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Cladding: a perfect storm for shared ownership resales?

20 June 2018 • Julie Loggenberg

The uncertainty around the cost of, and liability for, replacing unsafe external cladding on private residential blocks could leave RPs in an impossible situation and shared owners unable to sell.

Recent press reports claim that flats in blocks with Grenfell-style cladding have drastically reduced in value, or indeed are branded as “worthless” by surveyors and lenders. Why? Because the cost of replacing the cladding by private sector landlords and management companies cannot be accurately estimated, and the uncertainty as to the liability attached to each flat owner means that properties are rendered unsellable.

Government help?

The government has expressed its hope that the costs of replacing the cladding will not fall on leaseholders, but unless they are prepared to extend the access to funding from central government to cover all or part of these costs, this is just pie in the sky.

However, tax payers would argue a private landlord is responsible for its land and buildings, and payment for works to the building is a matter between the landlord and leaseholder under the terms of the lease.

The impact on shared owners

The cases that make the headlines tend to highlight the drop in value of very expensive properties owned outright in blocks in London, where sympathy is perhaps not naturally overflowing.

But what about the thousands of shared owners who have purchased in blocks where the RP owns the affordable housing units only and not the building, and is not in control of the management of that building, nor the service charges levied?

Impossible situation

In such circumstances an RP and its shared owner are going to find themselves in the same impossible position. Would or could the RP pick up the liability, even on an equity basis? In most shared ownership leases the obligation to pay the service charge and outgoings falls squarely on the leaseholder, either directly, or via an obligation to comply with the terms of the headlease, and there is no proportionality.

Where a potential purchaser could inherit a huge bill for the cladding, it is clearly going to seriously affect the ability of the shared owner to sell their share.

Add to all this the already toxic issue of high ground rents on flats, and we could be heading for a perfect storm that could render shared ownership resales almost impossible.

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