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Cladding Issues - Not Always a Complete Disaster

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The latest tip from our Receivership team


Since the Grenfell Tower tragedy in June 2017, we have been appointed as Receivers over many high-rise flats with cladding issues. To our surprise, we have achieved sales in all of our cases, although we have seen a significant reduction in buyer demand and, in turn, reduced prices.

Following Grenfell, lenders have sought assurance on the safety of external wall systems as there was concern that flats in high-rise blocks would not represent good security and that owners could be liable for significant repair costs.

The External Wall Fire Review, or EWS1 form, was introduced to record in a consistent and universal manner what assessments have been carried out on the external wall construction of residential apartment buildings where the highest floor is 18 metres or more above ground level or, where specific concerns exist.

A pre-condition for lenders lending against flats in high-rise blocks is to check that an external wall fire review has been carried out and signed off by a qualified surveyor. With a valid EWS-1 on file, the recovery and sale process, if required, will be swifter without the need to obtain one from the managing agent, which (if available) can invariably involve delays and costs. The alternative is contributing towards rectification and probably substantial delays.


Recent case 

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We were recently appointed over the loan on a 3-bedroom high rise flat in Aldgate in the City fringe. Despite being a relatively modern development, the building did not have an External Fire Review Certificate (EWS-1), meaning that mainstream lenders would not provide funding. The only credible buyer, therefore, was a cash purchaser.

As there was local high net worth buyer demand, we wanted to explore the private treaty market with auction as a backstop. We appointed a well-known national estate agent with a local office to advertise to occupiers and investors with cash funding.

A suitable buyer came forward and terms were agreed, with a strict timetable for exchange and completion, meaning that a sale was completed within 10 weeks.

Although on paper the lender saw a loss, the principal loan debt and a large proportion of the interest was recovered from what had initially been an asset but had become a liability.