Our response to RICS Guidance on Valuation of Residential Buildings with Cladding

When we relaunched our campaign in September 2020, one of our key Campaign Aims was a fairer, faster process to replace EWS1 together with the Government funding necessary to ensure all buildings requiring a form are surveyed at pace, to help the millions of people trapped in limbo due to the zero-risk approach inherent in the Government’s January 2020 Advice Notes.

Even though the Government is still refusing to take full control of the building safety crisis and continues to rely on industry to arrive at a solution to this wide-reaching quagmire, we cautiously welcome aspects of the latest RICS Guidance on the valuation of residential buildings with cladding (March 2021) and the provision of clearer criteria, including case studies, for circumstances when an EWS1 form is deemed as being required.

The Guidance recognises a problem that we have highlighted for over a year: the zero-risk approach inherent in the Government’s Advice Notes, issued only weeks after the introduction of the EWS1 process in December 2019, has caused significant delays in buying, selling and re-mortgaging properties and essentially brought sales of flats to a halt, affecting the wider property ladder. We welcome this attempt by RICS to try to bring a level of certainty, which could enable some of the leaseholders trapped in this crisis to begin moving on with their lives.

Further Government action needed

However, we are concerned that the industry-led RICS Guidance will not be the hoped-for panacea, without further defined action from the Government to provide required certainty on risk prioritisation. For example, RICS appears to believe that the majority of lenders support this new Guidance and that the rest should automatically follow this lead – we note here the 28th January 2021 Statement by UK Finance and the Building Societies Association (BSA), which explicitly stated that “lenders require clear support and endorsement of the RICS Valuer guidance from the Government which includes written confirmation from MHCLG or their expert panel that the proposed guidance is consistent with the January 2020 and November 2020 Advice Notes”.

Call for Government to release Feedback Statement

We repeat once again the call that we, UK Finance and the BSA have made for the Government to release the Feedback Statement on its Risk Prioritisation of Existing Buildings Call for Evidence. As that call for evidence closed nearly a year ago, and it is now well over a year since Robert Jenrick said he was commissioning leading experts in the field to develop, as quickly as possible, a sophisticated matrix of risk, it is astounding that the Government is still choosing to keep the results of this consultation hidden from the public.

Government should release the Feedback Statement on its Risk Prioritisation of Existing Buildings Call for Evidence. It has been almost a year since this call for evidence closed, and if the evidence government has collected presents a picture that is materially different to the proposed RICS guidance all parties need to know this.

UK FINANCE

We certainly do not wish to see a repeat of the strange situation where MHCLG released a press release on 21st November 2020 to congratulate itself for stepping in to help homeowners, thanks to an apparent agreement reached between the Government, RICS, UK Finance and the BSA, only for UK Finance and the BSA to then be reported as saying they had not agreed to being named in that announcement. If lenders agree with the RICS Guidance and will adopt it at face value without requiring further surveys or information, then this must be confirmed in the public domain.

Market for sales and lending on flats may still be affected

We also remain concerned that whilst the Advice for Building Owners of Multi-storey, Multi-occupied Residential Buildings, and the Supplementary Advice Note, remain in place, it is entirely feasible that buildings of any height will require remediation and this will, inevitably, affect the markets for sales and lending on flats. We note that the Guidance itself states that it is not a life safety risk assessment and the onus (and associated liability) is with the valuer to determine if further information about remediation work affecting value is required.

EWS1 forms

The Guidance also provides example disclaimers for valuers to use, and explicitly states that “not requesting or having sight of an EWS1 form for those properties outside the criteria in this document is no guarantee that future remediation costs affecting value will not be required” and any valuation “decision is not a guarantee that works will not be required in future”. As with all Guidance, the proof of the pudding will be in how it is implemented – with RICS stating that no liability is to be accepted on this guidance, or any party using this guidance note to decide whether an EWS1 form is required, we are still unconvinced that a return to any sort of normality will be achieved given industry will continue to mitigate its own liability by opting to take a risk-averse approach.

We must also note the decision by RICS to guide that buildings of any height with HPL cladding will still require an EWS1 form – this puts into focus the unfair and arbitrary decision of the Government to force Cladding Tax loans onto innocent victims in HPL-clad buildings under 18m.

Ultimately, we must remember that, whilst a significant issue, the requirement for a compliant EWS1 form is now only one part of the national building safety crisis, and we are concerned that no account is being taken of the wide range of serious internal and external safety defects being uncovered in residential buildings of all heights.

It is clear that the EWS1 certificate will only identify issues with the cladding and will not take into account: if the cladding has been installed safely and correctly, dangerous insulation (which may have been installed based on a fraudulent fire test) and/or a lack of cavity barriers beneath the cladding, issues with structural steel fire protection, or the increasing number of buildings reporting internal compartmentation failings that will require costly remediation running into tens of thousands of pounds and, on some occasions, over one hundred thousand pounds per leaseholder. The generally accepted view of fire engineers is that any cladding system must undergo an intrusive survey to ascertain its performance in limiting fire spread; hence many leaseholders will still be trapped in unsafe buildings and this revised guidance will do nothing to help them.

How were leaseholders consulted?

We must also query the apparent “painstaking consultation” RICS says it has undertaken with leaseholders – whilst we did respond to the consultation, we are unaware of any other formal consultation that has taken place with leaseholders and we would welcome RICS providing evidence of the consultation it has undertaken with the innocent leaseholders trapped in this unfortunate situation through absolutely no fault of their own.

We will continue to call on the Government to take control, provide certainty on risk prioritisation and fairly bring about an end to the building safety crisis we have been experiencing for nearly four years.