Since the tragedy of the Grenfell fire, it has become clear that a large number of buildings which form residential developments are cladded with dangerous materials. This means that there is panelling attached to the building which is not fire resistant. As the concerns have increased, properties that were not initially thought to be affected have been identified as at risk, for example those which have wooden balconies stacked vertically above each other.
The cost of remediation has become a significant problem for organisations which own the freehold of these buildings, the tenants that own flats within the affected buildings and, indeed, the government.
The government has recently announced its intention to introduce a Residential Property Developer Tax and the intention is to announce the final design of the tax in the Autumn Budget. The new tax is to be charged on the profits of companies that carry out residential property development. It is proposed that the tax will be applied to profits arising in accounting periods ending on or after 1 April 2022. The government states that it has introduced the change to 'ensure that the largest developers make a fair contribution to help fund the government's cladding remediation costs'. Whilst this is no doubt a welcome announcement, the fact remains that there are thousands of flat owners who are unable to sell their properties because their flat is in a building which is deemed to have unsafe cladding. Unsurprisingly, many lenders are wary of offering borrowers mortgage financing to purchase these properties.
This has left many property owners in legal limbo. They are facing unsustainable service charge demands often running to many thousands of pounds per property.
Anybody wanting to purchase a flat should be very cautious when first making an offer on a property. It is not necessarily the case that unsafe cladding will be revealed on the estate agents' particulars and it is often left to the buyer's conveyancer to discover the problem and advise their buyer client, often weeks or months into the transaction.
Any buyer should ensure that they instruct their conveyancer early in the transaction, particularly if they are interested in purchasing a relatively new flat. A buyer may wish to consider holding back on incurring too many costs until their conveyancer has discovered whether the property is affected. The government has announced its intention to try to address what is now called the 'cladding scandal', but it is fair to say that many more conveyancing transactions will be scuppered before the issue is resolved.
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