The cost of keeping tenants and leaseholders safe


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Councils, like all landlords, will be following the new Building Safety regime as it develops; but they cannot afford to fixate on the legislative details. They simply want to make their homes safe. The fact that a building is not (yet) in-scope is unlikely to justify – certainly not as far as tenants are concerned – an inconsistent, almost literally two tier, approach. Many Councils are rightly going (well) beyond the minimum.

In addition to the wider issues of ensuring building safety, Councils will also need to be aware of the issue of cost. Significant capital costs are incurred in upgrading buildings and installing compliant systems.  The new building safety regime also involves new roles and tasks which require revenue expenditure.
The Government has now published its response to the Building a Safer Future consultation and has also taken the opportunity to publish an updated economic assessment of the benefits and costs that are envisaged under the new Building Safety regime. This cost/benefit analysis provides some guidance as to the costs that Councils might incur per annum for each of their in-scope buildings.
At its highest level, the economic assessment estimates that the overall costs of the new regime (to both the industry and the new regulator) could be approximately £266m to £530m per annum. That figure is based on an estimate of 11,100 "in-scope" buildings, with an "in-scope" building being a building of 18 metres or more in height. In reality, that figure will be higher, as this does not include buildings of six storeys or more that are below 18 metres in height. Further evidence for this group of buildings is being collected, but the estimates are expected to mean a 10% net increase in the overall costs and benefits once those buildings are included. 
The Government is also still considering whether the regime should be extended to cover buildings which exceed 11 metres in height, so this is very much a starting point for assessing the overall annual costs of the proposed regime.
What is perhaps of greater interest to Councils will be the estimated costs per building which have been set out in the economic assessment.
The Government has estimated the increase in construction costs per building to be approximately £120k to £240k. The majority of those costs will fall in the first instance to the building developer (and Councils can expect to see this increase in costs priced within proposals for new builds). 
The Government has also set out its estimate for the costs that might be incurred for existing buildings, such as the costs to comply with Building Information Modelling (BIM) requirements where there are currently no (or inaccurate) plans. 
It seems to us that some of these estimates are rather on the low side (for example, the costs associated with Gateway 1, see PDF table), but this provides a useful starting points for Councils to consider what additional costs they may face in future, as well some indication as to the length of time that might need to be factored in to project timescales for the various stages. 

Only time will tell how accurate these estimates prove to be, but Councils will need to consider sooner rather than later how they will fund additional costs in the construction of new "in-scope" buildings.

Government grant will be limited and competed-for.  For at least some of the costs Councils will look to their own resources and, in all likelihood, additional HRA borrowing. The removal of the borrowing cap is helpful only if there is surplus revenue to service the debt – and the Section 151 Officer is comfortable with the overall exposure.  Revenue Contributions to Capital Outlay (RCCOs) are a helpful exception to the capital/revenue rules but again there must be revenue to 'contribute'.

As to leaseholder contributions, they depend on the wording of the leases and on difficult political decisions. 

The challenge is a formidable one.  It is best met by involving all Council departments and by engaging with tenants and leaseholders.  

The downloadable table PDF below summarises some of the headline costs for the different stages, and we have included some high level commentary around the calculation of some of those costs, and the estimated timelines. The table primarily focusses on new buildings, but also identifies costs that will be relevant for existing in-scope buildings. 

 The cost of keeping tenants and leaseholders safe table

 

 

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