There have been a number of very recent developments in relation to the fire safety issues in the UK and how it impacts our Regional Capitals fund.

You may have seen a number of news stories this week in relation to the Government’s response to the crisis in the UK, which imply that a ‘lasting solution’ is coming - we do not know the nature of this solution, but it may well have a significant effect on the fund. There have also been recent developments in our own portfolio, as properties that are held by the Regional Capitals fund are progressing through the Building Safety Fund authorisation process (i.e the £1bn Government fund for contributing to remediation work).

These are both evolving situations and we want to keep you informed when there are material developments. As a result, we have decided to extend the trading cycle for a further two weeks. We want to ensure that investors are aware of this information and have sufficient time to adjust/cancel their sale requests accordingly, if they so wish.

The detail is as follows:

Our Portfolio

Yesterday we were told that one of the buildings in which we own 28 flats was declared eligible for the Building Safety Fund by Homes England. This is encouraging news, but only one step in the process.

Firstly, eligibility does not guarantee that the costs will be covered in full for the building, but the process of checking the full costs and works is currently underway.

Secondly, there still remains a state aid cap of €200,000 that restricts the amount that corporate entities can benefit from the Building Safety Fund, based on legacy EU rules. We understand that the Government is due to make a decision on its review of the state aid cap with regard to the Building Safety Fund imminently. Yesterday the Government released a consultation on new state aid rules more generally, which is aimed at giving them more flexibility in future, now that the UK has left the EU.

If the full costs were to be covered by the Building Safety Fund and the state aid cap were removed, there would be an uplift to the Regional Capitals fund of around £900k, as the cost provision for remediation work would be covered. This represents 60-70% of the total cost provision of c.£1.4m that is currently held for fire safety work. Whilst the eligibility confirmation that we received is only one part of the process, the potential impact when combined with a change to State Aid rules is significant.

Political Shifts

Separately, there is a growing rebellion amongst Conservative MPs that are planning to vote for an amendment to the Fire Safety Bill that will ban remediation works being passed onto leaseholders at all - i.e the Regional Capitals fund might not have to pay for the works. We have written at length about this before, and are pleased that political will is building behind the fact that leaseholders are not to blame for these issues and should not be held liable.

It would require 44 Conservative MPs to defeat the Government and currently there are 36 signatures. The potential rebellion, and pressure from the Labour party on the issue, is forcing the Government to announce a lasting solution for the cladding crisis, which the Prime Minister confirmed during Prime Minister’s Questions yesterday. We have invited you to write to your MP on this issue, and are happy to provide materials if this would be helpful.

With all this in mind, we are hopeful that there will be further positive developments in the coming weeks. We want to retain flexibility for investors, and so will aim to process an investment cycle in two weeks, once investors have had time to review this information and adjust their requests if they so wish.

We will keep you up-to-date with any significant announcements going forwards. If there is a material change in the situation again, for better or worse, we may need to review the timing of the next investment cycle.