Lendlease says cladding repair bill will be north of £100m as firm puts figure on cost for first time

Lendlease has made a AUS$200m provision to cover the cost of cladding repair work as ordered by the government on residential schemes 11m and above.

The figure, which at today’s exchange rate is the equivalent of £115m, was revealed in its latest interim accounts which the Australian firm published overnight. It is the first time the firm has put a number on what it expects to have to pay to carry out remediation work.

It said most of the figure related to its former Crosby Homes business which it bought from Berkeley Group in summer 2005 for £261m and which Lendlease says it now no longer owns.

Lendlease said the amount “primarily relates to approximately 56 buildings developed by Crosby, no longer owned by Lendlease. The Crosby entities were acquired by Lendlease in 2005 to enter the residential development market in the UK. Many of these buildings were completed or construction commenced prior to Lendlease’s acquisition.”

It added: “Lendlease has not received any specific claims to date, and only has limited information relating to the buildings in the Crosby portfolio. However, the government department responsible for this legislation has provided a schedule of claims that it has received to date in respect of some of the buildings in the Crosby portfolio and, in some cases, their assessment or estimate of the cost to remediate.

“At 31 December 2022 Lendlease has recognised a provision in respect of this matter of $200 million (pre-tax), as a gross amount. It is expected that any cash expenditure by Lendlease will be paid over a period of at least five years.”

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

Lendlease said it, along with several other developers, was sent a letter at the end of last month by the housing and communities department telling it sign up to its proposals – or face a series of trade restrictions. “Given the letter received from the UK Government, Lendlease has recognised a provision in its financial statements as it has limited options to avoid incurring a liability,” the company added.

Lendlease said the £115m figure “does not include anticipated recoveries from third parties, including insurances and supply chain. We will be working to maximise third party recoveries.”

The firm also revealed that profit at its construction business had been hit by a claim on a “past non-residential project in the UK dating back to 2015”. The scheme is not identified but is thought to be a specialist emergency care hospital in Cramlington, just north of Newcastle.

The job is at the centre of a £140m dispute between Northumbria Healthcare NHS Trust and Lendlease over allegations that the complex requires so much repair work that a temporary replacement needs to be built while this is carried out.

Other firms that have been dragged into the row include M&E giant Balfour Beatty Kilpatrick, architect Keppie Design and roofing company Briggs Amasco.

Revenue from Lendlease’s construction business in the six months to December 2022 was up 16% to AUS$3.7bn (£2.1bn) although pre-tax operating profit was down 19% to AUS$64m (£37m).

Last September, Lendlease bought 21 Moorfields, the late-running office scheme being built by Sir Robert McAlpine in the City of London, from Landsec for £809m and in its results the firm said the scheme was “not expected to contribute to income until the second half of FY23”. Practical completion for the Wilkinson Eyre-designed block is due next month.

Half-year income across Lendlease was up 23% to AUS$5.1bn (£2.9bn) with the firm narrowing pre-tax losses at its continuing operations from AUS$390m (£224m) to AUS$122m (£70m). The firm said its statutory loss after tax was AUS$141m (£81m), from AUS$264m (£152m).