Recent negotiations have seen Michael Gove agree to tighten scope of contract around JVs and limit betterment liability

Barratt and Persimmon have become the first housebuilders to say they will sign the government’s cladding contract, after Michael Gove rowed back on key conditions in the wake of detailed talks with developers.

The UK’s largest and most profitable housebuilders respectively have both indicated they intend to sign the contract once they have had time to review it fully. The contract is the legal documentation underlying the £2.5bn “cladding pledge” signed by 49 housebuilders last year, which commits them to repair fire safety defects on all buildings built by them going back 30 years.

michael gove

Michael Gove has agreed to tighten the scope of the contract

Last year housebuilders indicated they would not sign the contract in its original form because of a number of provisions which they feared left them facing potentially open-ended financial liabilities.

Building understands that the housing secretary has conceded to key industry demands that tighten the scope of the contract in order to reach agreement on the final wording.

These include: that works funded under the pledge should be strictly limited to life-critical building safety improvements of the buildings; that housebuilders working in joint venture will not be liable for the whole of the cost of a joint venture project; limitations to third-party liabilities; and limitations to the government’s right to revisit and amend the contract at a future date.

This morning the housing secretary said that any housebuilders asked to sign up to the contract but refusing to do so within six weeks would be excluded from a new “responsible actors scheme”, the provisions of which will effectively drive them out of business.

A senior housebuilding industry source said: “The government has moved on things. Our view is the contract is now just committing us to things we’re already doing.”

Gove originally published the contract prior to his sacking by Boris Johnson last  summer, causing uproar among housebuilders due to the supposedly open-ended nature of the financial commitments it entailed. Before returning to the job in October under Rishi Sunak’s premiership, Gove’s replacements Simon Clarke and Greg Clark had negotiated a number of concessions, with developers poised to sign then, but Gove immediately reversed them upon re-taking the role.

A separate industry source said: “Gove has wasted a whole load of time being needlessly awkward about this but has finally realised we’re not playing political games, and the contract has moved largely back to where it was under [former housing secretary] Clarke.”

A spokesperson for Persimmon said the company “intended to sign” the contract, and that it felt able to because “we believe this contract reflects our existing commitments to repair homes.” Chief executive Dean Finch had earlier said: “The terms of the contract are entirely consistent with our existing commitment to protect leaseholders in multi-storey buildings we constructed from the costs of remediating cladding and life-critical fire-related safety issues.”

A spokesperson for Barratt said: “We have been working to remediate historic developments for some years now and last spring we were one of the first companies to sign the industry pledge. We will be carefully considering the detail of the developer remediation contract with a view to signing it over the coming weeks.”

Neil Jefferson, managing director at the Home Builders Federation, said: “After months of negotiations, the contract better reflects the principles of the pledge”, but added it still put “huge pressure on UK businesses”, as it sat alongside other government cladding levies targeting the housebuilding industry.

>>See also: Gove cladding deal tracker: how much extra will each housebuilder pay?

>>See also: High Court ruling could see future cladding claims resolved quicker

Jefferson called on Gove to deliver on his promise to also target foreign builders and providers of the cladding to pay for repairs, rather than “repeatedly take the easy option to target UK companies”.

The comments from Persimmon and Barratt come after the Financial Conduct Authority confirmed in recent weeks that it did not regard the signing of the cladding contracts as a “class 1 transaction”, which would have required listed companies to seek explicit shareholder approval via a vote before proceeding.

The publication of the finalised contract came as Gove used a series of interviews over the weekend to admit that government building regulations guidance was “faulty and ambiguous” prior to the Grenfell Tower fire – an admission not previously made by a government minister.

Mary-Anne Bowring, group MD at residential property consultancy Ringley Group, said: “If the government is in large part to blame for the Grenfell tragedy and the wider building safety crisis, then why is the entire development industry being forced to pay – not just individual bad actors – and why are freeholders being indiscriminately targeted?

“The way out of this mess is for the government to foot the immediate bill for building remediation works so leaseholders – rightly – don’t have to pay, then to recuperate costs from parties actually responsible for any wrongdoing, not targeting entire industries.”