Combustible cladding: who picks up the tab?

A main area of focus for the Grenfell Tower Inquiry has been the extent to which combustible materials used within the facade system may have contributed to the external spread of the fire.

Where remedial work is needed to bring existing buildings into line with the relevant Building Regulations, questions will arise as to who should foot the bill and whether liability for repair costs can be passed on to any third parties.

Background

Recent events have led many tall building (above 18m) owners to review the composition of the facade and other fire protection measures present in their buildings, in the light of updated government guidance issued as a result of the tragedy.

The government has announced that it will fund the replacement of unsafe aluminium composite material (ACM) cladding on certain high-rise private residential properties, but only where “reasonable steps” are taken to recover the costs from those responsible.

While each case will turn on its own facts, there are a number of parties that may be looked towards for a contribution in these circumstances.

Insurers

It is not only the liability insurers of parties involved in the construction of a building that may find themselves dealing with claims over allegedly defective cladding. The first question a building or flat owner faced with a large repair bill is likely to ask is whether cover is available under any insurance policy over the building.

While a traditional buildings policy is unlikely to respond, buildings that have been recently built or refurbished may benefit from additional inherent latent defects insurance or structural housing warranty cover or other similar cover. Whether a claim is available under this type of policy will depend on the individual circumstances.

These policies generally respond where a building has sustained “actual” or “imminent” damage. Housing warranty policies in particular often also extend to cover defects that are discovered to be causing a present or imminent danger to the physical health and safety of the occupants. It is generally necessary to show that a defect constitutes a breach of the building regulations in force at the time of construction, rather than a breach of current regulations (if different).

The party with primary responsibility for any required repair costs, whether the insurer or otherwise, is thereafter likely to explore whether any third party recovery claims are available to pass liability on elsewhere.

Contractors, designers and sub-contractors

Building owners have common law and statutory obligations to tenants and occupiers of the building to ensure their safety. It is likely in all circumstances that if the building fails to comply with the relevant Building Regulations that it would constitute a breach of that duty. Individual leases may contain specific terms which widen this duty.

A breach of the Building Regulations may have been caused by negligent design or defective workmanship. Some will be obvious to identify (such as a combustible cladding material like ACM) but others may be more difficult, particularly if concealed behind the external cladding. Firstly, it is necessary to identify the nature of the breach of the Building Regulations and whether it arises as a result of a breach of duty/contract. Any defect which is a breach of the Building Regulations will almost certainly constitute a breach of the relevant contract.

If the building owner was the person who employed the designers/builders to design and build the building then it ought to have a direct contractual link with those parties. Where the building owner was not the original employer under the building contract, it may have acquired collateral warranties from the designers/builders or have had rights assigned to it. Limitation periods will need to be checked in each case but will generally be 12 years from the date of practical completion if the building contract was executed as a deed. The position may be different for consultants.

Where a defect has been caused by negligent design, advice or specification (or lack of) it is likely that the relevant professional (if still solvent) will have professional indemnity insurance which may respond to a claim for damages if negligence can be proven. Such claims could be made against design consultants and/or contractors and sub-contractors if their contracts contain responsibilities in relation to design/specification. Those responsibilities are likely to be subject to a test of reasonable skill and care, raising the question of whether a claim can be successfully brought in circumstances where the industry generally considered that it was designing in accordance with the building regulations applicable at the time.

Parties are encouraged to bring claims as soon as practicable as professional indemnity insurance is generally held on a “claims made” basis, which means that the policy responds at the time the claim is made. Therefore, if the policy holder becomes insolvent or no longer keeps the said insurance then the claim may be uninsured (bringing additional practical difficulties in recovering damages).

In the case of defective workmanship (claims against contractors/sub-contractors), any claim may require the builder to put right the defective work or be for the costs of engaging a third party contractor to do so. However, it is unlikely that the builder will be insured for claims of this nature. Generally, the main contractor will be the single point of responsibility for carrying out the works and for the materials and workmanship used in their construction. It is usual for sub-contractors undertaking major sub-contract packages (including works relating to cladding and structure) to provide building owners with collateral warranties based upon their obligations under their sub-contract with the main contractor. The building owner would be able to pursue a breach of warranty claim if the sub-contractor has breached the sub-contract and caused the building owner a loss – such a claim survives in the event that the main contractor becomes insolvent.

Conclusion

The picture as to who may be responsible for picking up combustible cladding repair costs is unlikely to be a straightforward one, particularly while we await the outcome of the Inquiry and the various other ongoing reviews of the regulatory landscape.

That said, there are a number of parties that may be looked towards for a contribution and claims are already starting to emerge.

Disclaimer

This information is for general information purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Please contact us for specific advice on your circumstances. © Shoosmiths LLP 2024.

 


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