Grenfell, Cladding, and Compensation

18 Feb

72 people died in the Grenfell fire disaster. The causes of the deaths encompass a number of factors.

However, the impetus for the rapid spread of the fire was evidently the use of Celotex polyisocyanurate foam (banned in the United States) for insulation in the cladding panels, and the absence of fire breaks. The findings of the subsequent public inquiry make it plain that many more buildings are at risk. In response, the Government has made £3.5bn available to rectify the problem.

Anecdotal evidence is that that sum is inadequate for the purpose. Leaseholders will not have to pay for remedials on buildings of the arbitrary height of 18 metres but, on lower buildings, will be expected to self-fund, albeit with the benefit of low interest loans with payments capped at £50 per month. How specific buildings at risk will be identified and the money apportioned remains unclear. If the funding will not eradicate the problem, the question therefore arises as to the legal position of leaseholders, freeholders, and developers.

The difficulty faced by existing leaseholders is that whilst their landlord will have an obligation to comply with fire regulations as they are enacted from time to time, the cost of doing so with regard to the common parts will generally be recoverable from the tenants through the service charge. They will not be assisted by the Homes (Fitness for Human Habitation) Act 2018. This may seem unfair to tenants, for many of whom the costs could well be catastrophic and could also render their flats unsaleable. However, landlords may be in no better financial position themselves to meet the cost, and an insolvent landlord, private or corporate, would help no one. There can be recourse to general taxation, but politically it is difficult to require the public as a whole to assume the cost attendant on the failure of other people’s private arrangements. Otherwise, the floodgates open with similar calls for assistance emanating from the likes of those members of Lloyds who were bankrupted in the 1990s, or who invested their pensions with Equitable Life. Part of the funding problem will be solved by the Government’s proposals to levy a new tax on residential property development, but it may well be insufficient.

Proceedings by landlords or tenants against developers are likely to face insurmountable difficulties. Tenants, and subsequent freehold purchasers, will often not have any contract to sue upon. That would leave their proceeding in tort. However, that would require proof of negligence against the developer or the designers, but since government endorsed the use of “Class 0” cladding, such a claim would be very difficult indeed to advance. A further problem would arise from the fact that the damage complained of would be of the building itself, not of any other person or property, i.e. there would not be a claim until a fire actually broke out. (It is possible that the “complex structure” principle, largely ignored since its proposition in the case of Murphy v Brentwood in 1991, which suggests that potential damage of one part of a structure to another might constitute different property, might be resurrected, but the outcome would be extremely uncertain.) And even if the Government regulations could be shown to be inadequate, that would be unlikely to found liability (see, by way of analogy, the recent case of Lessees and Management Company of Herons Court v Heronslea Limited decided in 2019). First landlords with a direct contract with the developer, or tenants with a collateral warranty, might, in theory, be in a better position, but such contracts and warranties are unlikely, in principle, to cover these circumstances.

Conclusion

Grenfell and cladding is a problem without an obvious solution and all possibilities seem unattractive. It is unlikely that Government funding will provide the answer or that parties will find compensation through the legal matrix. It remains to be seen whether solicitors will address the concerns in conveyances and development agreements.