My Predictions for 2015

Now in it's legendary 4th year and fashionably late.

Did I get 2014 right? Did I lose 10Kgs? Well yes and then no. It went. It came back.

As for the other predictions I think I got some right and some wrong as ever. Who could have predicted that Law and Lease blog winning a prize at the NOTB Resi Awards? Well deserved I think. I am going to enter this year. I love prizes.

More than 11,000 independent views of my blog now and only 65 comments. My first prediction therefore is that I am going to have to be much more controversial.

1. I am going to be much more controversial.

I predict forests in the sky. Not.

2. ARMA Q is live. I am predicting that it has been a success in terms of the numbers signing up - follow ARMA's Twitter feed if you want to hear who is through the stiff requirements so far. Next stage will be to demonstrate that it has teeth.

3. Reducing energy costs. This is good news for those of us that work in a one year contract market and for our customers. Real savings in gas supplies are only slowly feeding through now. Who knows what this will mean for biomass costs?

4. CMA. Carry on as before.

5. The rise of PRS at last....no really. Look out for genuine attempts to deliver a fully integrated management service.

6. LKP will this year become a real force for leasehold advocacy and generally a force for good. Their opinions have become more balanced and measured - they have real influence and this must be used with care if they are to influence the future of the sector. We should all embrace them.

7. The appointment of Roger Southam to chair LEASE is bound to be controversial. Roger has strong opinions and will undoubtedly shake things up - he knows property management inside out. He is a genuine consumer champion and should be welcomed as a breath of fresh air.

6. After a couple of years, where no one really knew if they were behaving correctly in accordance with S.20, I predict a year of quiet reflection and a return to the old fashioned values pre Phillips v Francis. Actually that's nonsense, I expect the next new thing to be [fill in your own concern here]. (Mine is fees for underletting, I am still unclear as to what is reasonable. I am personally being charged annually for a letting that is holding over on the initial terms. Can that be right? Proxima would suggest not.) 

7. Deflation - could it happen? All the pointers are there.... 3-4 years of low oil prices to come, decreasing demand for goods from ageing population, historically low interest rates, supermarket price wars etc. etc.

8. House prices could go down or remain stubbornly static. No-one is going to get any meaningful capital growth and service costs continue to rise on complex schemes. There is a reckoning coming and it will have a big impact across the sector. As ever London will lead.

9. Insurance costs for leaseholders continue to rise and flooding of leasehold flats will remain outside the government's Flood Re arrangements - they still see block costs as a commercial insurance risk.

10. No one imminently is revisiting S.20 thresholds despite many voices asking for a review. Expect more and more requests for dispensation under S.20za.

11. IRPM will make some important announcements at their annual seminar. They will have some great speakers too and I will be lucky enough to speak (for the one and only time) in the round theatre of the Royal Institution where both Faraday and that smiley chap from D:Ream have spoken.

Errr, and that's it really. Another year flies by and the new one is now well underway. I would like to express more optimism but the economics do worry me greatly. Residential managers continue to do a brilliant and entirely necessary job in increasingly complex and pressurised environments,  keeping us safe secure and watertight in our homes. They really need a big hoorah! from time to time.

Phillips & Goddard V Francis Episode 5. Halloween - The search for a new case to moan about.

Excitement has been building for months now and the chatter amongst managers had reached a fever pitch of wild speculation, fantasy and urban myth. Yes, Phillips v Francis, the most exciting thing to happen in leasehold management for years, has had managing agents scratching their heads or burying them for nearly two years. But now the waiting is over and I can confirm that judgement in the appeal of Phillips and Goddard v Francis has been handed down and, in summary, the bit we didn't agree with has been overturned. So concerned were we that there was an 'Intervener' in the form of the Secretary of State for Communities and Local Government. This sounds quite threatening to me - I am imagining a black cloaked Machiavellian character, who says nothing but is there to observe the 'correct' outcome.

Nothing too scary this Halloween

Anyway, this is an excellent outcome since pretty much nobody I know has been endeavouring to comply in any event. Apart from the fact that it simply wasn't clear how it was possible to comply, doing so would have required significant additional expense for leaseholders as well as additional mire and confusion. In the current days of value for money and transparency, Phillips was never going to cut it. Once again the simple problem of some landlords failing to comply with the spirit of the law led to the sledgehammer approach affecting everyone. On this occasion common sense seems to have prevailed... Eventually.

Looking at the judgement more closely, Judge Cotter remarked:

“In my judgment a commonsense approach to
construction needs to be taken and in view of the fact that it
acts as a trigger for the protection afforded by consultation. If
the threshold were too low and all minor or non permanent
works covered, the result would be commercially
unmanageable to the detriment of both lessor and lessee. The
phrase building works use to describe significant works with a
permanent effect by way of modification of what was there
before. Whether works are indeed qualifying works, is a
question of fact having regard to the nature and extent of the
works in question.”

Martin v Maryland Estates Limited [1999] L&TR 541 is the relevant piece of case law to which the Master of the Rolls, Lord Justice Kitchin and the Chancellor of the High Court, no less, turned their not inconsiderable attention. Effectively Martin was overturned by the Chancellor in the previous appeal. Martin's common sense approach over whether works are 'qualifying works' and whether they exceed the 'triviality threshold' was the basis on which we all operated prior to Phillips and, it seems, will continue to do.

I do however remain sympathetic with the owners at Point Curlew - Disaggregating major works, to my mind, was already a clear breach of the law as it stands and there is already much case law to support this. Three years in the courts has done nothing but come to the conclusion that everyone already knew was right and proper. Furthermore, the appeal wasn't allowed on the point of management charges, hinging largely on the somewhat unclear lease in this instance. '...it is reasonable to expect that, if the parties to a lease intend that the lessor shall be entitled to receive payment from the tenant in addition to the rent, that obligation
and its extent will be clearly spelled out in the lease...' It isn't clear in this lease and the original Chancellor's decision was upheld on this point by the current Chancellor. He made the further point:

"Lack of clarity on these common issues is capable of affecting huge numbers of lessors and tenants across the country and involving them in expense and disharmony. The reported cases show that many of the disputes turn on similar or nearly similar provisions. Those who draw up or approve residential leases for their clients are plainly under a duty to take care that there is clarity and certainty in relation to those matters."

Once again I am reminded that adding further complexity only makes for more loopholes for the unscrupulous and more penalties for the innocent. Now, who fancies revisiting S.20 consultation levels?

A very happy and slightly less scary Halloween everyone. I'm off to steal sweets from kids. Bye.

Full case can be read here: http://www.irpm.org.uk/docs/public/Phillipsfinal3110.pdf

My Predictions for the Leasehold Management Sector 2014

Now in its legendary third year!

It is getting more difficult not to predict the stark staring obvious so forgive me if it all seems a little err... meh!

Major works due

1. I will lose 10 kilos. Yes, I've said it before, but this time....
2. The first ARMA Q accredited agents will discover a distinct competitive advantage. Seems to me that it is pretty self evident that customers will want the standards set out in the Consumer Charter and will want those agents included in their re-tenders.
3. ARMA membership went through 300 corporate members as I predicted last year. I think 350 is not an unreasonable expectation for this year - especially given role out of ARMA Q and the OFT's scrutiny of the industry during the coming year.
4. A good number of buildings, especially tall ones built in the last 15 years, will find that the costs of their first scheduled major external refurbishments are massively under budgeted. This is an issue that is looming for the industry as the developments of the last boom come towards their first truly major costs. Short term savings of previous years will start to cost a later generation of owners significantly.
5. The real cost of management will continue to rise as a consequence of increasing energy costs and materials costs across the board. 
6. Syndicated purchasing, procurement expertise and collective negotiation will become important tools for residents and agents - despite the difficulties afforded by a 'one year contract' world. Expect to see lots of S.20 notices.
7. Specialist skills and expertise in asset management with a residential angle will become increasingly important  as residential build to rent schemes start to appear. Again, procurement and cost control expertise will be paramount.
8. There will be continued downward pressure on management fees. Agents will continue to supplement management with letting, resales and other associated services. No one really believes that £100 - £150 per unit, pro rata, represents a satisfactory fee for leasehold block management.
9. The OFT investigation into residential leasehold management will find that many of the issues that have historically concerned consumer groups are being weeded out and that their is genuine impetus to continue to improve services across the sector.
10. The OFT will not find the same conclusions as in Scotland which was a.) not leasehold, b.) had no ombudsman and c.) had no tribunal system. 
11. New Scottish regulatory requirements will lead to a new group of members for the IRPM.
12. Without apology, (although I was wrong) this one is lifted directly from 2013s' predictions. I anticipate more partnership and collaboration amongst agents, as specialities and regional strengths make working together more likely to 'delight' clients than struggling to do it alone. This opportunity seems to have been taken in many other industries in recent times and I think it will work well in property management.
13. In answer to your question. No, I cannot predict the outcome of the appeal in Phillips and Goddard v Francis. It is also a complete coincidence that this is point 13.
14. Until there is a universal form of regulation there will be yet more new entries to the market - since it continues to have no real barriers and an almost uniquely advantageous way of collecting its fees - in advance, in accordance with the lease.
15. Scrutiny will fall upon registered social landlords and local authorities who manage a significant proportion of leasehold property stock and some of whom have been guilty of hair raising errors of judgement in the last couple of years. They must be included in the scope of the OFT investigation.
16. I might be imagining it, but the quality of judgements from the First-tier Tribunal (Property Chamber) seem to be excellent. I hope this is a continuing trend.
17. It really is time to look at rent charges on freehold houses. This area is growing rapidly and remains outside of service charge legislation. Again, I hope the OFT takes note. 
18. New blood. Good to see some new faces coming in to the industry and challenging the norms. I expect that to be theme this year.

Another difficult year ahead, but one which I believe continues to present opportunities to good managing agents who are willing to adapt to new markets and new expectations. There is no doubt that this will involve (if it has not already) some investment in processes and procedures to meet ARMA Q standards and customer and client expectations. A rising housing market is welcomed too since it reduces pressure on our customers and makes our clients more confident.

Phillips v Francis Update 4 - Leave to Appeal Granted

I am pleased to report that on the 18th November the Court of Appeal granted leave for the landlord to appeal the much discussed outcome in Phillips v Francis (see blogs passim). This was granted despite the appeal being out of time. One can only surmise that the general discomfort surrounding this decision and representations in support of the application from industry professional and trade bodies was sufficient for the judge to allow it nonetheless.

I remain hopeful that this signifies that a more considered and practical outcome might be achieved, albeit this may be some time distant yet. A date will be set next year and in the meanwhile we need to be mindful that the judgment remains in force despite my continued belief that actual implementation is nigh impossible.

I would be interested to hear from those who have had real
difficulties arising from the Phillips case to date.

Phillips and Goddard v Francis Update 3. Errr, do nothing!

Trawl the internet for advice and you will not find much written about this case since March 2013. Simply put, no one knows what to do, and to a greater extent are doing nothing.

A date has now been set for November 18^th for the landlords appeal. The appeal was out of date but a decision has been taken to hear it anyway – perhaps letters from various professional bodies and interested groups expressing concerns had an influence on this.

Having reviewed carefully with my team the ways in which we might interpret the current position and meet the requirements at least cost to our customers we have reached the following conclusion: It is impossible in all practical terms to do so. Any solution is a fudge and does not meet the requirement, as it stands, fully. Therefore in our opinion there is no point in doing so and it would be calamitous to try. 

There are several reasons why we believe this:

1. In order to serve notice on all qualifying works in advance, a calculation on a flat by flat, expenditure line by expenditure line analysis has to be undertaken. Whilst this is onerous it is not impossible. However, unless you can predict the future, you have an issue and may at some stage have to seek dispensation where you have exceeded the budget for qualifying works. Practically then you might as well rely on either post cost dispensation or adding any qualifying works to S.20 notices when you are doing a major project. Neither of these routes is particularly practical nor will they add clarity to an already clunky procedure
2. None of the experts have been able to provide any real clear guidance. ARMA, RICS and LEASE have pointed merely to the difficulties thrown up by the judgement and have been unable to offer solutions. 
3. The option to serve notice of intention to cover generalities and future unknowns as well as planned maintenance is messy, impractical and could not in any event meet the requirements of the case in full. 
4. The RPTS have made it clear that attempting to get predeterminations on every budget will be thrown out. Patently this would break the system. 
5. Using one contractor and a fixed schedule of rates under a Long Term Qualifying Agreement – again practically impossible we believe.

 Maintaining your current position and consulting on major works in the time honoured way seems to be the only common sense way forward for now.  If a lessee challenges a service charge then the landlord can seek dispensation under S20za.  This option obviously carries a continuous risk of challenge, unless and until action is taken to overturn the judgement.

Some concerns have been raised over the principal that the Chancellor sought to achieve here because his intention is a good one for consumers. Practically, he wished to avoid the possibility of aggregating linked works – all managing agents know that this is not acceptable practice – by going one step further and including all works in a year. However, an honourable intention alone is insufficient to make a case for changing rules that have worked well to a larger extent, for those that are impracticable and unworkable. This case simply opens the door for further abuses and would increase costs for leaseholders.  

I genuinely believe that trying to apply the ruling in practice would bring all works to a standstill within a couple of years because the RPTS would be unable to cope with the number of dispensation requests (all undertaken at a cost to consumers). You would have to breach the requirements to move forward, deal with emergencies and urgent works and provide a level of practical service to your clients.

My thanks to the very astute Dan Potter at Mainstay whose assistance with article this has been significant and who I have ruthlessly plagiarised. Thanks Dan!

                                                   

Will the Daejan outcome affect how we deal with Phillips v Francis? Update 3

I have been asked this question alot in the last few days. I wish I could answer it with some certainty. Agreed, there are more grey areas surrounding intention when dealing with S.20, but we should not mistake this for flexibility in the requirement to undertake the full consulation to the letter of the law. That being the case I cannot see how the Daejan outcome would reduce the impact of Phillips.

Having said that, no one is entirely clear as to what will constitute correct interpretation of Phillips by the LVTs. Early signs still suggest that the expectation is that nothing less than a boiler plate approach will suffice. If you miss a trick your client will be penalised and unable to recover the excess over the £250 limit per flat. Some poor souls are going to have to find out the hard way before we are all clear on what the exact process needs to be. I do not anticipate a 'flexible' approach from the panels.

One light on the horizon is a change to the threshold - Baroness Gardner of Parkes has proposed, by amendment to the Enterprise and Regulatory Reform Bill, currently in the Lords, a move to £330 before S.20 kicks in (remember the threshold has changed only once in nearly 30 years, the net effect of inflation meaning that leaseholders get to pay for more and more consultations as time goes by). The Baroness has further proposed some exclusions for essential and unforseen fire safety works, urgent repairs and securitry matters. Let us hope that these very sensible suggestions are adopted.

Landlords may take heart from the Daejan outcome but, whilst I believe that the outcome is a just one, it does not in any way change the requirement to undertake all stages of the consultation fully. Save for manifest error I would not be rerlying on it making life any easier for agents or their customers.

Come on - it really is time to revisit the whole process which remains clunky, expensive to administer, confusing for flat owners and vaguer than ever as a result of Phillips. Who exactly is being served here? The LVTs are awash with reasonableness tests and will soon be flooded with S.20 challenges.

As I have always said, the more complex the law, the more loopholes for the unscrupulous...