3 August, 2020

No one involved in buying and selling investment property will be unaware of Grenfell and the shock waves it sent though the industry as we struggled to understand the scale and magnitude of the risk in owning or occupying tall buildings in the UK. The government reacted and new guidance emerged from a variety of sources, but the issue of fire safety seemed bound up in nuance, detail and technical complexity quite apart from its political and social dimensions. In June of this year the government estimated that fixing fire safety defects in high risk residential buildings could cost up to £15bn.

So where are we now, and what should prudent purchasers consider before buying tall residential buildings as investments assets?

For residential buildings taller than 18,0m the EWS1 form is a new certification process. Introduced post Grenfell, the form was designed as a quick way to provide lenders with the comfort they needed to be progress transactions. The form defines five façade classifications which should be acceptable to lenders, but all except one rely on a degree of technical analysis, and in some cases remediation work to be carried out. This demands greater input from fire engineers which can result in long delays in completing the assessment. Coupled with high demand, this is now causing some transactions to be delayed or fail altogether. For purchasers today, checking whether a building has an EWS1 assessment, or if it hasn’t, checking the classification it is likely to achieve will be time well spent. A quick check on the organisation that signed the EWS1 form is also advisable.

The government’s Consolidated Advice Note issued January 2020, made it clear that owners of multi-storey, multi-occupied residential buildings should include the risk of external fire spread as part of any fire risk assessment. This may seem obvious, but it had previously been far from clear that the Regulatory Reform (Fire Safety) Order 2005 required external walls to be considered because it doesn’t specifically mention external walls. Consequently, very few Fire Safety Order assessments covered these elements. All new assessments will now need to include external walls. This can be complicated and will probably need input from a specialist fire engineer. Retrospective assessments will need intrusive investigation to validate wall constructions even if as-built drawings are available. Inspections could identify previously unknown defects which may cause fire engineers to adopt a cautious approach and demand faults are remedied. Purchasers should therefore check whether the building’s current Fire Safety Order assessment includes detailed commentary on the external walls.

New legislation is on the way, too. Some tall buildings will fall into the higher risk category defined in the July 2020, Building Safety Bill. They will need to achieve standards of structural and fire safety so that risks to occupants are appropriately mitigated. Each building will need a formal Safety Case approved by the new Building Safety Regulator (BSR), part of the Health & Safety Executive. The Safety Case must be maintained and updated, as well as being available upon request. The Safety Case will consider all aspects of the building, not just the external walls. Failure to comply will be a criminal offence, carrying a maximum penalty of up to two years in prison and an unlimited fine. No formal timeline has been given but the expectation is that the Building Safety Bill will be mandatory within the next two to four years. Potential investors will need to understand the additional burden of risk this new legislation will create for them but at the same time having a valid Safety Case will be a useful means of determining that the building has met an appropriate standard of fire safety that isn’t available to purchasers now.

As is evident the compliance landscape is changing for tall residential buildings and is likely to continue to evolve as new legislation emerges. Whilst lack of clarity persists in some areas now, the direction is positive for investors in the sense that it is bringing greater transparency and certainty about fire and safety risks which should make buying decisions easier. What shouldn’t be overlooked, however is the value of pre-purchase technical due diligence. Facades are one of the most complex parts of any building so understanding what you’re buying is a crucial part of successful property investment.