Charis Beverton assesses the legal risks for local authorities and social landlords associated with cladding materials following the Grenfell Tower disaster.
At the time of writing, at least 259 aluminium composite material (ACM) panels from separate high-rise buildings have failed fire safety tests.
Investigations are also revealing other problems with installed cladding; for example, that the installed cladding is not the same as that specified before construction. Local councils, housing associations and other landlords are justly concerned about their responsibility to occupiers. What should they now be doing? Where does it leave them with building operators/ owners and/or with the contractors who carried out works?
If remedial works will be significant or if an adequate fire safety strategy cannot be put in place it is likely occupiers will need to be re-housed until remedial works are complete.
Landlords will usually have a right to carry out fire improvement works under a lease. However, the right to do works will not extend to works which require the residents to be moved out. Forced relocation may be a breach of landlords’ quiet enjoyment and non-derogation from grant covenants. Consequently, occupiers will probably have a valid claim for damages, which is likely to include all costs relating to breach of leasehold covenants, decanting of residents (removal, storage and professional costs) and temporary accommodation.
Unfit for habitation?
Claims may also be brought under the Defective Premises Act 1972 (“DPA”). If a dwelling is “unfit for habitation” on completion of its erection, conversion or enlargement then the “person taking on work for or in connection with the provision of a dwelling” may be liable under section 1 the Defective Premises Act 1972 (“DPA”).
Where premises are let, landlords owe a duty of care to all persons who might reasonably be expected to be affected by works to see that they are reasonably safe from personal injury or from damage to their property caused by any relevant defect (section 4, DPA).
Constructing, converting or enlarging a dwelling that is liable to catch fire (or permitting that construction as an employer or landlord) will almost certainly give rise to a DPA liability. Liability under the DPA or under the lease might be passed on to professional or constructing teams pursuant to contractual/tortuous claims but the direct liability rests with the landlord.
Despite all of the above, it is likely that occupiers will not be able to withhold rent and service charge payments. This is because their leases will require them to pay up until they are decanted to allow completion of remedial works. New agreements should be put in place for the temporary accommodation and rent should be paid for the temporary accommodation too. That said, landlords may want to give occupiers a rent/service charge holiday to mitigate the level of damages an occupier could claim for breach of covenant.
There have been recent calls for the Government to meet the cost of investigation and remedial works, and associated costs.
On 10 July, the Government set up an industry response group (IRG) to help coordinate the construction industry’s response to the challenges of implementing any government recommendations. It has also published guidance on the key issues associated with remedial works. Its coordinated response may include some payment to those affected; however, no clear offer of financial assistance has yet been made.
It is possible that major developers and contractors will also offer financial assistance, particularly where works are in defects periods or still under warranty. Working together should prevent the need for expensive litigation.
If a contractor or consultant is (or was) in breach of contract, adjudication, arbitration or litigation proceedings could be brought if the relevant contracting party (or its insurers) refuses to accept liability and pay out.
Most construction contracts require the contractor or consultant to:
(a) Comply with all relevant statutory requirements including Building Regulations;
(b) Comply with good industry practice;
(c) Carry out the work with all due care and skill;
(d) Ensure new builds comply with NHBC or equivalent NHBC Technical Requirements; and
(e) Comply with any applicable manufacturer’s guidance on use/ installation.
In addition, there is usually a prohibition against the use of “deleterious materials”, which is usually defined as anything generally known, accepted or suspected as:
(a) being deleterious;
(b) posing a threat to the health and safety of any person;
(c) posing a threat to the structural stability, durability etc. of the works or property; or
(d) not being in accordance with various standards/codes of practice.
If cladding has been installed in breach of any of the above there will be a prima facie contractual liability for whichever contracting party took the risk of compliance (the main contractor, architect, sub-contractor etc.). If, on the other hand, the installed cladding (or other material) complied with the relevant statutory provisions, codes, standards at the time of installation and/or was not considered to be deleterious there will not be prima facie contractual liability.
What the employer under the construction contract or the beneficiary under a collateral warranty would have to show in these circumstances is that there was no logical or reasonable basis to think the cladding was safe at that time. The argument then would be that the contractor or designer ought to have known the cladding was unsafe or unsafe if not installed appropriately and should have used a different material / design.
If the cladding was inspected and approved but should not have been, the inspector may have breached its duty of care to an employer, developer, contractor or another closely connected third party.
In these circumstances, it may possible to bring a contractual or tortuous claim against the inspector/surveyor alleging that it failed to identify the deleterious material or that it ought to have realised the material was deleterious.
Given the industry wide failures, such claims are likely to be difficult and only where there is obvious negligence would it be sensible to start proceedings.
Most construction contracts have a 12-year limitation period; however the statutory period for contractual, tortuous and most statutory claims (including in respect of the DPA) is six years. It is worthwhile auditing when contracts were entered into/works were completed to see if it is still possible to make a claim.
Insurance / Security
If an annual construction all risk, public liability or professional indemnity policy covers multiple sites there is a risk of limited funds being available to meet claims. There is also a risk of insolvency, especially if the contractor is a shell company or a smaller builder.
The Third Parties (Rights against Insurers) Act 2010 may assist in insolvency situations but the danger of under-insurance or exhaustion of policy limits remains.
This poses a problem for ongoing or future works too. It may be possible to pay to extend the limit of indemnity for ongoing works but it is likely that premiums will already have increased making this a potentially expensive solution.
In light of the above it will probably be necessary to put in place/call on parent company guarantees and/or bonds so it is sensible to check the terms of these documents now, to see if there are any caps on liability or limitation clauses.
This article was first published in the July edition of Local Government Lawyer Insight, which can be accessed at http://www.localgovernmentlawyer.co.uk/insight
Insight is published four times a year and is circulated free-of-charge to all Local Government Lawyer newsletter subscribers (click here to subscribe) in electronic format. A single hard copy is also circulated to all local authority legal departments in England and Wales.