There is currently significant concern and public interest surrounding the fire safety of high-rise residential buildings and the associated costs of remediating these building defects. Here we set out Aviva’s position on this important area.
Page updated 4 August 2021
On 21 July 2021 a statement on building safety was issued by the Ministry for Housing Communities and Local Government. The full statement can be found here: https://questions-statements.parliament.uk/written-statements/detail/2021-07-21/hcws228
This in particular announced an intention to amend previous guidance in relation to lower rise residential buildings under 18m high. More detail is expected to be forthcoming in the coming weeks and this page will be updated as that happens.
The team at Aviva will keep this under review and the process for reviewing directly controlled and managed lower rise buildings in the Fund will reflect that new guidance.
Aviva’s asset management business, Aviva Investors, manages the Aviva Investors Ground Rent Fund (‘the Fund’). The Fund owns a freehold portfolio of around 1,000 residential apartment buildings across England and Wales.
The Fund is ultimately owned by approximately 350,000 individual pension fund investors. Aviva Investors has a duty to protect their pension savings. Neither Aviva PLC nor Aviva Investors own the buildings in the Fund.
The Fund exists to provide secure long-term income to these retirees and pension savers. They are members of the UK pension schemes that own the Fund.
The value of the Fund’s interest in any one of these buildings is typically under 5% of the overall value of that building (the remaining value being with the leaseholders).
We understand the concerns of leaseholders in buildings affected by fire safety issues and we welcome the Government’s funding to remove unsafe cladding from these high-rise residential buildings. Like leaseholders, the Fund also acquired its interest in these buildings with assurances they were constructed in accordance with approved building methods and complied with building regulations current at the time.
Due to these understandable concerns, Aviva is taking a number of steps in an effort to help leaseholders:
- On behalf of all leaseholders, Aviva is engaging with Government as we think there is a large funding gap, which can only be managed by government intervention;
- For properties where the Fund is the “responsible person” under fire safety legislation, and following Government guidance following the Grenfell tragedy, we have reviewed all buildings in the Fund’s portfolio over 18m high to determine the level of fire safety risk. A number of buildings have been identified as needing remediation work and fire safety measures. We are supporting leaseholders in these buildings by applying on their behalf to the Government’s Building Safety Fund for funding to pay towards the costs of this remediation work;
- For these buildings, we are also investigating if, and to what extent, the developers and contractors might be liable for poor design or workmanship which has resulted in fire safety risks. In these cases we will pursue and request, on behalf of leaseholders, that those parties either make good or pay for the remediation works;
- For high rise residential buildings over 18m where the Fund is freeholder but another party is the responsible person for fire safety, we will support those parties who are seeking funding from the Building Safety Fund or from developers and contractors where poor design or workmanship has resulted in fire safety risks.
- For residential buildings in the Fund’s portfolio that are under 18m high and for which the Fund is the “responsible person” for fire safety, we will undertake a fire safety review when Government publishes the amended guidance trailed in its Ministerial Statement of 21 July 2021. We also await details of the Government’s proposed loan scheme to establish what effect that might have on any remediation works that could still be required for these buildings. Meanwhile, we will continue to observe the requirement to undertake regular fire risk assessments.
Aviva is continually reviewing what other practical steps it might take to help the Fund’s leaseholders, given many are facing considerable uncertainty and financial costs due to the fire safety issues affecting their building. We will update this page on any such practical steps we identify as and when we are in a position to share these. We hope this clarifies the situation.
What is Aviva’s involvement with apartment buildings that have potentially combustible cladding or are otherwise affected by fire safety issues?
Aviva’s asset management business, Aviva Investors, manages the Aviva Investors Ground Rent Fund (‘the Fund’). The Fund owns a portfolio of over 1,000 residential apartment buildings across England and Wales.
Neither Aviva PLC nor Aviva Investors own the buildings in the Fund. The Fund is ultimately owned by approximately 350,000 individual pension fund investors. Aviva Investors has a duty to protect their pension savings.
For the 42 high-rise buildings over 18m in the portfolio where the Fund is the “responsible person” under fire safety legislation, and in line with Government guidance issued after the Grenfell tragedy, these directly managed buildings have been reviewed to determine the level of fire safety risk.
For the 198 high-rise buildings over 18m where the Fund is freeholder but another party is the “responsible person” for fire safety (usually a residents’ management company or right to manage company), that party has to arrange for the building to be reviewed to determine its fire safety risk. For these indirectly controlled buildings, the Fund will offer practical support to those parties seeking funding from the Building Safety Fund and/or from developers and contractors where poor design or workmanship has resulted in fire safety risks.
What’s the difference between a directly controlled apartment building and an indirectly controlled one and what does it mean when it comes to dealing with potentially combustible cladding or other fire safety issues?
The structure of control is embedded in the leases at the time they were granted or where leaseholders have adopted the Right to Manage. It is not a distinction made by the Fund, and for indirectly-controlled properties the Fund does not have the authority to make changes.
Control is important because it affects who is responsible for repair and maintenance and running of the building and its service charge (e.g. the freeholder or their managing agent, or the residents’ management company and its property manager). From a fire safety perspective, it determines who is the responsible person for fire safety and for addressing those risks.
What responsibility does the Fund hold with respect to the potentially combustible cladding and other fire safety issues affecting buildings? What are you doing to support leaseholders?
The Fund purchased the freehold in its buildings after they had been developed and pre-let. Similar to leaseholders, the Fund purchased these buildings on the understanding they had been properly constructed and complied with building regulations.
After the Grenfell tragedy, the Government required a review of all high-rise buildings and subsequently the use of certain cladding materials was banned. It is for this type of remedial work – the replacement of potentially combustible cladding - that the Government’s Building Safety Fund has been launched.
In January 2020, the Government issued its Advice for Building Owners of Multi-storey, Multi-occupied Residential Buildings, which requires the responsible person for each building to carry out investigatory work. This has, in many cases, revealed poor standards of construction that need to be remedied.
For the buildings that the Fund manages directly, it is undertaking all appropriate surveys and where possible making applications for external funding from the Building Safety Fund and Waking Watch Relief Fund, and/or from developers and contractors where poor design or workmanship has resulted in fire safety risks.
For indirectly controlled buildings, where the Fund is the freeholder but another party is the responsible person for fire safety, we will offer practical support to those parties seeking funding from the Building Safety Fund, and/or from developers and contractors where poor design or workmanship has resulted in fire safety risks.
Who do you think is responsible for the potentially combustible cladding and other fire safety issues and what are you doing about this?
There are possible routes to recover costs from third parties. These include:
- An application to the Building Safety Fund for funding to cover the replacement of the potentially combustible cladding system;
- A claim against the original developer, if not time barred and where the remediation requirement is caused by poor design or workmanship at the time of construction;
- A claim to the NHBC under the warranty that will have been given for these buildings.
It is a requirement of the Building Safety Fund that these routes to recovery from a third party are explored.
What are the Fund’s responsibilities when it comes to making applications to the Government’s Building Safety Fund?
For directly controlled buildings, the Fund has registered all eligible buildings and progressed the formal application stage for funding on being invited by the Ministry of Housing Communities & Local Government’s (MHCLG’s) delivery partners to do so following their assessment of that building’s initial registration.
When the Building Safety Fund (BSF) opened on 31 July 2020 the deadline for completion of the full application was 31 December 2020. That deadline date was subsequently extended by MHCLG to 30 June 2021. On 26 May 2021, in recognition that many buildings where still awaiting the result of the BSF process, MHCLG released revised guidance stating that more time may be permitted on a case-by -case basis.
The Fund has applied for more time for all its directly controlled buildings that are still awaiting assessment of their initial registration or are still progressing through the BSF formal application process. All leaseholders in buildings which are yet received a final BSF funding decision will have received an update explaining this, and the progress of their building in the BSF process, from Mainstay.
For indirectly controlled properties where the Fund is freeholder, but another party is the “responsible person” for fire safety, that person is also responsible for BSF applications and should be providing leaseholders with updates on the status of any application, including any extension sought where that process is ongoing. We have encouraged these parties to seek funding from the BSF but have no influence over the progress of that funding application.
Why does Aviva not correspond with me directly about this matter?
Our asset manager, Mainstay Residential, works closely with the team at Aviva. Many of our direct tenants will have received leaseholder-wide updates communications from Mainstay, which are discussed with, and approved by, the team at Aviva before being sent. Mainstay also have FAQs on its website: http://www.mainstaygroup.co.uk/ews/
There have been claims that you have changed ESW1 ratings so that Aviva can demand higher insurance premiums in affected buildings. What is your response to such claims?
EWS1 ratings have changed at some buildings after a thorough review of the ratings given and on the advice of professionals, following Government guidance applicable at the time. These changes are not influenced by insurance premiums.
Who decides who insures the building?
The obligation for insurance is set out in the lease. For properties where the obligation for insurance lies with the Fund, an independent broker is appointed to undertake a competitive tender process and obtain quotes for the cover. Details of this process, including the several insurers invited to tender, are shared (where applicable) with the residents’ management company via their management company, who are also free to seek their own quotes for consideration by the independent broker as part of the independent evaluation process. The information provided can be shared with tenants.
Why are waking watches in place in certain buildings?
The need comes from fire engineer reports, prepared following Government guidance, when they state that the evacuation strategy for a building must change from “stay put” to “simultaneous evacuation”. Leaseholders can only know when to evacuate if there is an adequate fire alarm. Until that enhanced fire alarm can be installed, the waking watch marshals will act as a human alarm system. Once remediation works are complete, the evacuation strategy can go back to “stay put”.
Who is responsible for appointing the waking watches in buildings that require them? How do you ensure these are fit for purpose?
Waking watches are implemented in response to a requirement specified by a fire engineer. For directly controlled buildings the waking watch is appointed by the property manager with oversight from the Fund’s asset manager. Reviews are carried out to ensure the patrol is proper and adequate, with supervision on site. Additional measures to record the patrol's frequency and routes can also be implemented. Neither Aviva nor the Fund’s agents profit in any way from the waking watches. For indirectly controlled buildings, the waking watch will be appointed by the responsible person for that building, typically the residents’ management company or right to manage company of that building.
Much of the focus is on blocks that are 18 metres or above – what is the situation at low-rise developments? Have some of those got defective cladding too?
The Fund is currently looking at its directly controlled and managed buildings that are over 18m high to access the Building Safety Fund, where possible. The Government Advice for Building Owners of Multi-storey, Multi-occupied Residential Buildings published in January 2020 affects lower rise buildings too however in a Ministerial Statement dated 21 July 2021 Robert Jenrick, Secretary of State for MHCLG, announced that this would be amended. More information will follow on this page once further details are published by MHCLG.
How is your approach to fire risk safety in buildings owned by the Fund in line with your claims to be a responsible investor?
We take our responsibilities extremely seriously and will continue to explore what other practical steps we can take to help the Fund’s leaseholders, given many are facing considerable uncertainty and financial costs due to the fire safety issues affecting their building.