High Risk Buildings: Security Considerations

The horror of the tragedy at Grenfell Tower continues to reverberate throughout the social housing sector, as we soberly digest the contents of the Phase 2 Grenfell Tower Inquiry Report (the Phase 2 Report).  

We have published here a full review of the key recommendations that may impact on Registered Providers, but this article specifically considers the implications from a property security perspective.

According to the Regulator's latest quarterly Fire Safety Remediation Survey of English social landlords, 10.6% of buildings are still identified as having life critical fire safety defects.  

Since the Grenfell tragedy, funders are generally taking a more cautious approach to property security by seeking to add specific restrictions and/or imposing additional due diligence requirements in relation to high rise buildings.  As a consequence, some Registered Providers will be forced to remove properties from charge that don't meet the enhanced requisite criteria. This invariably impacts on RPs' ability to fully utilise their assets to leverage debt.   

Since the introduction of the Building Safety Act 2022, a number of funders have also contemplated, and in some instances, insisted on, the inclusion of new restrictions for charged properties by reference to the definition of “higher-risk building” (HRB).  

The Phase 2 Report concluded that this definition by reference only to a building's height is unsatisfactory and arbitrary in nature.  The use and, in particular, the likely presence of, vulnerable people was cited as being more relevant to the high-risk nature of a building.  

It is a key recommendation of the Phase 2 Report that the statutory definition of HRB is urgently reviewed.  Any changes to the definition may cause more social housing properties to be classified as HRBs. 

It is not yet clear which recommendations will be taken on board or how these will be actioned, but in expectation that this will attract additional scrutiny from both the Regulator and funders, this could impact on covenants within funding documentation.  

We would therefore recommend that all Registered Providers conduct a review of (i) their funding documentation to identify the key restrictions; and (ii) of their housing stock, paying close attention to their existing charged properties, to ensure that they are ready to respond quickly and decisively in anticipation of any upcoming changes where HRBs are concerned.