We are writing to let you know that we have received guidance from the Government that it will not cover the cost of fire safety remediation works for the Regional Capitals fund. This contradicts their prior announcements in Parliament and online.

As a result, and after careful consideration, we will be extending the trading cycle on both funds for four to six weeks in order to evaluate the options available for the funds and agree the best route forwards to protect shareholders’ interests.

The Government had announced in February that it would pay “for the removal of all unsafe cladding on high-rise residential buildings” and that “all leaseholders” in buildings over 18 metres would be covered by additional funding.

As per our updates to you over the past several months, we have been in regular contact with the Government on this evolving situation. In particular, we have been urgently seeking clarity regarding the state aid cap - a legacy EU rule which limits the support that corporate entities can receive from the Government to €200,000, which is a small portion of the liability faced by the fund.

Government officials have expressed sympathy for the position of our shareholders, but they maintain that, despite Brexit, they are now bound by the new trade agreement with the EU, which they interpret as meaning a cap must continue to apply, and that remedial works cannot be fully covered by the Government as previously announced.

We disagree strongly with the Government’s decision. Requiring leaseholders, like the Regional Capitals fund, to cover the cost of remediation works is a political choice and one which the Lords, the Opposition, and 30 Conservative MPs have previously voted against. We have been advised that there is ample room in the UK-EU trade agreement to facilitate them fully covering the cost should they wish, but they have decided not to use it.

The decision is particularly frustrating given that one of the original policy aims of establishing the REIT regime was to widen access to investment in property for small investors, providing the same benefits as owning property directly. The maintenance of the cap on remediation runs contrary to this original objective.

While we will continue to press the Government on this matter, the impact of the cost of remediation works on the Regional Capitals fund will likely now remain. This provision has increased over the last two weeks from £1.4m to £1.7m-£2.0m following new cost estimates from building managers. This represents a 14-15% reduction in investment value compared to before the crisis in September 2020.

The Government’s decision means that the remediation work will need to be paid for out of the Regional Capitals fund’s available cash. However, opportunities to raise meaningful new investment given the circumstances are limited. In addition, we are working with our lender, Barclays, to remedy a debt covenant breach caused by sky-rocketing insurance costs in affected buildings. We are therefore working to sell selected unaffected assets, in an orderly fashion, to pay for the required works and to resolve the situation with Barclays.

Protecting shareholder interests remains our utmost priority. The Bricklane Directors are large investors in the funds and are fully aligned in achieving the optimum outcome from these circumstances.

In light of these developments, we are actively reviewing the best possible options available to us - whether investors’ interests are best served through an orderly sale of properties, after which any surplus cash would be returned, or an alternative route forwards.

This is a complex and important process which requires due consideration and which we expect will take up to six weeks. Given the uncertainty resulting from this government guidance, we will therefore extend our trading cycle for four to six weeks in both the Regional Capitals and the London funds.

While the London fund is so far unaffected by the impact of the fire safety issues, recent trading has been affected by the uncertainty around the Regional fund, and any path forward will require sustainable solutions for both funds together.

In the meantime, the funds continue to generate rental income from their portfolios, with occupancy at 93% and 89% in Regional Capitals and London respectively. While timings are uncertain, once remedial work is complete, we expect that affected assets will once again be saleable, that insurance premiums will fall, and that the situation should be resolved.

Should you wish to voice your frustration to the Government, the Building Safety Fund team is the relevant group, and their email address is: BSF@communities.gov.uk. If it would be helpful, we can provide you with potential content for your submission.

We will continue to keep investors fully updated on any decisions and developments, as well as any steps that need to be taken.