Schedule 8: Remediation costs under qualifying leases Paragraph 6: the permitted maximum Background
This is a new provision.
	The provisions in Schedule 8 protect qualifying leaseholders from costs associated with historical building safety defects by limiting, or preventing altogether, the costs that can be passed to leaseholders through the service charge by landlords. Paragraph 5 sets out that leaseholders cannot be charged more than the permitted maximum in respect of costs relating to historical building safety defects. As paragraph 8 of the Schedule provides that no service charge is payable in respect of cladding remediation, the permitted maximum costs relate to non-cladding costs only; this includes the costs associated with interim measures like waking watches.
	Paragraph 6 sets out the value of the permitted maximum, which varies according to the value of the lease. For most leaseholders, the maximum that they will be able to be charged for costs relating to historical building safety defects is £10,000, or £15,000 for properties in London. Paragraph 4 sets out that qualifying leaseholders in low-value properties (properties worth less than £175,000, or £325,000 in Greater London) will not have to pay any costs towards historical building safety defects. For leaseholders in very high-value properties, the permitted maximum is higher, at £50,000 for leases with a value at the qualifying time of more than £1,000,000, and £100,000 for leases with a value of more than £2,000,000.
	The Government has made clear that it is it taking a proportionate approach to the allocation of remediation costs. Where no landlord with an interest in the building was responsible for the defect, and the landlord under the lease cannot afford to meet the costs in full, this proportionate approach involves capped contributions from leaseholders. The capped contributions of £10,000 and £15,000 for most leaseholders represents what the Government considers to be a proportionate and equitable contribution to remediation costs. For leaseholders who are least likely to be able to afford to make a capped contribution, paragraph 4 provides that they are fully protected from all historical building safety costs. Similarly, this paragraph requires those leaseholders who are likely to be able to afford to make a greater contribution to do so.
	While leaseholders in shared ownership arrangements are typically liable in full for any service charges, paragraph 6 provides that the capped contribution for shared ownership leases is set in proportion to their total share of the lease at the qualifying time. For example, the permitted maximum of a 50% shared ownership lease would be half the permitted maximum for a 100% owned lease.
	This paragraph also makes provision for how the qualifying lease value at the qualifying time is to be determined and sets out that this is to be done by an uprating of the most recent sale price of the property. Further detail of the uprating mechanism will be provided in regulations. This approach to calculating the lease value has been used to give a value which is fixed as of the qualifying time (14 February 2022), to give certainty to leaseholders, as well as landlords and freeholders, as to their levels of liability. The approach uses three pieces of readily available information to determine the lease value: the most recent sale price, the year in which the most recent sale took place, and a numerical "multiplier" for that year, which will be set out in regulations. This negates the need for individual valuations which would be expensive, time-consuming, and would have the potential to be the subject to dispute if the landlord and leaseholder did not agree on the valuation that has been assigned to the property.
	The paragraph makes provision for the most recent sale price to be uprated because properties last transacted more recently will, on average, have done so for a higher price than comparable properties that were last sold further back in time due to the inflation of house prices. It is therefore necessary to uprate the most recent property sale value with an appropriate measure of inflation, to ensure that property values can be compared like-for-like, irrespective of when they last sold.