By Susanna Caulfield, Senior Associate in Rosling King’s Real Estate Group.
A new set of regulations introduced by the government after the Grenfell Tower disaster has created a minefield of confusion for flat owners in high rise buildings across the UK. Here, Susanna Caulfield, Senior Associate in the Real Estate Group at Rosling King LLP, takes a deeper look at the External Wall Survey (EWS) certification framework.
After the tragic Grenfell Tower fire in 2017, there was a significant increase in the rejection of mortgage applications and decline in property sales in high rise buildings. To give confidence to both lenders and homeowners, the government unveiled the External Wall Survey certificate (EWS) framework. This regulation however, has become the source of greater confusion, with flat owners from any high rise finding themselves at risk. Here we take a closer look at these regulations and how owners and lenders can navigate through the regulatory maze that the mechanism has created.
Since the Grenfell Tower disaster, lenders became weary of risks associated with cladding and surveyors acting for lenders would in some cases give flats a nil value or at least a valuation substantially less than asking price if fire risks were identified or compliance with government guidance could not be proved. To assist homeowners who often found themselves trapped in these properties without being able to sell or re-mortgage, the government introduced the External Wall Survey certificate (EWS1) as a framework for evaluating risks associated with cladding and for the reporting and valuation of high-rise buildings.
The EWS process was driven by the Royal Institution of Chartered Surveyors (RICS) who led a cross-industry working group to consider a best practice in the reporting and valuation of tall buildings within the secured lending arena with a view to agreeing a new standardised process. In December 2019, the industry agreed upon the EWS process, which was described as an “industry-wide valuation process which will help people buy and sell homes and re-mortgage in buildings above 18 metres (six storeys).” The purpose of these regulations was to provide guidance on what constituted building safety and thereby remove any arbitrary decision making by lenders or surveyors.
The EWS1 form was also supposed to act as a mechanism to evaluate the risks associated with the external cladding on high-rise buildings and assist owners in properties over 18 meters who could be liable for remediation costs in circumstances where fire risk issues were identified – rendering their properties poor securities for lenders.
The EWS process involves an assessment by a suitably qualified professional who completes the EWS1 form, which either verifies or denies the safety of a building’s cladding, and lasts for 5 years. The information that is recorded during the survey is used for valuation purposes only, and not as a life safety certificate.
The EWS1 certificate however has become highly controversial due to lenders treating it as proof of building safety for all high-rise buildings (anything higher than 18m). While EWS1 forms are not a statutory requirement, after the introduction of the process, flat owners seeking to sell or re-mortgage their homes have found that lenders increasingly asked for an EWS1 form, and that their mortgage applications were refused where one could not be provided. The vagueness of the regulations meant it had included any building classified as a high rise, even if they were compliant with fire safety guidelines. For lenders, refusing to grant a mortgage without an EWS1 has become a simple commercial decision.
When the process was first introduced, there was a great deal of confusion as to which buildings would require the EWS1 form. RICS’ initial guidance said the process applied to residential buildings in scope above 18m in height. Not all high-rise blocks needed an EWS1 form “only those with some form of combustible cladding or combustible material on balconies.” However, RICS further advised that some lower buildings might be in scope if there were specific concerns about combustible materials/balconies representing “a clear and obvious danger to life safety.”
In January 2020, the Government published consolidated guidance which says: “The need to assess and manage the risk of external fire spread applies to buildings of any height.” This presented further challenges for owners and added to the confusion, as individuals began reporting that lenders required EWS1 forms when trying to mortgage their properties, even in buildings that were under 18 meters tall.
To address the confusion, an agreement between RICS, UK Finance, the Building Societies Association and Government was announced on 21 November 2020. This clarification stated that an EWS1 form is no longer need for sales or re-mortgages on flats in blocks with no cladding. The Government said this would clear the way “for up to nearly 450,000 flat owners to sell, move or re-mortgage their homes.”
Last month the RICS issued new, narrower guidance aimed at significantly reducing the number of buildings that require the controversial form. The guidance aims to reduce the number of unnecessary requests made for EWS1 forms by providing a clear set of criteria for valuers to follow.
As of now, the RICS guidance is as follows:
For buildings over six storeys, an EWS1 form should be required where:
• there is cladding or curtain wall glazing on the building, or
• there are balconies that stack vertically above each other and either both the balustrades and decking are constructed with combustible materials (e.g. timber) or the decking is constructed with combustible materials and the balconies are directly linked by combustible material.
For buildings of five or six storeys, an EWS form should be required where:
• there is a significant amount of cladding on the building (for the purpose of this guidance, approximately one-quarter of the whole elevation estimated from what is visible standing at ground level is a significant amount), or
• there are ACM, MCM or HPL panels on the building, or
• there are balconies that stack vertically above each other and either both the balustrades and decking are constructed with combustible materials (e.g. timber), or the decking is constructed with combustible materials and the balconies are directly linked by combustible materials.
For buildings of four storeys or fewer, an EWS form should be required where:
• there are ACM, MCM or HPL panels on the building.
While there is now more clarity as to what the guidelines are for buildings of various sizes, the guidance is not statutory and banks can decide for themselves whether or not to adopt it. UK lenders are being urged to support the guidance and “work with their valuation providers to implement” them in order to reduce the number of unnecessary requests for EWS1 forms. The guidelines provide a clear criterion for valuers to follow but there are many examples of lenders requiring EWS1 forms for buildings not included by the RICS guidance. This has led to a rapid increase in demand for EWS1 forms, even for low-rise buildings, which has not been met with a ready supply of qualified surveyors. This has meant that owners looking to sell their flats may have to wait years before they can obtain an EWS1 form, and even once they’ve managed to secure a valuation, leaseholders and owners will have to pay up to £8000 to have the process done.
While the ESW1 process was introduced with the intention of adding some consistency and clarity to the valuation of property with regards to external wall safety, it has been difficult to achieve in practice and the non-statutory nature of the regulations means some uncertainty will remain.
For further information, please contact Susanna Caulfield or the Partner with whom you usually deal.
This article is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice.