Learning from Build to Rent and Co-Living in the 1930's

During the early 1990s I was the estate manager for what was then known as the largest privately owned block of flats under one roof in Europe - Du Cane Court in Balham, South London. 730 units plus my office adjacent to reception, so no hiding. Around half of the flats were just 240 sq ft studios with one main room, a kitchenette and a bathroom.

Completed in 1936 this staggering Art Deco building was built to provide rented accommodation for those working in the West End - being next to the Northern Line Station at Balham South. Consequently many of those who moved in worked in the theatres, opera houses and music halls of Soho and Covent Garden. When I started there many of the flats were still statutory tenancies although most have subsequently been sold on long leases.

Du Cane Court didn’t really do kitchens. The kitchenettes were just 5 ft x 4 ft and literally wouldn’t allow for even gentle cat swinging activities. However, this was more than compensated for by a large and lavish bar and restaurant situated on the 7th floor. The menu was comprehensive and operated for long hours, meaning that many tenants never used their kitchens at all. Sadly this facility was damaged by a fire in the '70s (I think) and, you guessed it, replaced with more flats. Other facilities would have included garages, parking, a shop, an estate office, laundry services, basement storage units, Japanese landscaped gardens and full site team of 18 - including a plumber and handyman. Even when I was involved Du Cane Court was unique and was held to the highest standards of service with an exceptionally active community of interested residents.

Sound familiar? Yes, we are seeing the combination of smaller units, build to rent and co-operative living all making the headlines. But it's nothing new - I promise. These things are all cyclical and there is much we can learn from the successful Build to Rent of the past.

Why a common sense approach to ground rents is now critical

The Government has suggested that all future leases on flats might be set with ground rent at zero. The rise in ground rent values that has allowed the capitalisation of this asset class has indeed seen some very badly-behaved developers seeking to maximise the return on the sale of the freehold. However, whilst this market has developed hugely in the last 25 years it is not all bad news - particularly where complex tenure and physical structures call for a degree of responsible oversight by organisations who have their reputation to protect.

Enter the pension funds and large-scale investors who will ensure that covenants are consistently and fairly upheld, that insurance is placed and that health and safety compliance is paramount. These are valuable powers that are sometimes overlooked where those responsibilities are given to reluctant resident directors who are pressured to constantly cut corners and manage costs - at the price of good asset management.

Good institutional Landlords now dominate this sector having purchased many billions in ground rent assets in recent years. This is a good thing for leaseholders who know that in a crisis the landlord will ultimately step in and ensure that works are undertaken, insurance cover is at the right level, long term capital expenditure plans are in place and proper risk assessments are undertaken and acted upon.

Do away with ground rents and there is potential impact on the value of those investments and a shift that could see the return of small scale investors looking to take advantage not just of the rental income stream but of the peripheral income available through most leases.

Good asset management by institutional grade investors in this quality investment product adds value for all stakeholders - including leaseholders. It also adds a genuinely sophisticated and dynamic level of asset management and safety oversight. 

On increasingly complex developments with mixed tenures, including shared ownership and private rental, an overarching landlord strategy can be the glue that binds a community and creates a sense of place. In the new world of build to rent (where it is possible that units could in the future be retailed as long leases) institutional landlords will become the norm. Leasehold owners will rightly expect the same level of attention to quality and service that the build to rent revolution will routinely have to deliver in a highly competitive environment.

So, prevent the application of short term doubling clauses, set a universal review mechanism and index. Limit starting ground rent values to a percentage of the apartment values as agreed with a chartered surveyor and you have created a transparent approach that will actually enhance the value of a scheme and allow residents to purchase the freehold at a reasonable price if they choose to do so. 

Institutional investment in residential property is a good thing, it is transformative and should be encouraged.

Domestic Violence and the Property Manager

At a recent IRPM Seminar, Gudrun Burnett of the Domestic Abuse Housing Alliance (DAHA), told the audience, that around two women a week are murdered in domestic abuse cases in the UK.  There remains a staggering number of domestic abuse cases that go unreported within our communities and DAHA aim to highlight actions that housing professionals can take to encourage them to report incidents and to make available helpline numbers and take sensible preventative actions.

Some of these include simple things like including helpline numbers on noticeboards, talking to the people reporting regular neighbour noise issues and separating nuisance noise from genuine issues involving violence, coercion and bullying in the home. Community engagement is key to dealing with this issue, an issue that remains largely hidden because of our reluctance to report it or to get involved. However, early intervention can be a genuine lifesaver for someone.

Instead of demonising noisy neighbours, sometimes it is essential that we look beyond the disturbance and take more responsible actions to understand the underlying causes and deal with them. Creating communities is increasingly cited as a part of developers and the property managers ambition - good communities will look out for each other, set standards and deal with bad behaviours. This is a virtuous circle that we should all be encouraging.

 

Nationwide Domestic Abuse Helpline:  0808 2000 247 (Freephone)

DAHA: https://www.dahalliance.org.uk/

 Guidance leaflet here:  https://www.irpm.org.uk/docs/members/1ea3638b8c0b0a42284da2aff0562d3e7c0d241.pdf

Why Managing Agents must be a part of Placemaking strategy.

What is Placemaking?

Place making is not a new term, it has been around for many years but it is being used more widely as regeneration schemes and very large estate schemes have come to the fore in recent years. Placemaking puts the community at the heart of a scheme and requires the collaboration of all stakeholders to create places that people want to live in, contribute to and self-govern. Principally it is the combining of a wide range of knowledge and skills to make better places and environments in which to live and work.

Why is it important?

In the UK there remains a significant housing shortage that is driving significant regeneration projects. In order to ensure their success, past mistakes need to be avoided - density, lack of infrastructure, poor management planning and lack of resident engagement have all resulted in failed developments over many years. Long term management planning is essential to ensure safety, security and economic viability of large complex developments. All parties should be certain that fairness and the balanced allocation of costs is at the centre of the management plan. Developments need to be connected to services and the wider community and to be alive to local culture and tradition.

Who does it involve?

Placemaking involves all stakeholders including the local community, the new community, planners, architects, developers, property managers, asset managers, estate agents and lawyers. Managing Agents have an important role in assisting planners and architects to design viable long term solutions that allow the community to self regulate their environment. All large communities need facilities and central meeting areas, open space and play areas. Managing agents have real experience of what works and what does not and in particular what will stand the test of time economically.

 What does it change?

Placemaking is changing the way that we will design, interact and share space. Creation of real pride and sense of belonging is important in ensuring that schemes will stand the test of time, generate best value for investors and demand for homes. Public open spaces, the provision of services, transportation, running costs, cyclical costs, security and safety are all important considerations at the outset. Considerations such as traffic restrictions, cycle paths, central squares, secure designs, kitchen windows overlooking play areas, recycling and sustainability are all in the mix.

 The key components and how does a managing agent play a part?

Transparent, collaborative management styles, partnership with developers and the community. Managers need to demonstrate real expertise and availability and willingness to share and participate in community engagement and should be the binding central factor around communications with all parties.

Agents need to demonstrate measureable service delivery that is enshrined in contractual terms and where possible rewarding success and penalising failure. A detailed community management plan is essential and needs to be provided and explained in detail and amended as and when necessary to meet the needs of those living and working on the scheme. Managers should facilitate community involvement, provide advice and information and where necessary training to ensure that communities can make the right decisions.

 Summary

Successful placemaking enhances environments, improves values and future investment in the locality. Managing agents are long term community partners in this process and will be involved long after developers and other experts have moved on. It is important therefore that they are included in the early stage consultation and design and not selected as an afterthought.

It is up to agents to maintain collaboration between the communities long into the future, ensuring that the physical environment remains at its best and that people choose happily to live within. That is no easy task and one for which the residential management sector needs to adapt to rapidly if it is to keep pace with the social sector.

Commonhold Mark II - what it might look like...

My notes from ARMA 2017 Conference Experts Panel on Commonhold Mark II

Why was Commonhold Mk I not adopted?

• No premium - unlike leasehold
• Costs of set up higher to start with
• Risks of new untested tenure
• Didn’t work where there was an ultimate freeholder
• Worked poorly with multiple service charge schedules
• Limits leasing to under 7 years - big issue for HAs and shared ownership models
• Mortgage support very slow in arriving
• Difficulties during development period - particularly with handover on large developments
• Developers naturally conservative

What could Mk II look like

• Completely new piece of legislation
• Will deal with multiple service charge schedules
• Will allow for shared ownership models (ie longer leases)
• Will be a big opportunity for exceptional managing agents
• Just as B2R (PRS) will be disruptive to the managing agent's model, Commonhold will be to.
• New radical approaches to customer service. Completely responsive and proactive rather than passive and reactive - hiding behind legislation.
• This will require customer measurement at every interaction…
• Devaluation of the existing leasehold market must be avoided at all costs

But

• Potential for the creation of a two tier market is a concern… 5 million existing leaseholders potentially prejudiced
• Therefore if leasehold to be abolished - there must be a generous sunset clause  - say 20 years
• OR some compulsion to switch rather than voluntary as the per existing system
• It will not be a panacea for existing management issues - many of those exist worldwide

• It will be outside all currently relied on statute - ie no test of reasonableness, no S20, no limit on contracts etc.
• Issue with lack of engagement from unit holders…
• Doesn’t work for shared ownership leases - big issue for HAs
• No checks and balances for individual unit holders around costs, value for money and efficiencies
• It will still have its fair share of bullies, crooks and swindlers
• Will we be tackling unfair practises in Commonhold? - yes, within 20 years.
• Lacks security in the event the Commonhold is wound up

Opportunities

• But it will give owners real control
• It will add another tenure type that many owners will find attractive as an ownership solution
• It will give managers the opportunity to be creative with customer engagement, procurement and big data.
• It will simplify the onerous and complex statutory framework in which leasehold operates

Some Advantages of Leasehold

• There are some…
• Established framework woiking within defined legislation and principles of transparency, reasonableness and compliance
• Third party landlord to kick
• Landlords are a safety net when all else fails
• Legal framework, developing case law and access to FtT
• Expertise available and
• Generally, management is in the hands of experts
• Increasingly institutionally owned - e.g. pensioners of the UK
• Reputationally driven nowadays
• Funding/income for small developers
• Rights to extend lease and RTM already enshrined
• Most new ones have RMCs
• Works where there are complex ownership issues, mixed tenures, mixed uses etc.
• Abolishing it completely would be problematic with the current system of land ownership
• Easy to fix aggressive ground rent clauses.
• Developers have already stopped the unreasonable practise of building leasehold houses (where were the lawyers?)

Despite everything you hear, standards continue to rise in leasehold management and have risen significantly in recent years. Especially around compliance - which is particularly important given recent events.