Private Residential ACM Cladding Remediation Fund - Application Guidance

Background

The Private Residential ACM Cladding Remediation Fund will cover the cost of the replacement of cladding on private residential buildings over 18m in height, with an allowable tolerance of 30cm under this height. Funding will be provided to responsible entities who will be responsible for remediation, but the fund will be for the benefit of leaseholders who would otherwise incur the cost through service charge arrangements.

This guidance document sets out the scope and eligibility criteria for the fund, against which applications will be assessed. It describes which costs are covered, the eligibility criteria, how the fund works - including important rules on subsidy control – how to apply and the timetable for submitting applications.

The Department of Finance (DoF) is managing the administration of the fund on behalf of the Executive.

Eligibility criteria

The fund will be available for the benefit of leaseholders in residential buildings over 18m in height (or within the 30cm tolerance) who would otherwise have an obligation to meet the cost of cladding remediation by virtue of provisions in their leases.

To be eligible for the fund applicants must confirm they are replacing unsafe ACM cladding with materials of limited combustibility that have been classified as European Class A1 or A2-s1, d0. [1]

Building owners will be required to provide evidence to show they are actively identifying and pursuing all reasonable claims against those involved in the original cladding installations, and to pursue insurance and warranty claims where possible. Successful claims will require some or all the proceeds returned to government. Building owners therefore need to be mindful at all stages in the remediation process of the opportunities to secure and retain documentary evidence that could support such claims.

Applications for buildings comprising mixed residential and commercial use will be considered within scope.

Responsible entities, including engagement with leaseholders

Applications can only be made by the responsible entity and as a condition of funding, responsible entities will enter into a funding agreement on terms acceptable to DoF. A responsible entity may be the building freeholder or head leaseholder or a management company who has primary responsibility for the repair of the property. A management company which is not the responsible entity will still be able to apply and manage the application as an agent for the responsible entity.

Communications

Responsible entities are required to inform all leaseholders and residents that they are applying for funding. Responsible entities should also inform leaseholders and residents of the nature of the works they intend to carry out and should provide regular updates to leaseholders and residents on the progress of their funding application and remediation works. As a minimum we expect responsible entities to provide updates to leaseholders at the following key milestones:

• application submitted
• outcome of application received
• commencement of works (with an estimated completion date); and
• works completed

[1] A1 or A2-s1,d0 as classified in accordance with BS EN13501-1:2018

Unsafe ACM cladding

The fund will cover the removal and replacement of unsafe ACM cladding systems. ‘Unsafe’ means those cladding systems that have been identified as containing combustible materials (e.g. a polyethylene core in an aluminium composite panel) and which failed the series of BS8414 tests commissioned by the UK Government over summer 2017

The following criteria will be used as evidence that unsafe ACM cladding needs remediating:

• a copy of the Building Research Establishment’s (BRE) screening test result for a sample of the cladding from the building; or
• documentary evidence that the type of ACM matches the specification of ACM cladding which failed the UK Government’s BS8414 tests; or
• NI Fire & Rescue Service or Local Building Control Authority having notified DoF that unsafe ACM cladding has been confirmed

Exclusions

The fund will not be available for:

• non-residential buildings, hotels, hostels, purpose-built student accommodation uses, private rental sector
• buildings under 18m in height (allowing for the 30cm tolerance)
• unsafe non-ACM cladding systems
• buildings where a warranty claim for the full costs of remediation has been accepted
• costs which would not otherwise be recovered from residential leaseholders through the service charge provisions in their leases; and
• buildings owned by social sector landlords

Subsidy control

EU State aid rules no longer apply to subsidies granted from 1 January 2021 in the UK, except for aid within scope of the Withdrawal Agreement, including aid under Article 10 of the Northern Ireland Protocol. However, public authorities must comply with our international commitments on subsidies, and in particular the subsidies chapter of the UK-EU Trade and Co-operation agreement (TCA).

The subsidy control rules will replace the previous diligence requirements for the provision of state aid, which no longer apply following the end of the UK-EU transition period on 31 December 2020. Subsidy control rules apply from 1 January 2021 and allow the government to provide funding from state funds to economic actors, previously referred to as undertakings. The revised diligence processes are designed to comply with subsidy control rules under the TCA for the provision of funding for remediation of unsafe cladding under the Private Sector ACM Cladding Remediation Fund, and the Building Safety Fund.

Previously under the state aid de minimis rules, an undertaking could receive up to €200,000 state aid over a three-year period. Economic actors may now receive up to 325,000 Special Drawing Rights, which is approximately £350,000, over three consecutive financial years, as Small Amounts of Financial Assistance which is exempt from the application of the TCA.

Funding provided for the benefit of leaseholders who are owner occupiers is unaffected as this does not constitute a subsidy. To receive the funding the leaseholder must be liable to meet the costs of remediation through the service charge provisions in their leases.

Funding for the benefit of buy-to-let landlords, lessees of commercial premises and housing associations continues to fall within the scope of the rules, either on the basis of Small Amounts of Financial Assistance or Services of Public Economic Interest (SPEI) compensation under the TCA.

Beneficiaries who provide SPEIs are not subject to a cap on the amount of funding they can benefit from receive. However, where an SPEI subsidy is 15m SDR or above, then details will need to be provided on the UK’s subsidy database. This will be relevant for remediation funding where Registered Providers of Social Housing (RPs), or exceptionally other organisations with a charitable purpose, would be liable for the costs of remedial works by virtue of their service charge obligations. 

Applicants should ensure they do the following:

• provide a list to Delivery Partners of all leaseholders who they believe to be economic actors (including Registered Providers of Social Housing) and their proportion of the total service charge liability, in the form of the Economic Actor Schedule
• collect declarations on the amount of subsidy previously received from all leaseholders of commercial premises on site
• collect declarations from any leaseholders of residential premises who are economic actors and have previously received subsidy

What costs are covered by the fund?

The following table summarises the costs covered by the fund.

Eligible costs will be those costs which could be attributed to the capital costs of the project. Ongoing revenue costs, such as the cost of interim safety measures, are not eligible.

The fund will provide a grant to cover the ‘reasonable’ cost of eligible items only. Reasonable costs will be informed by an industry standard approach to specification and procurement of works having regard to benchmarks established from comparable projects. Higher than expected costs will be challenged and will be subject to further scrutiny and the level of grant may be reduced.

Extraordinary technical requirements which incur extra costs essential to but not normally associated with removing and replacing unsafe cladding systems may be included. DoF will consider such requests for funding and will assess them applying the same criteria applied to the initial application.

We encourage applicants/responsible entities to assess the extent of any additional work required to make buildings safe from a fire safety perspective and to have a plan in place for funding and carrying out these works.

How to register

Responsible entities must register an interest in the fund by emailing details of the name of building owner, address and an outline of evidence of unsafe ACM cladding.

• email: ACMcladdingfund@finance-ni.gov.uk

The registration process will close at midnight on 31 October 2021.

Applications for funding will only be available to those building owners, freeholders or responsible entities who register. If for good reason applicants are unable to meet the deadline, they should contact the Department at the earliest opportunity.

Registration will not guarantee that a building will receive funding through the full application process. However, it will help ensure that building owners receive support, where necessary, in identifying the materials present on their building and in planning the remediation work.

Every building must be registered individually. Where multiple buildings are owned, including in a single development, the details of each building must be registered.

Following confirmation of ACM responsibility entities will be required to provide the following details:

• verification of residential leaseholders and obligations
• verification of contracting party and obligations
• evidence to confirm the applicant is actively identifying and pursuing all reasonable claims against those involved in the original cladding installations
• details of insurance and warranty for the original installation and evidence to demonstrate that claims are being pursued (if appropriate)
• subsidy Control declarations
• building details
• cladding details – initial and replacement; testing etc
• proposed works and costs together with supporting documentation
• a cost breakdown. Details are included at Annex A.
• contracting route and contract details together with supporting documentation
• other required fire safety work

How the fund works

The guiding principle of the fund is to remediating unsafe ACM cladding on high-rise residential buildings. It does not remove the existing responsibility for building safety and repairing obligations from responsible entities.

DoF will assess eligibility in two stages:

1. Stage one will quickly verify that the building, its leaseholders and the responsible entity is within scope of the fund.
2. Stage two will commence once an in-principle agreement to proceed is in place. This stage will evaluate the proposed solution and costs and undertake due diligence.

Where funding is approved, work should be carried out at pace. DoF will not be assuming procurement responsibilities or providing a list of approved contractors. In line with the purpose of the fund, compliance with statutory consents/Building Control approval will also need to be demonstrated at key points. However, work on site must start as soon as possible after funding has been approved.

Where works have already started but are not yet completed, DoF will assess applications for funding based on the same criteria as applications for funding where works are yet to start and provide funding for the qualifying works already completed.

Applications for funding where works have already completed will also be assessed using the same criteria. Subject to the qualification requirements set out in this prospectus, DoF will provide funding for the costs of remediation of unsafe ACM cladding following receipt of evidence of building control sign-off.

If leaseholders have already paid for the remediation of unsafe ACM cladding through the service charge, whether for work that has been completed or has yet to be started, the funding agreement will require the applicant to reimburse leaseholders (or the relevant sinking fund) for an amount equivalent to the benefit they will receive following a successful application for funding.

VAT

Snagging (or the correction of faults) is often carried out after the building has been ‘completed’. Provided the replacement cladding forms part of the original construction and the person requesting the cladding had an interest in the building during the construction works, then the replacement cladding may qualify for the zero rate as snagging. This work may form part of a building contract with zero-rated VAT. If applicants require advice on whether their replacement cladding meets the criteria of snagging and so is eligible for VAT at zero rate, they can write to the HMRC Clearance Team.

Pre-contract support

DoF will consider applications for advance funding to enable applicants to get to the point at which they have a construction contract in place and thus clarity on the scope of works proposed, the costs thereof and the level of support from the fund which is sought. These applications will need to meet the fund’s initial diligence criteria.

This may take the form of funding for surveys, design, planning and procurement costs etc. Where this is the case applicants will still need to provide full details of the ownership and management arrangements in respect of the blocks themselves in order to apply. Cost and works details will then be provided when a successful tender is received, and an assessment will take place as set out above before confirming the level of qualifying support for the remediation works themselves.

If the applicant does not proceed with the works or their application turns out to be ineligible, we will recoup the value of this initial funding and will seek an indemnity to cover this.

Full support

Separate applications will need to be made per building as we expect building owners to have carefully considered the right solution for each building. DoF will consider additional applications where costs overrun (see below).

Where pre-contract support isn’t required, applicants can request full support for the cost of remediation works after a successful tender, including reasonable and proper pre-contract costs.

Once approval is confirmed the grant amount will be fixed. Legitimate increases in the scope and cost of work required will be considered and will be assessed in accordance with the criteria set out above, including subsidy control rules.

However, DoF expect applicants to make arrangements which minimise the risk of this happening, for instance by scoping and specifying works adequately, going through a competitive process to award a contract and appointing a competent contractor using industry-recognised contractual agreements.

Arrangements which place an undue level of risk with the client, and in turn the funder, will not be acceptable. Responsible entities must take all opportunities to ensure work is covered by supplier warranties, which help protect leaseholders from future costs.

In the event of costs incurred or expected exceeding those which have been agreed, the following will apply:

• the applicant must notify DoF and submit a separate application for additional funding.
• DoF will consider applications for funding where:
  • There is a legal obligation which requires a change in the scope of works to replace the unsafe ACM cladding
  • Work on site uncovers that the unsafe ACM cladding is more extensive than originally tendered for, or that the scope of works must change and become more costly
• In all cases, DoF reserves the right not to provide further funding beyond that agreed. Any risk of cost increases therefore resides with the applicant.

Where additional funding is provided, this is subject to the same subsidy control conditions under which the funding agreed has been provided.

Applicants/responsible entities are responsible for assembling any funding package necessary in order for works to go ahead, of which resources from the fund may only be a part. A first payment for construction work under the fund will only be made when the recladding work has commenced on site.

DoF will carry out a reasonable and proportionate amount of diligence in order to safeguard public money concerning:

• the ownership and management arrangements of individual blocks.
• the service charge obligations of leaseholders.
• the scope and cost of proposed cladding remediation works and the contractual arrangements to deliver remediation.

The scope of due diligence is limited to supporting the purpose of the fund and building owners should not rely on it to highlight any design, construction or other related issues that remain the building owner’s responsibility to address.

DoF will benchmark costs. Where costs are outside expectation, DoF may request additional supporting information.

Payments will be made as cash grants.

On site progress tracking

DoF will check progress regularly. To ensure work is undertaken to expected standards, and with a particular focus on fire safety, DoF will expect appropriate quality assurance measures and safety checks to be in place on site.

Further reassurances on building safety will be required from responsible entities where works take longer than expected. Periodic on-site inspections will be carried out by DoF.

Cost recovery

Building owners will be expected to take all reasonable steps to recover the cost of replacing the unsafe cladding from those responsible. At the application stage DoF will ask for information regarding such steps and may seek further information for verification purposes. Where building owners do successfully recover damages relating to the removal and replacement of unsafe cladding the Executive will expect building owners to pay to DoF any amounts recovered which are referable to the removal of the unsafe cladding up to the amount provided through the fund.

DoF will not seek to recoup amounts recovered in litigation or settlement which do not relate to the removal and replacement of unsafe ACM cladding. Where building owners have already recovered damages, they should deduct the relevant amounts from applications and provide an explanation as to how this has been calculated.

DoF does not rule out seeking an assignment of relevant rights of action where it considers it would be appropriate to do so.