After the tragedy of the Grenfell Tower Fire in 2017 reviews were undertaken by the government which revealed that buildings were not being built with adequate fire resistance cladding. Since that time many Freeholders and developers have been under pressure to bring their buildings into line by instigating major works to repair the situation. Such initiatives resulted in leaseholders being required to the foot the bill for these works, since the mechanism for financing such works under the most leases, classify repairs and maintenance to buildings as being a leaseholder expense to be collected by way of a Service Charge.
Some leases benefit from having a Reserve Fund provision in which a money pot has been collecting over many years to be used on major repairs, but in cases where there was no provision, leaseholders were being suddenly presented with Service Charge demands often spanning thousands of pounds.
Parliament by the introduction of The Building Safety Act 2022 has sought to address this issue, by creating a protections for leaseholders against such charges. In effect, the legislation ensures that those who built defective buildings take responsibility for remedying them, that the industry contributes to fixing the problem, and that leaseholders are protected in law from crippling bills for historical safety defects. The protection is available for any leases granted before 14 February 2022; the rationale being that existing building regulation requirements regulate newly constructed buildings protecting against this problem from that point onward.
That all sounds great, but where do Lease Extensions come into the equation? Well, a lease extension is, legally speaking, a surrender and re-grant of a lease. In fact, the leaseholder’s right to statutory lease extension under the Leasehold Reform Housing and Urban Development Act 1993 is literally stated as the right to a “new lease”. Therefore as things stand there is some doubt as to whether extending a lease at this point will effectively disqualify the property of the benefits bestowed upon it by virtue of the Building Safety Act 2022.
This appears to be quite an oversight by the parliamentary draftsman in the drawing up of the provisions of the Act, but it is one that should undoubtedly be addressed as soon as possible for it does give leaseholders pause for thought when considering whether to extend now. While these protections are quite unimportant for those buildings that are less than 11 meters or five storeys in height (which is the minimum qualification for these protections) those who own flats in high-rise building are rightly hesitant about extending, even as they experience growing pressure to extend or suffer the diminishing value of their asset. In those cases, delays to address the issue by the government effectively cost those leaseholders more the longer they wait as their leases diminish in length, and thus increase the overall lease extension costs.
There is growing pressure upon the government to address this problem, that we hope to be able to report further in the coming months.