Lendlease seeks to claw back £114m safety provision

Lendlease aims to “maximise third-party recoveries” from subcontractors after the firm booked a provision in line with the latest housing-safety remediation requirements from the UK government.

In its financial figures for the second half of 2022, Australia-headquartered Lendlease set aside a pre-tax sum of A$200m (£114.2m) “due to retrospective UK government action on [developers’ responsibility for] residential buildings” with a height of 11 metres or more.

The provision contributed to an A$141m group loss for the six-month period ending 31 December; otherwise, Lendlease would have posted an operating profit of A$105m.

Developers operating in the UK have until 13 March to sign a long-form contract committing to remediate residential building safety risks or face significant trade restrictions.

“This action has retrospective effect by extending the period for defects liability from six years to 30 years and applying changes to building-safety regulations for completed UK residential buildings,” Lendlease noted in its announcement yesterday.

It warned that the proposed restrictions, including not being able to access government funding or obtain construction approvals, would “materially adversely impact [the] operations of Lendlease in the UK”.

The developer is involved in several high-profile UK plans, such as the proposed £3.5bn Royal Docks development and £8bn Thamesmead Waterfront project in London, and the £1.9bn Smithfield scheme (pictured) in Birmingham.

The A$200m provision primarily relates to 56 buildings developed by Crosby Homes, which was acquired by Lendlease in 2005 for £261m.

Lendlease stated that it no longer owns these properties, many of which “were completed or construction commenced prior to Lendlease’s acquisition”.

The developer expects that “any cash expenditure by Lendlease will be paid over a period of at least five years” without affecting core operating profit or “target metrics”.

Lendlease insisted that each building completed by one of its entities “was certified as complying with applicable building regulations at the time of its completion”, and no “specific claims” have been made to date against the company.

The government has provided a schedule of claims it has received for some of the buildings in the Crosby portfolio “and, in some cases, their assessment or estimate of the cost to remediate”.

Lendlease is evaluating this information and extrapolated the data to apply across the rest of its former Crosby portfolio to provide the A$200m estimate.

“Determining the liability position for this matter and any estimate is a complex process requiring significant judgement with respect to whether there is an obligating event and the quantum of any liability,” Lendlease noted.

“The estimate of any potential liability is based on incomplete information, given there have been, and continue to be, ongoing discussions with a changing government leadership and limited information as to what is required to be remediated.”

Lendlease stated that it would “continue to engage with the UK government on these industry-wide actions and assess additional relevant information on an ongoing basis”.