Building a Safer Future – the cost implications for local housing authorities


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Council landlords will be well aware of 'Building a Safer Future', the Government's initiative to address the issues arising from the Grenfell tragedy in 2017.  For some councils with tower blocks the Grenfell fire meant a great deal of anxious – and expensive – work in the hours and days which followed the tragedy. For all councils it involves close attention to the new building safety regime which is being developed in response to Dame Judith Hackitt's recommendations. 

With the publication of the Building Safety Bill and the voluminous explanatory guidance notes which accompany it – and from information derived from the extensive and ongoing consultation process – we can now start to think about the longer term implications – and in particular, consider the costs which local housing authorities now need to begin to factor into their financial plans.

Remedial works

Councils will have carried out any early work required following their post Grenfell inspections.  Cladding, fire doors, sprinklers and so on were on everyone's checklists. And no doubt there was close consultation with their building control colleagues to ensure that all buildings – 'in scope' or not – met the requirements of Building Regulations and the new standards incorporated in the Approved Document revisions.

But what of the longer term? The years before and after Grenfell made it clear just how difficult it is to ensure that residential buildings are safe. It is certainly not enough to respond to an unpredictable and 'volatile' regulatory system. Too often, unfortunately, the regulators are catching up on the latest design techniques and fashions. Councils like other landlords continue to have to gather expertise and then make their own judgements on safety, just as they do for other aspects of asset management. This in turn will help them plan and budget for new and more expensive standards.  Their stock surveys on which their 30 year HRA business plans are based will need to factor in post Grenfell safety costs. 

These building safety and related remediation costs will place heavy demands on HRA resources.  They will be 'sitting' in councils' capital budgets alongside two other costly future programmes - Decent Homes 2 and Zero Carbon. Bearing in mind the new rent standard now formally applied to local housing authorities, HRA finance officers and their General Fund counterparts will need to be far sighted and creative.         

Compliance  

Revenue budgets will also come under heavy pressure. A mere glance at our Essential Guide to the Building Safety Bill and the explanatory notes will create a mental checklist of expensive requirements - the production of safety cases, widespread dissemination of information, regular engagement with residents and above all perhaps the employment of building safety managers.  Merely preparing for all this will put a strain on existing staff resources.

Revenue of course is hard to come by – it is needed to pay staff and to generally keep up with the 'day job' – and with rents now formally constrained it is no longer just a matter of justifying, politically, yearly increases, while keeping an eye on section 24 of the Housing Act 1985 and eligibility for housing benefit or universal credit.  And absorbing any spare revenue like this will make it still harder to service the new debt which pays for the remedial works.

Service charges

Faced with these pressures councils will be looking hard at recovering costs from RTB leaseholders.  In a late addition to the bill – without prior consultation – the Government introduced provisions for imposing 'building safety charges'. These cover actual or prospective costs incurred in relation to higher risk or 'in scope' buildings for carrying out prescribed building safety measures. 

The provisions 'work' by amending the Landlord and Tenant Act 1985 to imply these new payment covenants in existing leases. The provisions mimic in many respects the section 20 process with which councils will be familiar.

While there can be no doubt that private landlords will seek to recover remedial costs in this way (and accept the inevitable legal tussles which will ensue), there will be many councils which will be diffident about doing so. There has often been reluctance about imposing hefty charges for general refurbishment costs – and the costs of carrying out immediate post-Grenfell work were often all absorbed by councils.

The decision to use these building charge provisions will therefore not be easy; but at least they remove some of the difficulties created by RTB leases which often precluded cost recovery for safety-related work – difficulties which we have previously helped councils to address.

Given the cost pressures explored in this bulletin and councils' duty to use their resources wisely, a purely political decision not to recover building safety costs (no matter how understandable it may be) will be hard to justify.

Conclusion

Managing the ring fenced HRA has never been easy. The new building safety cost pressures will clearly make it still more difficult. Planning for the capital costs of remedial work and anticipating the revenue costs of the new compliance regime will require skill and involve hard choices. HRAs will demand constant attention and smart decision-making.

For assistance with issues discussed here and for a copy of our Unofficial HRA Manual please do contact us. 

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