The Minister for the Environment, Community and Local Government has announced the establishment of a Pyrite Resolution Board to oversee the implementation of a comprehensive remediation scheme for private dwellings affected by pyritic heave. Homeowners will not accrue any costs for remediation. The relevant banks have agreed to provide up-front funding of up to €50 million.
“Too many homeowners have been waiting for a solution to the pyrite problem from stakeholders for far too long and I am glad to say that today marks a significant step towards the resolution of the many distressing situations faced by affected homeowners throughout the country,” said Minister Hogan. It is proposed that a mandatory levy will be introduced on quarrying and some insurance products to fund a pyrite remediation scheme.
In July of this year, the Minister published the report of the independent Pyrite Panel. The report, which contained 24 recommendations, provided a detailed framework for the Minister and all stakeholders to move forward with the objective of providing comprehensive solutions for homeowners affected by pyritic heave.
While the implementation of many of the recommendations in the pyrite report requires the involvement and co-operation of a number of parties, given the particular impact on affected homeowners, priority over recent months was given to the recommendations dealing with the establishment of a Resolution Board as well as the development of protocols for the testing and categorisation of dwellings and a remediation method statement. The remaining recommendations will be implemented on a progressive basis.
Arising from extensive discussions with key stakeholders over recent months, in particular with the Construction Industry Federation, the Irish Concrete Federation, HomeBond and the Irish Banking Federation, there is an almost universal acceptance that a remediation process must be put in place which does not involve affected homeowners meeting the costs. While no agreement could be reached on a voluntary funding mechanism, the stakeholders have agreed in principle on a mechanism that will facilitate the remediation of dwellings affected by pyrite in accordance with best international practice.
Having discussed with members, the Irish Banking Federation and relevant Banks are willing to engage with a “Special Purpose Vehicle” or a not-for-profit entity to discuss possible options for the funding of a remediation scheme on commercial principles. It is proposed that the loan from the financial institutions would be remunerated from a mandatory levy to be imposed on the quarrying and on the insurance sectors. The Minister, in close consultation with the Attorney General’s Office and the Minister for Finance, is committed to bringing forward the necessary legislation in support of these levies as early as possible in the New Year. While the imposition of a levy on the quarrying and insurance sectors is not in any way pointing the finger of blame at those sectors, it continues the established principle of industry paying for problems that have arisen within the sector, as happened in the motor industry and the travel trade.
The level of contribution from the proposed levies will need to be capable of providing a fund to repay the loan and also provide for additional remediation to dwellings not already identified as being in need of immediate remediation. The Pyrite Panel in its report concluded that the average cost of remediation for a typical dwelling would be in the region of €45,000. Using the figure in the pyrite report of 850 dwellings as being in need of immediate remediation and allowing for some increase in the figure since March 2012, there are an estimated 1,000 dwellings currently in need of remediation while there are a further 10,000 ground floor dwellings in 74 estates where pyrite has been identified. It is likely that many of these dwellings may not manifest pyritic damage for a wide variety of reasons, including the fact that multiple sources were used for the supply of under-floor hardcore in many developments.
Agreement in principle from HomeBond, the Construction Industry Federation and the Irish Concrete Federation has been reached to establish a “Special Purpose Vehicle” or not-for-profit entity for the purposes of operating the remediation scheme and the draw-down of funds while the remediation scheme would be overseen by a Resolution Board as recommended by the Report of the Pyrite Panel. The Board will operate under the experienced leadership of John O’Connor, former Chairman of An Bord Pleanála and senior public servant, who has agreed to chair this non-statutory advisory board on a pro bono basis.
“The decision to establish a Pyrite Resolution Board as recommended by the independent Pyrite Panel has now been agreed and arrangements are well advanced to appoint members to the Board early in 2013. A mechanism to ensure a sustainable source of funding is available to meet the costs associated not only with the remediation of those dwellings in need of immediate remediation but also those that may manifest the symptoms of pyritic heave into the future,” said the Minister before concluding that “the necessary legislative provisions will be developed as early as possible in the new year to underpin arrangements for the collection and administration of the mandatory levies”. “While much work remains to be done to complete the jigsaw, I am confident that the end is now in sight for affected homeowners. Today’s decision provides a detailed roadmap of how that is going to be achieved. Finally, I want to thank the representatives of the Irish Banking Federation, the Construction Industry Federation, the Irish Concrete Federation and HomeBond for their commitment to this process and look forward to their continued participation in our collective endeavours to ensure a satisfactory resolution to the pyrite problem,” the Minister said.
The issue of pyrite heave first came to the attention of the Department of the Environment, Heritage and Local Government in July 2007. Initially, it was considered that the pyrite problem was confined to a small number of private housing developments in the Fingal area; however, dwellings in five local authority areas, Fingal, Dublin City, Meath, Kildare and Offaly were subsequently identified as having problems associated with pyrite heave which in many cases have now been confirmed by testing.
It is generally a requirement of mortgage providers that purchasers of new dwellings should be covered by a warranty/insurance guarantee scheme. Prior to 2007, two companies dominated the market providing structural defect guarantee warranty/insurance schemes, namely HomeBond and Premier Guarantee, HomeBond having approximately 60%-70% share. The HomeBond warranty was a guarantee scheme and was not underwritten by insurance while the Premier guarantee is an insurance based product. Both guarantee schemes are limited to 10 years.
Between 2007 and August 2011, both companies arranged for the carrying out of remediation work to dwellings where, subject to the terms of their respective warranty/insurance schemes, they were satisfied that pyritic heave had occurred and this had resulted in damage.
In May 2011, a High Court judgement was issued in the case of James Elliot Construction (JEC) –v- Irish Asphalt Ltd. James Elliot Construction had been retained by Ballymun Regeneration Ltd to construct a youth facility. Following completion and handing over of the building in 2005, it quickly displayed cracking and became unusable. It was subsequently confirmed by testing that the hardcore used in the sub-floors contained pyrite. In his judgement, Mr Justice Charleton, found, on the balance of probabilities, the damage to the building came about as a result of pyrite. He further held that the hardcore material was not fit for the purpose for which it was bought and was not of merchantable quality. Irish Asphalt Limited disputes these findings and has appealed the judgment to the Supreme Court. Irish Asphalt Limited is part of the Lagan Group of companies.
At the end of August 2011, the Board of HomeBond withdrew cover under its warranty scheme for pyrite related damage citing legal opinion, expert technical advice and the decision of Mr Justice Charleton in the case of James Elliot Construction as the basis for this decision. The HomeBond Warranty Agreement provided for a number of exclusions including any defect which is the result of negligence on the part of someone other than the member or his sub-contractor. HomeBond used this exclusion to support its decision to withdraw warranty cover for pyrite damage.
The withdrawal by HomeBond of cover for damage associated with pyrite left a large number of affected homeowners covered by its warranty scheme without a remedy for the remediation of pyrite damaged dwellings.
While the Premier Guarantee scheme continues to provide cover for pyrite related damage and is arranging for the necessary remediation work to be undertaken under the terms of its scheme, cover under the terms of the scheme will begin to expire for pyrite damaged dwellings from 2013/2014 onwards.
Following the withdrawal by HomeBond of cover for pyrite damage, the Minister set up an independent Pyrite Panel in September 2011 to explore options for a resolution to the pyrite problem in private housing. The Panel submitted its report at the end of June 2012 which was published in July 2012.
Report of the Pyrite Panel
In its report, the Panel was unambiguous in its conclusion that the State was not responsible for the pyrite problem and should not bear the cost of remediation. However, it was equally clear that the State had a pivotal role to assist and co-ordinate the provision of the necessary infrastructure to provide for the remediation of pyrite damaged dwellings where no other option is available to homeowners.
It was the Panel’s view that the stakeholders with direct or indirect responsibility for the pyrite problem should face up to their legal and moral responsibilities and provide solutions for homeowners including funding the cost of remediation. The stakeholders were identified as material suppliers, builders/developers, structural warranty companies and insurance companies.
One of the report’s central recommendations (of which there were 24 in total) was the establishment of a Resolution Board which could be funded by a levy on the construction/quarrying sectors and related insurance sector.
The Pyrite Panel noted the lack of engagement by stakeholders up to that point in providing solutions for homeowners and pointed to the need for Government to drive a process of constructive engagement and take the necessary steps to ensure that those with responsibility for the pyrite problem should bear the costs of remediation. The Minister’s preferred approach for a resolution of the pyrite problem was for responsible stakeholders to provide a voluntary solution, including sourcing the necessary funding to meet the costs of remediation works.
Extent of the Pyrite Problem
According to the pyrite report the following sets out the position as of March 2012 in relation to the future potential exposure to pyrite problems.
• in total seventy four estates with 12,250 ground floor dwellings were notified to the Pyrite Panel as possibly having pyrite problems;
• approximately 1,100 of these had been remediated or were in the process of being remediated; and a further
• 850 approximately had made a claim to a guarantee provider
According to the pyrite report the only recognised method of remediation is the complete removal and replacement of the sub-floor infill. This is an expensive and intrusive process and the Pyrite Panel concluded that the typical cost for an average dwelling would be €45,000.
Following receipt of the pyrite report and as a first step in a process to persuade stakeholders to face up to their responsibilities and agree, either individually or collectively, a structure to provide a resolution for homeowners, the Minister met with the key stakeholders (Construction Industry Federation, Irish Concrete Federation, HomeBond, Irish Insurance Federation, Irish Banking Federation).
While the initial responses from the stakeholders were disappointing and did not provide any definitive proposals that would lead to a resolution of the problem a number of them indicated their willingness to actively participate and engage in any structure that might now be established to progress the issue.
Building on the positive elements in the stakeholders’ responses and in a final effort to persuade the stakeholders to play a lead role in the development of a remediation scheme and to contribute to its cost, the Minister wrote again in late October enclosing illustrative terms of reference for the proposed Resolution Board and requesting that further urgent consideration be given to their position. In addition, meetings took place with a number of the stakeholders exploring options for a voluntary remediation process.
Six Banks / mortgage providers (i.e. AIB, EBS, Danske Bank, Bank of Ireland, Ulster Bank and KBC) subsequently agreed in principle to provide upfront funding on preferential terms for a remediation scheme.
HomeBond agreed to make available indirect funding through the provision of technical support services for a remediation scheme. It is also working with Trinity College to develop laboratory facilities for pyrite testing and will fund the associated capital costs involved.
While no agreement could be reached on a voluntary funding mechanism, the Construction Industry Federation and the Irish Concrete Federation in tandem with HomeBond have agreed in principle on a mechanism that will facilitate the remediation of dwellings affected by pyrite in accordance with best international practice and have agreed to establish a “Special Purpose Vehicle” or not-for-profit entity for the purposes of operating the remediation scheme and the draw-down of funds.