(*for updated information please read ‘Major intervention from Government and lenders to support leaseholders‘*)
Following the Grenfell Tower tragedy in June 2017, there have been many initiatives and procedures implemented to assist in updating building safety, in particular, the assessment of flats in multi-storey buildings to promote resident safety. The impact of the fire has been far-reaching and now there is a new process to help evaluate multi-occupancy flats where there are specific fire safety concerns and this also includes valuing them for the purposes of sale or remortgage.
The new EWS1 form, or External Wall Fire Review form, is intended to record in a consistent and universal manner what assessments have been carried out on the external wall construction of residential apartment buildings. This is where the highest floor is 18 metres or more above ground level or, where specific concerns exist. The form may only be completed by a designated competent person within strictly defined criteria as set out by the UK Government. This form has been endorsed by the Royal Institution of Chartered Surveyors (RICS), UK Finance and the Building Societies Association.
The assessment form EWS1 is designed to provide a clear ‘safe’ or ‘unsafe’ certificate and so is pretty black and white in its operation and should be set in the broader landscape of fire safety, which recent guidance from the Ministry of Housing, Communities and Local Government (MHCLG) has advised should be viewed holistically in any multi-storey or multi-occupancy building irrespective of height. Consequently, this has resulted in some confusion over which buildings the EWS1 form should apply to and whether that should only be to buildings over 18 metres in height or all multi-occupancy blocks. The strict confines of the assessment in the wider prevailing and rightly cautious and safety-conscious environment are already presenting some unique challenges to leaseholders who wish to buy and sell and to the owners of these properties, as they are adopted almost universally in the valuation and mortgage market by most financial institutions.
What does the use of the EWS1 form mean in the UK property market?
Lenders are asking their Valuers to look much more closely at fire safety issues with a fairly universal approach to the application of the EWS1 form for valuations on all properties within multi-occupancy blocks. The specific focus is external wall systems and their composition including balconies plus a wider remit to include any other significant fire safety concerns. If the Valuer or Surveyor is concerned then a completed EWS1 form will be required to pursue the application and of course, this could come back with a fail if the property is deemed unsafe from a fire safety perspective.
The likely implication of this is that some properties will require safety works to be carried out or put in due process either before that particular sale can be completed or before the property comes to market at all. In the meantime, the lender will require evidence of satisfactory interim fire safety measures in place whilst the building is being made safe. This presents implications for both building owners and leaseholders in terms of the added complexity of a sale, the possible cost implications of remedial works and specialist reports and where that bill will fall. Applications where remedial works are in process or have been planned and paid for might still be able to proceed, but any without this assurance will probably receive an automatic decline from the lending institution. Some leaseholders are going to be left high and dry, unable to either sell or re-mortgage their property.
Does EWS1 actually raise more problems than it solves?
The intention behind EWS1 was to provide mortgage lenders in particular with the reassurance that a property represented a sufficiently safe risk for a mortgage or remortgage. This is because a competent professional has assessed the fire risk. However, even for properties, which are likely to receive a ‘clear’ EWS1 form or where works are planned or started, there is a UK wide shortage in the pool of competent professionals with the correct status to complete the form. MHCLG specify 21 professional bodies and the person completing the EWS1 form must belong to one of these; the form cannot be completed by either the building owner or the property manager. The EWS1 form provides two options:-
- Option A – this is where the cladding material and insulation in the external wall system are known to be of limited combustibility. A competent person who need not be a fire engineer will need to certify this status and also testify that cavity barriers have been correctly installed within the external wall. As a final consideration, the competent professional must assess whether there are any other physical attachments to the exterior of the building i.e. a balcony which will also require evaluation to the same specification and standard as the remainder of the external wall system.
- Option B – this is where the primary materials as part of the external building system are combustible. A fire engineer will be required to undertake a risk assessment to either confirm that the risk of fire is so low as to be deemed negligible or that remedial works are necessary. EWS1 provides the fire engineer with a template of guidance to make the requisite assessment. However, the reality of the assessment in terms of obtaining sufficient information dating to when the building was constructed and also the invasive processes required to open up and actually test cladding materials, puts a huge onus of legal responsibility squarely on the shoulders of the fire engineer, one neither he nor his insurers may be prepared to assume.
Professional indemnity insurers are cautious in this market with the imposition of high levels of cover further limiting the available pool of professionals. The problem is twofold; insurance companies are understandably cautious about exposing themselves to undue risk but even when cover is theoretically available, the cost is so high that industry specialists are reluctant to shoulder that burden. The Royal Institute of Chartered Surveyors has sought government intervention to unblock the impasse within the insurance industry which is acting as a brake on the already precarious offering of specialists and technicians who are prepared to undertake these kinds of evaluations and surveys. MHCLG are currently in conversation with the insurance industry to see if they are prepared to adjust how they view the risk of underwriting the professions of Fire Engineers and Surveyors. There is genuine concern that limited PI insurance, combined with the blanket approach of lending institutions requiring EWS1 forms on so many buildings that shouldn’t warrant one, may completely stall the housing market and at a time of looming global recession.
With a small pool of competent, suitably qualified specialist fire engineers available, never mind willing to step up and undertake these inspections, the leaseholder is inevitably faced with lengthy delays to the sale process as the backlog escalates and increased cost.
The changing landscape of mortgage applications
In an industry which is fearful of lending money on an unsafe building, the worry amongst mortgage lenders over the fire safety issue is leading many of them to also require a clear EWS1 form even for buildings which do not form part of the recommended guidelines, so are below 18 metres and/or with no clear external wall system. There is a feeling in the property industry that the EWS1 may be extended to include all multi-storey and multi-occupancy buildings in time.
Whilst the intent behind EWS1 is a good one, its arrival has, in reality, not brought about the hoped-for clarity for property owners and leaseholders. Far from offering streamlining and simplicity in the property market, EWS1 has placed an at times impossible burden of evidence gathering on the owners of properties and their leaseholders in an attempt to stabilise the fire safety issues in multi-occupancy properties currently for sale on the open market. The concept is laudable but the reality of EWS1 in practice is going to be a far cry from the crisp clear cut protection that the UK Government has envisaged for residents of multi-storey and multi-occupancy buildings.
There surely needs to be some sort of redressing of the balance between the interests of those leaseholders who want to sell their property or re-finance, which is increasingly popular as people struggle due to COVID, and new purchasers seeking finance to buy a property where there may still be outstanding fire safety concerns over the external building system. With the inclusion of any multi-occupancy residential building, there are literally tens of thousands of properties affected by this across the UK and lengthy delays are starting to build due to the shortage of suitably qualified professionals. The property industry needs to be able to move forward in a common sense way to ensure that existing and new residents are protected by the highest fire safety standards. But there also needs to be a workable system to transfer ownership of all these numerous properties during the many years it is likely to take to bring them all up to standard, to allow the public to buy and sell and property companies to go about their business without the imposition of long delays and punitive and costly financial measures on either. Only the Government can ultimately unblock these challenges.