In our previous articles, Flat Broke: counting the cost of combustible cladding and Cladding Crisis: The merry-go-round of buck passing, we have looked at the problems of combustible cladding from a predominantly residential perspective. In this article, we turn our attention to the challenges arising from the presence of defective external wall systems (EWSs) in commercial buildings, a topic that has not received much recognition from government or the media but which is no less important for occupiers and owners. The commercial property market is less susceptible to lenders’ sensitivities but otherwise the issues affecting corporate occupiers and owners are broadly similar to their residential counterparts.
ACQUISITIONS OF PROPERTY WITH POTENTIAL CLADDING ISSUES
What lies beneath?
How do you find out whether the external wall system of a commercial building contains hazardous materials? There is no certification process equivalent to the EWS1 for residential blocks and as yet no standard technical due diligence report.
Following the Grenfell Tower tragedy, and the reviews and public inquiries that came after, it has become abundantly clear that building owners and tenants cannot not simply rely on a building regulations completion certificate to reassure themselves that a building will keep its occupants safe in the event of a fire. Evidence emerged during the first inquiry of building inspectors (under pressure from developers, in the case of approved inspectors, and sinking under the weight of impossible caseloads, in the case of local authority inspectors) signing off some buildings without carrying out proper inspections. Whether you are looking to buy or lease a building with an EWS, you will have to make the most of what is available to you, to avoid walking into a fire-pit.
A comprehensive building survey is your starting point but an ordinary survey will generally not tell you anything about a building’s EWS, other than the fact that one is present. Building facades have become highly specialised in recent years, beyond the expertise of most surveyors and architects. They are complex structures, made up of many different components, which are manufactured and installed by multiple parties. A modern non-load-bearing facade system has three main sections: the external cladding, thermal insulation and the backing wall. You will need specialist advice from a cladding facade engineer and/or fire engineer to assess the fire risk safety of an EWS.
Your facade specialist should seek to establish whether the EWS complies with British Standard 8414: Fire performance of external cladding systems. This standard, which was updated in 2017 and again in June 2020, is used to test an EWS to evaluate whether it will result in excessive fire spread up the outside of a building. If the test results are not available, you should ask yourself why not, and whether you and your employees will be safe if a fire breaks out. As an employer, you have extensive duties under the recently updated Regulatory Reform (Fire Safety) Order 2005.
We will carry out the usual due diligence that we undertake for all property acquisitions, which includes raising standard enquiries before contract. However, although some of these extend to fire safety matters generally, they do not yet include specific enquiries about EWSs, although this is under review.
If the seller or landlord fails to give you all the test reports, as-built plans and specifications, construction documentation and other information you will need to make an informed decision about whether to proceed, then your own investigations and surveys will be paramount.
WHAT TYPES OF BUILDING ARE AFFECTED BY CLADDING ISSUES?
From a non-legal perspective, any building with cladding requires enhanced due diligence but the legal ban on the use of combustible materials in EWSs, introduced in 2018, only applies to properties which contain one or more dwellings, an institution or a room for residential purposes, where the occupants sleep overnight. In the commercial sector, this includes student accommodation, care homes and hospitals. Hostels, hotels, and boarding houses were excluded on the grounds that they have a higher level of fire detection and alarm systems in comparison to residential buildings, although some hotel chains have taken remedial action of their own accord. In response to intense criticism of the Building Regulations in the Hackitt Report, Approved Document B, which provides guidance on fire safety for all new buildings, was reviewed and strengthened. Requirement B4 deals with the prevention of external fire spread up the outside of buildings via the external wall.
Approved Document B is split into two separate sections. Volume 2 is the relevant document for commercial properties and is supplemented by guidance for special or complex building types such as healthcare buildings. It contains detailed guidance about fire safety measures generally but the ban on the use of combustible materials only applies to those buildings mentioned above with a height over 18 metres, a restriction that has been heavily criticised by many who recommend reducing the height criteria to 11 metres (or getting rid of it altogether) and extending the scope of the ban to other buildings.
Shops, offices and industrial buildings
These premises are assessed as having lower hazard risks to life due to their reduced occupancy overnight. They are nonetheless subject to the overarching requirement to comply with the updated B4 guidance. Industrial buildings, which nowadays almost universally incorporate rainscreen cladding, come way down the list, just above storage facilities and car parks, but perhaps that is not surprising given their typical height and specification.
To the bewilderment of many, stadiums, concert halls and private schools can still incorporate combustible cladding. The Royal Institute of British Architects has recommended that the ban should be extended to all buildings where a catastrophic event could cause multiple fatalities, including not only buildings where people sleep but also those where young people assemble (e.g. schools and nurseries), and public assembly buildings for all age groups (e.g. theatres and community centres).
In the meantime …
All commercial properties are subject to the Fire Safety Order 2005 and its numerous accompanying guides covering a wide range of commercial premises, from hospitality and entertainment venues and places of assembly, to residential care homes, industrial buildings, offices and shops. The Order requires owners to take reasonable steps to mitigate any fire risks identified, and for now, the government believes this is sufficient. Although this approach places the burden of compliance on individual property occupiers and managers rather than the construction industry, the government intends to regulate the latter via the Building Safety Bill which is currently making its way (slowly) through Parliament.
ADVICE FOR OCCUPIERS
If you’re taking on a five year lease of a couple of floors in an office building, you do not want to find yourself in a position where you have to contribute to the cost of replacing a dangerous EWS. As with residential leases, the issue of who pays to replace a potentially dangerous EWS will depend on the wording of your lease. Traditionally, landlords expect to pass on all maintenance costs to its tenants through an all-encompassing service charge, and repair and dilapidations obligations, but replacement cladding costs are in a league of their own and as a tenant, you should insist that they are treated as an investment expense, to be borne by the landlord.
We will carve out any obligation on your part to reimburse the landlord for remedying any safety hazards within the building, and at the same time, your landlord should accept a positive obligation to remedy a defective EWS at its own expense. If you can get the heads of terms to include these requirements, so much the better: it will save time and argument when negotiating the lease.
Older leases are unlikely to protect tenants against replacement cladding costs. Whether or not your landlord can require you to contribute towards EWS remediation costs will depend on a precise interpretation of your lease. If you have concerns about a potential or actual remediation claim, please contact us for a lease review.
ADVICE FOR OWNERS
There is no government funding to replace combustible cladding in commercial properties so owners must consider alternative solutions. If you bought a new build, or a building that was less than 12 years’ old, you should have received a full package of collateral warranties from the original building contractor, professional team and any subcontractors with responsibilities for any design element of the building. However, you cannot assume that these will automatically allow you to recover the cost of replacing a defective EWS. Unsafe cladding may result from a faulty design and specification or failure to comply with contractual requirements but this will not necessarily be so. A contractor may have fully complied with all of its obligations under its contract including obligations to comply with statutory requirements and to exercise reasonable care and skill.
The problem is that those responsible for designing a faulty EWS will be judged by what others in the industry were doing at the time, and unsafe cladding and insulation were commonly incorporated into EWSs until Grenfell revealed their treacherous qualities. At the same time, the Building Regulations that should have kept people safe were not clear or straightforward. Nonetheless, there have been some successful claims. If the contract states that the building should be fit for purpose and of satisfactory quality, there is an argument that a building which cannot be occupied safely does not meet those requirements. Whether or not you can get a claim off the ground will depend on the building contract, appointments and warranties, and the limitation periods applicable to them so please get in touch if you want us to look over the paperwork. Bear in mind that the relevant party will need to still be in business and have an appropriate level of indemnity insurance.
These are just some of the challenges facing owners and tenants of commercial buildings. The issues arising from dangerous cladding are complex and the list continues to expand as more lessons emerge from the Grenfell Tower inquiry and other investigations. If you want advice or more information, please get in touch with Stuart Burns or Deborah Caldwell.
The information on this site about legal matters is provided as a general guide only. Although we try to ensure that all of the information on this site is accurate and up to date, this cannot be guaranteed. The information on this site should not be relied upon or construed as constituting legal advice and Howes Percival LLP disclaims liability in relation to its use. You should seek appropriate legal advice before taking or refraining from taking any action.