if my own property, the flat I let out to tenants was affected.

Well, it’s taken 3 years for me to find out.

Wonder No More

I can’t say I was too surprised when I received a letter from the building management agents confirming that my property did not comply with the new government fire safety guidelines. If property developers can get away with using cheaper materials, they will.

What did surprise me was that the costs to become compliant would fall entirely on us leaseholders of the property.

The freeholders will pay nothing.

New Costs

The service fees which I pay have been increased to include the cost of two fire wardens who patrol the perimeter of the building 24/7. These patrols will continue until the building has been made safe.

I guess that’s some small consolation to people like my tenants who have been living in a potentially unsafe building all this time.

Help!

I’ve read articles where leaseholders have been told that costs could amount to over £40,000 each – of course each property will be different (eg depending on the number of floors etc) but this could put a MASSIVE dent in my FIRE plans.  Could this even signal the end to my FIRE plans?

But ‘help’ is at hand…

The government has established a Private Sector Cladding Remediation Fund to help cover the cost of replacing the unsafe cladding – the building management agents have made an application on our behalf so we await approval for our share of the fund.

However, who knows if it will be enough, even if we are successful?

The unsafe materials must be removed and replaced as a necessity but any costs over and above the fund allocation will be footed by the leaseholders. By me.

I await the estimated replacement costs with some trepidation.

Note that from a money aspect, I will ultimately be fine and it won’t be the end of the world for me. Yes, forking out tens of thousands of pounds will set me back majorly in my plans but is not going to bankrupt me or anything like that because I have savings and investments to fall back on. Being on the FIRE path has meant that I’m in a far better financial place to deal with the unexpected.

I’m also not looking to imminently sell my property (without the required fire safety certificate, I’d only be able to sell to a cash buyer in any case, who would be in a strong bargaining position) and not looking to re-mortgage my property (lenders would not  currently touch me with a barge pole).

From a safety point of view however, I couldn’t imagine living somewhere which was not safe and having to worry about it on a daily basis, like some others.

It’s looking increasingly likely that my plans will be impacted but I guess I’ll just deal with it when I know what it is that I have to deal with.

Any other leaseholders being affected by this?

 

33 thoughts on “Adding up the Cladding

  1. Hi Weenie,
    I am in a similar situation.

    I bought a flat that I lived in for a while and now let out. I have been notified that it needs the EWS1 certificate. I cannot sell or remortgage it without this certificate. I am dreading to hear back, as I think I might be in the same situation as you. I read on the BBC that there are 1.5 million flat owners held prisoner by this current impase with lenders regarding the certificate.

    I really think the state should be picking up the bill for this. The reason why is that the building regulations at the time were clearly wrong. I actually don’t blame the housebuilders for this one because yes, they proably value engineered and used the cheapest materials, but they would have complied with the building regulations at the time.

    Please keep us updated on what happens and I will do likewise!

    All the best

    Alex

    • Hi Weenie
      I’m in similar situation too. I live in apartment in Manchester city centre and recently found out our building is covered in combustible cladding and has other fire safety defects too. We have applied to the Building Safety Fund and hopefully we will qualify as well.

      If you don’t already, follow Manchester Cladiators on Twitter and FB, there are people doing great work to raise awareness and to try and hold government to account, but it is a never ending battle.

      I hope everything works out for you.

      Rob

      • Hi Rob

        Sorry to hear you’re in a similar situation too – all the best with your fund application too.

        And yes, I do follow Manchester Cladiators.

        Same, hope it all works out for you too.

    • Hi Alex

      Sorry to hear you’re in a similar situation.

      I agree that the state should pick up the bill as the regulations were clearly not fit for purpose.

      I admit that I was too hasty to blame the housebuilders, who would have complied.

      Hope things work out for us!

  2. Hi weenie, really sorry to hear about this and I am sure it is a worrying time for you and also everyone caught up in this scandal….must be many thousands of leaseholders and tenants. I really don’t see why the landlords should not have to pay, at the end of the day it is their property and they should have some responsibility for putting the problem right.

    What I cannot understand is the astronomical costs and why the offending cladding cannot just be removed which would at least make it safe for occupiers and surely the cost of removal would not be so prohibitive?

    Anyway, fingers crossed you qualify for some government aid with all this.

    • Hi DIY

      For some reason, the government doesn’t seem to be interested in asking the freeholders to pay.

      Thanks and yes, fingers crossed we get help with the costs.

  3. Ah, that’s bad news weenie 🙁

    I mean it’s good that the dangerous cladding will get replaced but the cost to you sounds horrendous!

    Could you imagine the situation though if you weren’t on the path to FIRE? Having to find that kind of money could bankrupt a lot of people, especially if they are a spender and have no savings whatsoever.

    I hope the impact on your Future Fund and your FIRE plans won’t be massive…

    • Hi John

      I know, I can’t even begin to imagine how I would feel if I wasn’t on the path to FIRE. I would probably get a loan from my family but it would take an age to pay off that debt so definitely no early retirement plans.

      A big hit will probably set me back a few years, but hopefully, that won’t be the case.

  4. Oh no that sounds like a complete nightmare.

    I live in a leasehold flat and although I love my flat, the bills we receive are extortionate. I’ve had many problems with other issues. Thankfully our block is made of brick so the cladding won’t be one of them.

    I hope the Government fund covers the Bill.

    And I hope the government ends the freehold system.

    • Hi PWF

      Good to hear that the flat you’re living in is safe and yes, there’s something really wrong with the freehold/leasehold system which needs to be sorted.

  5. I was watching people being interviewed about this on the news last week. People’s lives have been devastated by this. They’re stuck in properties they can’t sell or remortgage and that they don’t feel safe in. As you say Weenie, you’ll be fine because of the hard work you’ve done to get your finances to where they are now. It’s hard though to think that it might set you back on your road to FIRE. I hope you get the best possible outcome.

  6. F*ck, how unfortunate! My parents had a similar issue with our warehouse after new norms and safety rules were introduced. As with every investment there are risks, safety compliance is one of them in real estate.

    As you mentioned, fortunately, the fact or pursuing FIRE has put you in a healthy financial condition to cover this unexpected situation.

    Hope you’ll get help from that collective fund so it does affect your plans as less as possible.

    All the best,

    • Hi Tony

      I hadn’t even considered it for commercial properties but yes, new norms/regulations are introduced all the time.

      I am so glad I have my finances in order as I have them to fall back on in the worst case scenario.

      Thanks for the kind wishes.

  7. Commiserations. I also live in a leashold in Manchester, although in our case it’s a house so not affected by this particular thing. Funnily enough, been looking into buying the freehold, and legal/surveyor fees alone are pretty hefty. I’m not for retrospective changes on that – I bought eyes wide open, and depriving landlords of the value they acquired retrospectively would trouble me, even if I dislike the system – but the UK still has a pretty messed up system of property ownership.

    • Cheers Northern Lad.

      Yes, I believe converting from Leasehold to Freehold is expensive but it might be something I would consider, if that was made available to us.

      I guess expenses shouldn’t be applied retrospectively but I’d probably be happier if costs were shared between freeholder and leaseholder alike in this instance.

      The system of property ownership is messed up but I can’t see it being overhauled radically any time soon.

  8. Hi Weenie, sorry to hear about this and I hope this doesn’t make too much of a dent in your retirement plans – I suppose now it’s just a waiting game. But fingers crossed for a positive outcome. Hope you are doing well otherwise!

  9. I’m sorry for the extra costs to you and the delay to your FIRE plans, but you have bought this flat as a BTL investment. Like an investment, the value of your property may go down or up. People fail to see this and often treat properties as their innate right.
    From what I understand, you can still sell your property, but mortgage owners may not finance it and insurers may not insure it. No one is stopping you from selling it, but you may not get hte price you want, as the only people who would be able to buy it are cash buyers. Them the breaks. There are risks to every investment, every business, hence why you should only invest in things in which you can accept these tail risks.

    This is a classic example of privatise profits, socialise losses. Why should the tax payers have to pay an investment gone wrong when you would have reaped all the upsides — capital gains and income? I would rather that money went on feeding school children and building more properties so that people can afford to buy houses, rather than to have to rent for life. Instead of going into landlord’s pockets.

    • That’s a fairly uncompromising way of looking at things. In this case, there is a failure of building regulation and/or developer ethics that a reasonable layman could not have been expected to foresee. It’s not the same as ‘natural’ fluctuation in property value based purely on market forces. The change in value is a direct consequence of regulatory (in)action. As a taxpayer and non-owner of a cladded flat, I have no issue with taypayer bailout of leaseholders in this case. But for the grace of God etc. etc.

    • Hi Liz

      Thanks for commenting. I get what you’re saying – my property is an investment so all risks should be mine ultimately, but what about the people who bought these properties as their main residence, not as investments? Who should pay then, to make them safe?

      You ask “why should tax payers have to pay an investment gone wrong?” I don’t think that’s the right question – the question should be “Why did the government building regulations deem the cladding safe when it wasn’t?” It was a government cock-up which it is now trying to rectify by providing financial assistance with replacement costs.

      Since it’s offering assistance, then I’ll take a slice of what I can get to make my property safe for my tenants.

    • Hi Liz
      As an owner and resident in an affected apartment in Manchester, to an extent I agree with you – why should the tax payer foot the bill?
      As others have mentioned, it is a complete failure of the building and regulatory system that has got us into this mess. There is no way, I could pursue all the different parties to try and rectify this, they all just blame each other. The only people who have the power to fix this is Government, what they should be doing is recovering costs from those responsible. In Australia the government has introduced a building safety levy that all developers pay, to contribute to the cost of remediation. This seems very sensible, but our Govt doesn’t want to upset it’s builder friends.
      The sums of money involved are crazy, a friend in a neighbouring apartment block has been quoted £115,000 (per apartment) to rectify the building, people don’t have that sort of money.
      There is no easy answer to this, but it needs sorting quickly before any more lives are lost in a tragic (avoidable) building fire.

  10. As you’re a landlord, presumably any cost to you would be tax-deductible against the rental income (like any other repair and maintenance costs)?

  11. We are in the same situation, albeit not an investment property and just had waking watch in the block, £500/month wasted imo. Completely agree this needs government leadership, our block have found numerous fire safety issues outside of cladding. Leaseholders being asked to fix something they have no ownership over is just unbelievable. Worth also writing to your local MP on this issue Weenie.

    • Hi Matt

      Sorry to hear you’re in the same situation.

      I don’t know if these waking watches make anyone feel any safer in their flats.

      Thanks for the suggestion about writing to my local MP – will look into that, cheers.

  12. Weenie, that is awful news. Very sorry to hear it. Trying to be positive, hopefully the investment return that you’ve seen over the years of owning the property still justifies the venture, and far more importantly, your tenants have not been caught up in any catastrophic event.
    For me, the BTL arena has always been a no go investment, firstly because i don’t understand it at all, and secondly because i have enough aggro as it is looking after one residence. I’ll stick to indirect property investment via REITs etc and accept the likely lower returns (and risk/grief).
    I was a bit surprised to read MMM promoting property investing recently – i see the US on the edge of a major housing crash in the next ~2 years. Maybe then will be a good time to buy, but not now surely.
    Stay positive, and don’t let this minor setback knock you off course. You are still well ahead of the game!

    • Hi KC

      Thanks – I’m continuing to remain positive and see this as a potential big obstacle which I will overcome. I am fortunate that my tenants are obviously still in their jobs so are continuing to pay their rent.

      Doing the sums, it still has been worth me getting the BTL, but to your point, there’s the aggro and hassle factor – I’m not even a hands-on landlord and the little I get involved in is a bit too much!

      Many of those who have successfully FIRE’d have BTLs/rental properties to provide them with income, so am not surprised about MMM.

      I want to invest more in REITs so will be looking more into that for my portfolio.

      Thanks for your continued support.

  13. If unaware Grenfell Tower families have launched a legal action against the USA parent company Arconic that sold the cladding.To me the legal action has a good chance of success.
    Arconic encouraged a type of cladding to be sold in the UK that was banned in the USA because the cheaper type of cladding could win the contracts in the UK.

  14. It’s a tricky one. I’m in the slightly unusual position of leaseholder who clubbed together with neighbours and bought our freehold, and I’m one of the directors on the freehold company. The freehold’s income is peanuts – it’s the ground rent from the leaseholders that didn’t buy in when we took over the freehold. If someone’s lease drops below 80 years then potentially we can charge more money for extending the lease. That’s literally it, though. I can’t say I’m surprised that freeholders aren’t being asked to foot the bill, because in most cases they’d be better off handing the freehold over to the leaseholders and saying “here you go, your problem now”.

  15. I listened to the uk housing minister this morning Robert Jenrick on radio 4.
    He said a lot of nice things about cladding and what the government is doing but it is of course lies.
    Perhaps there is a fundamental belief that government should not and will not try to do anything interventionist in the economy and housing is primarily an economic issue and the ear of the government is turned to their financial backers who happen to be invested in the property game.
    So country wide unaffordable housing that is unsafe, unfit for habitation and nothing will be done about it lest it scare off those who have won the property game already.

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