Housing Week 2020: Defects to new build leasehold and shared ownership properties: top ten questions

As part of Anthony Gold’s Housing Week this week, my colleagues Giles Peaker and Jenny Evans recorded a webinar entitled “Leaseholders and build defects – issues and remedies” – the recording and slides can be found here.

The webinar was very well attended and we received a large number of questions, not all of which could be answered during the course of the session. So, in this blog, I look at our top ten questions relating to defects affecting new build, leasehold and shared ownership properties.

1. Why can’t I sell my flat?
Many leaseholders are finding it difficult to sell their new build properties where there are concerns about cladding or fire safety, or any outstanding defects to the properties. Even the risk of such problems, which could threaten large service charges in the future, can make such properties unsaleable. In the wake of the Grenfell tragedy, and with new evidence coming to light about particular cladding materials through the Inquiry, high rise buildings have been particularly affected. Mortgage lenders have been unwilling to provide mortgages on such properties unless an extensive survey has been carried out, resulting in a valid EWS1 form and all works have been completed and paid for. In addition, if the length of the lease has fallen to under 80 years then this will reduce the value of the property.

2. I am a leaseholder living in a block of flats. I am worried about defective cladding/insulation on the building and/or other issues which may present a fire risk. What can I do?
The first thing you should do is report the problem to the freeholder of the building, find out if they are aware of the issue and whether any recent checks or fire risk assessments have been carried out. It will be worth speaking to your neighbours to see if they have noticed the same issues and are already in communication with the freeholder. You might consider starting or joining a residents’ association for this purpose. If there are fire safety concerns, you can request your local authority environmental team or the fire service to inspect and produce a report requiring the freeholder to take certain action. If these measures do not work, you may wish to investigate the possibility of bringing a legal claim against the freeholder or the builder. This may be a claim in breach of contract or a claim under the Defective Premises Act 1972. You may also be able to bring a claim under the building warranty.

3. Who can I sue?
You could bring a claim against the freeholder, or against the builder/developer of the building. You may also be able to bring a claim under the building warranty, for example through NHBC. Note that a claim under s.1 DPA 1972 can be brought against anyone building the dwelling, including the freeholder if they had the building constructed for them, or potentially the architect.

4. What if the developers have gone bust or been dissolved?
It is common practice for construction companies and developers to operate under distinct entities such as special purpose vehicles when working on specific projects, and then to liquidate these entities once projects are complete. This makes it more difficult and/or less financially viable to bring a claim against them and in such situations it is likely to be more effective to bring the claim against the freeholder if possible (who may then decide to start separate litigation against the developers).

5. There are also structural problems affecting my flat – is the freeholder liable?
If your property is affected by structural problems (such as leaks, rising damp or subsidence) you should check the terms of your lease to find out whether the problems are likely to fall under the freeholder’s obligations. Generally, the freeholder will be responsible for maintaining the structure and exterior of the building and any communal areas. Make sure that you have reported the problems to your freeholder and allowed them reasonable time to inspect and carry out necessary repairs before taking further action. You can then investigate the possibility of bringing a legal claim against them, in disrepair or under the Defective Premises Act 1972. However, be aware that any works that they carry out as a result may be charged back to you in your service charges.

6. How long do I have to bring a claim?
The time limit for issuing a claim at court for breach of contract is generally six years from date of breach. (The relevant contract will be your lease or agreement for lease.) It is important to keep this date firmly in mind and to try to get a limitation agreement in place if you have started engaging in discussions with your opponent and the time limit is approaching. Note that the limitation period for bringing a claim under s.1 DPA 1972 is six years from the completion of the dwelling – regardless of when you purchased the flat or moved in – and the only exceptions to this six-year rule are where there has been fraud or deliberate concealment of defects.

7. How can I fund a legal claim?
Conditional funding arrangements (no win no fee) are often the best way to fund such claims. If you can organise a group of leaseholders in your building to bring a claim together then the legal costs could be shared amongst the group, making it less expensive for each individual involved. At Anthony Gold we specialise in such claims and would be happy to talk through funding options with you. You should also consider alternative sources of funding: for example find out whether you are within any building warranty, or whether there is government funding available for the removal of cladding from your building.

8. Who pays for remedial works and what if some leaseholders cannot pay? Is the position the same for shared ownership leases?
If the freeholder agrees to carry out remedial works then the cost is likely to be passed on to the leaseholders, by way of service charge, according to the terms of your lease or after a section 20 consultation. If a leaseholder cannot or will not pay their share then, assuming the correct legal procedures have been followed, the freeholder can start legal proceedings against them individually, which in the worst cases could result in forfeiture of the lease if the charges remain unpaid. The position is the same for shared ownership leases, in that leaseholders are likely to be charged the full proportion of any works carried out by way of service charge despite the fact that they may only have a small ownership share in their flat.

9. If only some flats in the building are affected by cladding issues, is there an argument that only the affected leaseholders should pay for remediation works?
Unfortunately, any such argument is likely to be unsuccessful. If works are carried out to remove or replace defective cladding then the cost of those works will likely be recovered under service charges, which will be apportioned equally across all leaseholders. If the cladding represents a fire safety risk then risk to one flat is likely to be a risk to the whole building in any event.

10. My flat has fallen in value because of cladding issues and fire safety concerns. Should I consider extending the lease or increasing my share of ownership?
You may be considering extending the term of your lease, particularly if it has fallen to less than 80 years, in order to increase the value of your property. However, even if you do have the spare funds to pay for a lease extension (which can be very expensive) it is unlikely that your mortgage lender will consent to lend for a new lease if safety concerns remain and/or you do not have a valid EWS1 form in place. The same goes for staircasing applications to increase your share of ownership in a shared ownership lease, if this requires a further mortgage loan.

Follow the links below to recap on the content from our Housing Week:

Monday: Eleanor Solomon answers questions surrounding redevelopment.
Tuesday: Compensation for disrepair question and answers with Victory Thiru
Wednesday: Leasehold and new build defects – issues and remedies webinar
Thursday: Council/Local Authority leaseholders and service charges Q&A.
Friday: Defects to new build leasehold and shared ownership properties: top ten questions

At Anthony Gold, we have specialist teams dealing with new build defect cases. Please contact us for more information and to see if we can assist you with your claim.

* Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*