Build to Rent Developments still need Managing

Finally, after years of talk, and long after the term ‘build-to-rent’ became an accepted part of the industry parlance, there is evidence of real schemes coming through planning and of real investment in this asset class from private sector funds.

The new activity is a reflection the increasing numbers of people who are choosing to rent because they prefer to be mobile or cannot see any benefits in ownership or they simply cannot afford to buy. In the Southeast this is magnified sharply and plans for large schemes run to many thousands of units already. But these new renters are not prepared to accept the mediocrity that pervades much of the existing market outside of the social rented sector. Private landlords do not generally have the scale that allows for investment and upgrading of existing stock and units are often disparate and not part of a unitary strategy.

The private rented sector has the opportunity to offer much higher quality products, to add in services and to create longer term communities with people who want to stay put. In the USA and most of the rest of Europe this has long been the norm.

I have not, however, seen any evidence of real management strategies. When looking through the plans for new build-to-rent developments there is scant information on how the assets are to be maintained and enhanced over time in a cost effective way. There is a danger that many of the same mistakes will be made as were made in the last urban regeneration boom.  Developers are still learning from mistakes made in the early days of the leasehold flat resurgence in the 90s. The issues will remain the same with build to rent, but I suspect that institutional investors will be keener to understand the true returns after the real cost of managing complex buildings is factored in.

New large schemes will temper the market, add variety and drive up the quality of properties and services to tenants. But letting agents are not generally able to provide sophisticated property asset management solutions.

However, in all other respects the buildings are the same as those that managing agents across the country already manage for private leasehold owners and freeholders - in excess of 2.5 million units.

Modern blocks require sophisticated management solutions. They are filled with plant and machinery that requires adequate maintenance and long term capital expenditure and sustainability strategies. The compliance and health and safety regimes are the same. They need fire strategies, parking strategies, they require cleaning, decorating and landscaping and importantly they need customer services and response lines – just like long leasehold units.

Client landlords will demand long term strategies and modelling based on accurate budgeting and pre agreed returns. This is where understanding cost controls and budgetary management becomes essential. It is where asset register, cyclical plans and energy efficiencies need to be understood from the outset. It is where early attention to detail will reward investors. No one has more experience in this area than managing agents who have been working with developers on large new build urban blocks for many years.

There is a further opportunity also. Managing agents are well placed to provide additional services and time poor young professionals will be looking for hotel style services such as furniture packs, cleaning, laundry and concierge. Management of rental blocks is not constrained by leasehold legislation and will allow for considerable innovation and imaginative costs control, cross subsidy and leverage of purchasing power.

There is one group already gearing up to provide the solution and they have a good deal of experience. Registered Social Landlords have had a few years of taking on developer built apartment blocks and have learnt fast. They understand that cost control is imperative and quality is rising. They have learnt from the private sector.  They are far from perfect, but do not underestimate their resolve. One has recently purchased a large managing agent. The risk is obvious.

Managing agents have had a long and difficult journey in the last ten years but lessons have been learnt and new and innovative ways of delivering safety, security and quiet enjoyment to their customers are now becoming the norm. Private rental of the scale that build-to-rent proposes must be regarded as a significant opportunity for property managers. It is for the industry to sell its unique skills to this new investment class and the clock is ticking.

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!

                                                   

Why Managing Agents must be a part of Placemaking strategy.

What is Placemaking?

Placemaking 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 and that is driving big regeneration projects. In order to ensure their success, past mistakes need to be avoided - density, lack of infrastructure, poor management planning, a lack of resident engagement, have all resulted in failed developments over many years. Seeking the involvement and cooperation of communities from the outset has proved valuable in delivering the right solution and one that is widely bought in to. 

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. All of this is more easily acheived when all parties are involved at the outset.

Who does it involve?

Placemaking involves all stakeholders including the local community, the new community, local authorities, 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 really 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 from the outset. Other matters such as traffic restrictions, cycle paths, central squares, secure designs, kitchen windows overlooking play areas, recycling and sustainability are all part of ensuring places remain desirable in the long term.

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

Transparency, collaborative management styles, partnership with developers and the community are key factors. Managers must demonstrate real expertise, 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. This plan needs to allow the community to have an important place in the decision making process and to allow their vision to prevail. 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 and it never ends. 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 selected in consultation with stakeholders and not 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.

Good Advice for Property Managers

My first boss in property management and my first mentor was Gerry Fox, then at Fineman Lever, still the most knowledgeable leasehold practitioner I have ever met. He taught me one particularly important lesson.

It is admirably summed up in the cartoon above which was used to illustrate Gerry's talks when ARMA was in its infancy. It still holds true today. Your customers and clients do not want to know why things have happened (or, indeed, not happened), what they really want to know is; what is going to happen next?

Be proactive in your advice, think ahead and set out your timetable for change. If you then stick to it, life is so much more simple for everyone.

ARMA-Q - A Managing Agent’s Viewpoint

Regulation of the residential leasehold sector is largely  welcomed by managing agents and, despite some real  procedural and training adaptations that all ARMA members will need to undertake, the benefits far outweigh any additional time and cost and must result in better choice for consumers. 

ARMA-Q is no half measure and represents a huge achievement on the part of those involved in what, I believe, will shape the future of leasehold management. As a member of both ARMA and RICS, Mainstay is required to adhere to the RICS Residential Management Code. This sets the standard for all managing agents that are members of either RICS, ARMA or both and has statutory approval. The ARMA-Q regulatory framework seeks to build on those standards, and give consumers confidence that their agents are transparent, competent and compliant and are prepared to be called to account by an independent panel. Independence is important because anything less would not have held the level of validity required and, just as importantly, the standards will be audited. This is not a box ticking exercise.

In most cases, regulation will simply mean changing processes that are not wholly transparent to make them clear to customers and clients alike. It will require published schedules of rates for all charges falling outside of the standard management fee, complete transparency with regards to related companies and will prohibit hidden or undeclared income streams.

ARMA-Q recognises that managers need to be flexible in their delivery and that innovation and creativity should not be stamped out by imperative rules. However, ARMA also knows that everyone in the industry needs to shape up and deliver excellence. Most of all, it needs to be done on a level playing field and consumers would be mad to use a property manager who was not accredited and regulated.

We have more accreditations than I would ever have imagined necessary. I strongly suspect however, that as far as our customers are concerned and, as far as future opportunities are concerned, ARMA-Q will quickly become a highly valuable signifier of quality.

Complexity in leasehold block management continues to increase; complex development and contradictory case law, wrapped up with myriad statutes and regulation make it increasingly risky for operators and increasingly opaque for leaseholders. Regulation will bring some much-needed standardisation and create 

real barriers to those that chose to remain outside of good practice. I believe that there is increased awareness and sophistication among consumers and the need to provide genuinely expert and accredited services. In seeking to meet the standards set out in ARMA-Q we have looked closely at how our current process improvements can assist:

• commitment accounting is allowing us to report earlier and more accurately on budgeted expenditure in a year
• we understand there is a need for a proactive focus and real value for money 
• we understand the role of quality services in asset enhancement 
• we believe that long-term planning is required to deliver certainty in complex buildings 
• we aim to be one of the first fully accredited and independently regulated managing agents during 2013-14.

Our team is actively involved in seeking improvements and innovative ways of delivering the best services. My belief is that accreditations and regulation encourage a collaborative team approach and this successfully wins new business. ARMA-Q accreditation will add further to my conviction that, in future, only the very 

best will succeed in an industry long overdue a regulatory framework.

This article was published in the RICS Journal June 2013

It's not Rocket Science! A Guide to preparing for Meetings for Managing Agents.

I recently had an interesting experience - I attended a Residents' Association meeting as a customer/leaseholder for the first time ever and, frankly, I cannot believe I have never done this before. It always seemed a bit like a busman's holiday, but then I might have learnt a great deal.

At an evening meeting some 30 residents sat in front of a panel made up of a very hard working Tenants' Association chair and secretary, the client's site manager, the managing agent's site manager, the property manager and his boss, the regional manager who had travelled a long distance and were staying overnight. The development is mixed use, listed, complex, as yet unfinished and substantial in terms of size and costs.

So, what did I learn? Well, it was not a first to hear a manager wholeheartedly blaming their client for delays to budgets and accounts and, as often is the case, the agent was entirely honest in doing so. Just, perhaps, not in front of the client's representative(!). However, that did not mean that he could not have discussed the draft budget and previous years (as yet unsigned) accounts in some detail. But, as far as I could ascertain, he had not thought to bring copies of these important documents. The budget is 2 months overdue, the accounts 8 months overdue. The agent is in serious breach of all sorts of very clear rules and regulations. Blaming the client does not change this.

Major works are due this year but he had no details other than that they would be serving S.20 notices soon for external redecoration. I asked if it was to be phased but his answer was, 'we'll have to see how much it is first'. It was clear he didn't really know what was being proposed in any detail.

Questions relating to sub letting and pets were asked. But since no one had thought to bring a lease along the questions could not be answered with any real clarity. Nor could the question as to why they would not accept monthly standing orders be answered. The correct answer is because the lease only allows for quarterly payments in advance. No reason why you shouldn't pay one quarter in advance and then monthly...

As a customer I was left fuming because I left the meeting no better informed than when I arrived. I had read the lease, I had with me copies of previous accounts and the last budget. I had driven 3 and a half hours to get to the meeting and had to leave at 5.30 the following morning. I would dearly like to think that my company do not treat our customers this way. I intend to find out by doing some mystery shopping excercises in the next few months. So be warned - as a 'customer' I felt very badly treated. A little knowledge is a powerful thing. It felt as if there was an assumption of general ignorance that would allow for being unprepared.

The meeting should really have been cancelled.

So here is my advice to managers presenting to Residents' Associations or to their Client. It is not particularly complicated:

1. READ THE LEASE
2. READ THE LEASE AGAIN AND UNDERSTAND IT.
3. Take a copy of THE LEASE with you to the meeting. Derrrr!
4. Take a copy of the BUDGET along - whether or not it is finalised. It is my money you are requesting - the least I can have is a chat about it.
5. A copy of the ACCOUNTS if they are due. Even if they are draft.
6. Bring a SCHEDULE OF ARREARS. Know what the total aged debt is and how many people you are proposing to take action against. Is there an issue?
7. If you are planning works, understand what is being proposed and how the costs are likely to be met.
8. Understand what is on residents' minds. Quite plainly (in this instance) the issue of dogs, parking, allocation of estate costs and subletting come up at every meeting. Have a planned response.
9. Speak to everyone involved in running the development. Who is deciding what works are due? Who knows what is being done to install LED lighting for example? Is all compliance up to date? Tell your customers what you have been doing to mitigate costs. You owe that to them at the very least.
10. Discuss how you are taking a systematic approach to dealing with letting agents.
11. PREPARE PROPERLY!

All of this will save you lots of time later and time is important in a managers very busy life.

I am mystified as to how managers can go to a meeting without basic financials and a lease. I would never have done this - but then I had a file for every property with the relevant data easily to hand. Perhaps it is technology that is letting us down? I know that is partly to blame for the lowering of all sorts of standards. But most importantly, please don't assume that your audience are uninformed - it is arrogant beyond belief.

My Rules of Modern Communication

Of all the ways available for us to communicate, face to face is clearly outright winner.  There are so many signals sent when you can see someone that there is a whole separate dialogue going on that tells us all instinctively much that we need to know. This is part of being human, and yet we will go a long way to avoid it if there is a quicker, easier way that avoids direct contact.

A telephone call is good. Did you know you can only hear 10% of a person's real voice on the phone? Our brains can fill in the gap in knowledge but it is not competition for face to face and so comes a distant second.

Then there is a letter. Handwritten always used to be the best, care had to be taken with the construction and tidiness - it could not be rushed. A good writer can convey a great deal. Sadly this skill is diminishing. Often a hand written letter these days is an precursor to bad news - no longer simply an effective and enjoyable form of communication.

Then there is email. Where do I start? Email is so immediate, convenient and accesible that it has become nothing more than a shortcut tool for busy people with complex lives. A tool that allows one to avoid real contact and indeed, sometimes, reality. I don't like email, but I always adopt technology and have been emailing for as long as it has been possible. But let's face it, 90% of the real message is lost in emails and, because they are ubiquitous, senders often fail to read them back carefully and consider the message they wish to convey.

In easy last place is texting. I use it, but no one will ever persuade me that it provides anything other than convenience. Most of the time it is used to avoid proper communication.

Sadly, both personally and in business there is no way of avoiding these short form types of communication and both business and customers are worse off for it.

I get a lot of emails, most of them want to sell me a service. Here are my rules to help you succeed:

1. A personalised approach is always best. Follow up a written and interesting letter/email with a call. Do some research first though. Am I really the right person to talk to? For example I don't approve contractors, I don't place orders, I don't buy office supplies etc. etc. Find out who the right person is.

2. Don't send me standard generic emails. I delete them. You got my name off a list. I didn't ask you to contact me.

3. Don't just add my name by way of personalisation. Personalise it properly and there is a chance I will read it.

4. Just because I have LinkedIn with you it does not necessarily mean I want to do business with you. If I do I will almost certainly let you know.

5. Cold calling does not work at all.

6. Pretending I know you does not work. Being extra 'chummy' really gets my goat.

7. Business is a two way street. We are more likely to have a meaningful conversation if you have something I want and vice versa.

8. No, I do not want a table for ten at a sporting event in 8 months time. If I do I will hunt around for the best price. Usually cheaper than yours.

If you don't want to sell me something then pick the phone up to me or email me with a clear summary of the opportunity or the issue. I always read my important emails.

1. However do not expect me to respond within 10 minutes. 4-5 working days is not unrealistic, but it depends on many factors.

2. If it is an emergency - am I the right person at this stage?

3. Be courteous. I am always so.

4. If you have never met me I cannot be your enemy. Step back and tell me why you are frustrated and/or angry. I will always try to help if I can.

5. Don't withhold your number. I am naturally suspicious.

6. Don't ask your assistant to set up a call unless you are a.) Royalty, b.) almost as important.

7. Just because my 'out of hours' is not on, it doesn't mean I am not on holiday. I always keep an eye on things and pass on important stuff to others if I am away.

8. If you email me please spell check your communication. Then sense check it. Then click the correct 'send' button. It happens, it can be embarrassing, or worse.

If you get a glimmer of interest from me, I suggest you buy me coffee somewhere convenient or come to my office. If you want to sell me something then you should come to me.

Call me old fashioned but I like to meet people, assess the cut of their jib, look into their eyes. I've got it wrong once or twice but mostly my instinct is right. The best people to do business with have sometimes been those with the least likely proposition. Indeed, sometimes a problem has been turned into an opportunity for both of us.

The good news is that I think we are starting to relearn communication skills, particularly written. As you will have gleaned, I like blogging and there are many thousands of brilliant writers out there now using this technology to get their views or interests out to a wider audience. Twitter may not add to written quality but it does throw up links to the most interesting and widely varied participants in blogging - across the globe. I am a convert to the way that technology is shrinking the world and outing the fanatics to the ridicule of the majority.

However, those are big themes. I would just like you to pick up the phone and try and get a meeting. Even if it is to complain about my blogging. Old fashioned I know, but it sometimes works!

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...

Pragmatic outcome at last in Daejan v Benson?

I note that decision for Daejan V Benson in the Supreme Court (heard before Phillips v Goddard unfortunately) has now been published.

Their Lordships appear to have decided, at first reading, on a sensible solution that does not allow the leaseholders to benefit entirely from a windfall in terms of the works, but requires the landlord to pay the leaseholders legal costs and a sum reflecting the failure to consult. Not a majority decision but practicality of approach seems to have held sway. Very much at odds with Phillips v  perhaps? 

Lord Neuberger stated: 'This conclusion does not enable a landlord to buy its way out of having failed to comply with the Requirements, because a landlord faces significant disadvantages for non-compliance...[it] achieves a fair balance between ensuring the tenants do not recieve a windfall and that landlords are not cavalier about observing Requirements strictly.'

Wow, how much did it cost the parties to get to that common sense solution in one of the longest running property cases? I will write more about how I think this might impact consultation activities once I have had time to digest the full decision in detail.

Meanwhile News on the Block have published an excellent summary here: 
http://www.newsontheblock.com/news-and-opinion/38057/landlord-as-supreme-court-allows-major-works-appeal.thtml

Phillips and Goddard V Francis Update

For banging your head against

I have been putting this off for some days in the hope that some expert, highly qualified professional will come to my rescue with a simple and elegant solution to the thorny problem that we all find ourselves with. Suffice to say this has not happened ( - yet, for it may do in the course of time and once other cases have revisited the issue).

So, what do we know? Well the case is not to be appealed further and stands as it is. For now there is no ability to separate qualifying works into different activities or timeframes within a service charge year. Additionally the cost of all qualifying works cannot exceed the limit per (any) flat without full consultation.

As I have said before, no one benefits from this judgement. It will involve all agents in significant additional work, head scratching and delays. The costs will be passed on to leaseholders.

I will summarise the suggestion made by ARMA and other experts below before looking at what hope there may be for the future.

In responses to ARMA it is clear that many members are playing a waiting game to see what transpires. This may be a calculated risk but it would appear from one response at least that the LVT may take the view that relevant interim costs are caught by this judgement and must be consulted upon. There is a debate currently as to whether interim costs were supposed to be included. For my part I cannot see that they were excluded, although I cannot accept that this was the intention of the Chancellor.

ARMA's excellent summary can be found here: http://www.arma.org.uk/files/Phillips_v_Francis_public_brief.pdf

Other suggestions include; a detailed published schedule of rates for all repair works - a big undertaking for any agent; a catch all style general consulation at the start of each service charge year; persuading the DCLG to raise the threshold to a level that will reduce the number of consulation excercises significantly and getting predeterminations on everything. 

My own concerns continue to be the relatively low threshold for S.20 consulation (see previous blogs) and the difficulty in making the increasingly complex statutory framework in which we operate understandable to my customers. Jonathan Upton of Tanfield Chambers has summarised the position in a comment to ARMA  most neatly:

“This decision is curious given that neither party argued that a landlord was required to consult on a distinct set of qualifying works if a lessee’s contribution to the cost of those particular works would not exceed £250: the lessees’ case was that the qualifying works were all part of the same set of works. The Chancellor felt able to depart from the Court of Appeal’s decision in Martin v Maryland Estates on the basis that the 1985 Act has since been substantially amended. While this may be correct, the decision has serious and possibly unintended consequences for landlords.

This will be an enormous burden on landlords and managing agents, both in terms of cost and time. If landlords are now required to consult on all qualifying works, however small, the cost of such consultation will ultimately be passed on to lessees. This is not in anybody’s interests. It cannot be what Parliament intended.”

Amanda Gourlay also of Tanfield Chambers, whose excellent 'Law and Lease' Blog really is well worth a read, suggests this:

One solution may be to issue a Notice of Intention at the beginning of the year, listing works which the landlord anticipates may need doing in the course of the year. The regulations only require a description of the works “in general terms”.

Whilst the tenant must respond to that notice within a specified period, so far as I am aware, the landlord is not obliged to obtain all estimates for the works at the same time, nor within a specific period. Therefore, the landlord can wait until the works need doing before continuing the consultation process by obtaining estimates and so on.

So, what hope do we have for a return to the now, comparatively, good old days of Martin v Maryland? Any change will need to arise through a revisit at Court of Appeal level. This could leave us waiting for 18 months and having changed all our processes and procedures we get to return to the old system. One might hope for a pragmatic approach form LVTs, but I sense from others that this may not be forthcoming.  Agents may decide to put as many budgets through to LVTs for pre approval as necessary and swamp the system into submission. (I dont think this will happen - we are just not militant enough!) The DCLG may decide to review the thresholds which would at least reduce the number of consultations. 

Suffice to say I do not have a practical answer as to how we should be behaving yet, but I urge caution - a comprehensive approach will best serve your clients at this time. Sadly I do not believe that leaseholders are well served by continously revisiting accepted norms in what is already a complex area. Some clarification would be welcomed and I do think that, sooner or later, this case will lead to a revisit of the whole clunky and complex S.20 requirements. That must be a good thing. 

In the meanwhile do let me know if you do have a sensible solution won't you?!

Upper Tribunal slaps LVT repeatedly until it behaves

It has long been a concern of mine that the LVT does, from time to time, overstep its authority and is occasionally inconsistent in its approach. In particular my concerns have related to hearings where the panel have included matters not raised by either party. The LVT has no mandate to exceed its remit but, in my experience and anecdotally from other agents it regularly does, by either raising additional matters (outside of those raised by the parties) or pointing the applicant elsewhere. Of course, most landlords do not have the time or the resources to appeal these decisions and consequently the LVT has acted with a degree of impunity.


I am pleased to report however that time has been called on some of these practices and a series of Upper Tribunal (UT) decisions have clarified, in no uncertain terms, the limitation in the scope of what can be dealt with without both parties having the opportunity to comment, defend or put right.

There is an important principal at stake here. All parties have the opportunity to seek advice in advance of any action. It is not for the LVT to steer the applicant nor to assist their position - although I accept that the panel may direct them. In my view there is some bias, but no one should be surprised here. Landlords can turn up armed with barristers and deep pockets, but this is principally a forum for leaseholders to object to the activities of landlords and/or their agents and rightly they should be given direction if required. However courts and tribunals are limited to dealing with the matters in hand and should not feel free to open other avenues of investigation.

I have also recently seen a case where the manager had negotiated a new contract with a reduced management fee on the previous year. We might regard this as a normal commercial activity given the competitiveness of the market but an LVT panel has subsequently taken that to mean that previous year's fees must have been too high and reduced those to the same level. This is an absurd notion that puts all agents at risk of being penalised simply for negotiating in an effort to retain work. In the one-year contract environment in which we operate, who is to say that the fee wasn't correct in year one but reduced in later years due to familiarity and countless other commercial factors? The LVT should not be interfering in the market.

In another instance the LVT has decided that it would hear a case, despite there already being a county court judgement in the matter. In another the managing agent was made the respondent despite it clearly being the landlord. The list goes on, and all agents have stories of inconsistency, unfairness and of downright stupidity when it comes to dealing with this tribunal.

I expect more slappings to follow but I am also heartened by some of the cases I have read very recently. These included a recent case where the Chairman was at pains to point out the limitations of the LVTs jurisdiction and that, whilst the Act allows for discretion to be used, this is only where it is just and equitable to do so in all circumstances. In this instance the Applicants were reminded that the LVT could only deal with matters of payability and reasonableness under S.27A.

If you are interested in reading the pertinent UT cases (there are some good analyses online) they are as follows:

Redrow Regeneration (Barking) Ltd v Edwards - Lease terms are law, plain and simple, it is not for the developer to have to prove their right to collect charges.

Wales and West Housing Association v Paine - LVT reduced management fees. Landlord appealed, the UT held that this was not the matter raised.

Birmingham City Council V Keddie and Hill - LVT decided windows should not have been replaced at all. Again on appeal this was not deemed the matter that was raised.

Crosspite v Sachdev - LVT questioned payability of subletting fees. Overruled by UT who stated that payability was not the question, it was the amount that was disputed.



An excellent blog here:

http://nearlylegal.co.uk/blog/2012/10/how-many-times-to-i-have-to-tell-you/

And here:

http://www.lawandlease.co.uk/2012/10/28/1-redrow-regeneration-barking-ltd-2-barking-central-management-company-no2-ltd-v-1-ryan-edwards-2-adewale-anibaba-3-planimir-kostov-petkov-4-david-gill-2012-ukut-373-lc/

Massive Backwards step for Managers, Landlords and Consumers

Photo: Cesarastudillo

If you manage residential leasehold property then you cannot have missed the furore that is being generated by the case of Phillips v Francis (No. 2) [2012] EWHC 3650 (Ch) the judgement on this long running case having been handed down in December 2012.

I am not going to dwell on the details of the case - interesting though they are - you can search them and read the full detail easily on line. It is the ruling relating to S.20ZA (2) Landlord and Tenant Act 1985 (this section defines 'relevant' works) that concern us here and in particular what activities require a S.20 consultation notice. The judgement states as follows:

As the contributions are payable on an annual basis then the limit is applied to the proportion of the qualifying works carried out in that year.  Under this legislation there is no ‘triviality threshold’ in relation to qualifying works; all the qualifying works must be entered into the calculation unless the landlord is prepared to carry any excess cost himself. (my emphasis)

Thus we are advised that, for the last 27 years, we have been doing it all wrong and that the existing case law of Martin v Maryland Estates, relaied upon widely, is incorrect in separating out disparate sets of work.

It has always been a concern of the LVTs that landlords do not split up related works in order to avoid consultation. However this case appears, on the face of it, to take that requirement further in that the works do not have to be related in any way. All qualifying works are to be aggregated for the purposes of the consultation and there is no longer any separation within a service charge year of qualifying works. As such works currently regarded as falling below the 'triviality threshold' are now to be included if the aggregate total exceeds £250 pa. Of course this will effect almost every scheme, every year. It will include reactive work such as changing a light bulb or repairing a lock. It will include contingencies, overruns and contract variations. 

In an attempt to stop landlords splitting related works to avoid S.20 (a perfectly honourable intent) the court has created the unintended consequence of generating notices across all qualifying works regardless of how they are to be funded and regardless of whether they are related. 

Let us say that you carry out a repair to lifts that requires consultation because at least one flat will contribute more than £250. You serve notice and proceed in accordance with legislation. Later in the year you redecorate a corridor. In itself it does not require consultation since no lessee is required to pay a contribution of more than £250. However, you have already exceeded the limit elsewhere and thus, now, further consultation is required. And so on and so on. 

This then applies to all qualifying works in year if you are likely to exceed the threshold. What to do? I am not sure. Can you serve a speculative notice? No, I do not think this is possible on the basis of an estimate. Perhaps take all budgets to LVT for pre approval of expenditure? This might give the landlord comfort but would quickly inundate the tribunal and cause delays. This case will increase workloads, will increase costs and will confuse leaseholders. Fact.

We can but hope that a new decision is reached that turns this judgement around or clarifies it further and that in the meanwhile the LVT takes a very loose and pragmatic approach to interpreting it. I am still reading comments and forming a view on what actions to take. I am hopeful that clarity and common sense will prevail and that news guidance will follow.

Fingers crossed everyone, because as it stands the spirit of S.20 consultation is badly broken and the consequences are significant.

My Predictions for 2013

Quite a few of you read my predictions last year so I take it there must be some real interest in predicting what is going to happen in the viscerally exciting world of residential leasehold property, so here goes...

1. ARMA Q will be agreed with all stakeholders, finalised and be ready for lift off before the year end. ARMA membership will continue to increase as non-members take up the opportunity for a genuine arms length regulatory regime. It will become difficult to justify not signing up as membership races past 300 companies.

2. If you can't sell 'em, rent 'em! The private rented sector (PRS) has really started to take off (again) and genuine private sector 'build to rent' properties are actually in development. This must present an opportunity for those managing agents who have added asset management and portfolio management to their existing skills.

3. Dealing with the differing needs of Landlords (or buy to let investors) and their sub-tenants as well as leasehold owners living on site will continue to be a challenge for every managing agent. It is difficult not to have sympathy for owners living on schemes that are increasingly let to tenants with little (or less) interest in maintaining the quality of common areas. Interests are not aligned which always causes dispute.

4. Big regeneration schemes will start to go live, promising a mix of developer, investor and social interests and a mix of tenures. Interesting approaches to management will be flushed out as requirements for Community Interest Statements meet the need for commercial returns. As with large mixed use schemes, quality standardised management plans from the outset will be key to success.

5. I think we will see an even bigger push towards energy saving strategies this year, including the introduction of phased switch over to LED lighting which is fast becoming the quickest way to find real mid term cost savings as well as delivering reduced carbon footprint - win, win then.

6. Gala Unity v Ariadne Road RTM - this Lands tribunal case has an important impact on RTM of single blocks or parts of an estate. It is suggested that the parties will come to some informal 'arrangement' over those areas of management no longer covered by the leases because of grey areas arising when one part of a scheme opts out. I think this will have some serious implications for RTM's, Landlords and their agents. Looking forward to the first test of reasonableness under such circumstances at LVT.

7. Like the one above, a number of cases in the courts currently and some that will arrive at appeal this year seem likely to turn received wisdom on it's head in relation to consultation, interpretation of leases and what is recoverable as a service charge - there appears to be an almost concerted effort to shake up the leasehold  sector - but at the moment it looks like it will not be for the better, simply adding more confusion and opacity. There will be some lawyers winning whatever. I will be writing in detail about this later in the year.

8. Is this to be the year of office to residential conversions? Will it lead to a new revitalisation of our city centres, some of which have been at a standstill since 2008? There is evidence of planning applications rising for this newly encouraged  conversion opportunity. I suspect that these conversions are not cheap and, as ever, banks and liquidity will be key.

9. 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.

I round up by stating that the coming year will not be easy for agents, or their clients, or their customers. With no sign of relief from the relentlessly difficult economic climate, agents have to work harder and harder to demonstrate the real value of their services, and leaseholders, understandably, want to extract as much value for the least outlay. I think great new approaches, innovations and pioneering models should and must arise from this scenario - I will go so far as to call it an opportunity. Fingers crossed I will be reporting on one of these later in the year. Watch this space!

Regulation is coming - but it has a cost.

As ARMA Q proceeds through consultation it will be interesting to see who really reads it and makes meaningful comments on its proposals. So far I have heard from no-one outside of other managing agents who broadly support the proposals but have concerns centred around some of the detail.

As it stands, ARMA Q will require every managing agent to detail annually, to its client and all leaseholders, every bit of income derived from its activities on their behalf, including any associated companies. This will, of course, include any insurance commissions. There are well established precedents for what is reasonable for the insurance work that managing agents undertake for their clients, but what of other areas from which many derive an income?

A good proportion of agents provide other services such as cleaning and concierge, health and safety and various maintenance services, not to mention lettings and estate agency services. Will they be required to reveal margins on these services by block? Surely that would make it impossible for them to compete fairly with other external service providers who will not be required to reveal their margin?

I also include in this any national procurement agreements that results in a payment to the agent - even if this is dressed up as a consultancy fee. How is it intended that this is revealed on a block by block basis? How does the agent prove that it represents value for money for each and every block? What if the agreement has a confidentiality clause?

An example would be the sort of agreement that agents have for the purchase of utilities. Because they can buy these for a huge number of blocks they are able to negotiate procurement agreements that give them a fee and benefit their customers because of their buying power.

Clearly for customers who have a poor record with insurance claims or a high level of engineering maintenance issues, national procurement models can provide huge benefits. If agents stop these agreements then there is every possibility that, not only will the contract costs increase universally, but that the agents' management fee will need to go up too.

Bulk purchase, procurement activities and regional/national agreements have a significant benefit to customers, providing additional value and protection of a large syndicate/portfolio. They are universally used throughout the FM industry to achieve best value and they cost time and money to set up and administer. For example: Lift contracts are often set up by the developer as part of the procurement of lift installation. As a consequence the leaseholders may inherit an expensive long term agreement - which effectively compensates for driving down the installation cost. Managing agents with portfolios of lifts to maintain can use their buying power to renegotiate these contracts - sometimes halving the costs. This process requires hard negotiation and agents should not be ashamed of taking a fee for delivering it.

Transparency in the regulation of managing agents will require that all of this activity is undertaken openly and that is a good thing, but not if it leads to agents being unable to take a reward for their efforts. Many agents are uniquely qualified and they work hard to achieve accreditations and compliance standards. They may employ specialist risk assessors, and engineering and asset management specialists. They may have a range of highly specialised skills that add value and are generally only available elsewhere at a cost.

Independent managing agents provide an essential service. Make sure that all income streams are clear in your contractual arrangements with them. That way, and that way only, you will receive best value. There is a wide choice of service levels available at a wide range of prices - chose the one that suits your development and look closely at  what would happen in a genuine emergency.

Most importantly - make sure your agent is going through the ARMA Q accreditation process, it will be the only independent accreditation and that might count for a lot when there is a major issue to be resolved.

Is S.20 consultation achieving best value for leaseholders?

Statutory consultation must be seen as a good thing and S.20 has undoubtedly changed the way that landlords behave - but when the cure becomes more painful than the illness then it is worth having another look at the reasoning behind it. I believe that S.20 is restricting the opportunity for lessees to benefit from the best value available, particularly for utilities, maintenance and engineering contracts.

In the 1970s and '80s a number of landlords used the lack of consultation procedures to give associated building companies extensive and high cost major works projects across long neglected Victorian and Edwardian estates. The quality of the work was often questionable, the value was hard to justify and the contracts were often awarded, without consultation, to associated companies. Since this was before the days of LVTs and S.20, leaseholders were often powerless to resist.

The 1985 Act and the amendments in 1987 sought to shift the balance of power between landlords and leaseholders. It is easy now to forget the changes that these Acts achieved if you were not involved in property management at the time. It was a quantum shift in behaviours that was required to meet the standards laid down in these Acts. (I recall negotiating  an increase in management fees for a block in Battersea in 1987 to £220 per unit specifically to take account of the increased management requirements. Interestingly I doubt this fee has risen much, if at all, since - such is the competitive nature of the industry now.)

I am looking therefore, specifically at the unintended consequences of S.20 legislation which was initially introduced in the landlord and Tenant Act 1985, as amended 1987 and fully revised in the Commonhold and Leasehold reform Act 2002.

Looking at the most obvious problems first:

1. £250 per head for consultation is not much if you are a very small block. You will have to consult on all moderate to major items. Most agents charge for formal consultation adding to management costs which might already be disproportionate for small blocks. 
2. If just one flat in your block exceeds this contribution you must consult - for example if you have a large penthouse (say 3000 sq ft) and the service charge is divided on a floor area basis then you are likely to do proportionatley more consultations. 
3. You must consult on long term contracts in excess of £100 per unit (see number 2 above - still applies). This means there will be no snapping up of a 3 year contract for fuel at a beneficial rate. These deals are usually only available for 24 hours. S.20 has all but stifled this long term value and needs to be rethought.
4. Managing agents are rarely contracted for more than a year because there would have to be full consultation otherwise. This means that best value is not necessarily being achieved - given the risk that you will loose the contract after one year how can you genuinely offer best value? Most agents would be lucky to break even in year one. Longer term contracts offer security to both parties and better value. Contracts still have normal termination rights in the event of a proven breach.
5. You cannot avoid S.20 - even if all lessees agree to circumvent it. The LVT does not take kindly to S.20 avoidance and will always support fully any future claim that consultation was not undertaken correctly. 
6. Residents' Management Companies are not excluded either - even though in the event that they fail to consult and are unable to recover the full sum it is a moot point - in theory only their members can pay the difference anyway.
7. It takes too long. 3 months is the general minimum.
8. It can only be avoided in an emergency (by dispensation under S.20za) and even then you are at the mercy of the LVT if they decide that your interpretation of urgent or an unintended minor breach of the rules is different from theirs. See the Daejan Investments v Benson decision for the full details.
9. That leaves Landlords with a difficult choice in really urgent situations. To get dispensation in advance of undertaking the work which can take 3 to 4 weeks or to gamble that it will be given retrospectively. 

Given all this I have set out below my thoughts on how to improve and modernise consultation. I do not have all the answers and would welcome your thoughts but here goes:

1. Firstly the qualifying sums need to be raised - they have only been changed once since 1985. I would propose £500 and £250 (for long term qualifying agreements) respectively. This would still give a reasonable level of protection whilst reducing the annually increasing administration of notices - most agents, if not all, charge for serving the notices.
2. Allow procurement of long term agreements where these are demonstrably good value. As long as the value can be evidenced thereafter, procurement should be free to take advantage of market opportunities, this is of particular importance to Local Authorities and agents with real buying power. Consultation can be by initial letter describing what the client is endeavouring to achieve with detail being added after.
3. Allow RMCs to opt out of consultation in the event that they have full support of their members. It is, their members who would pay any penalty arising from a breach anyway. This might be achieved by, say, a simple 'cover all' consultation periodically.
4. Dispensation should be given automatically and immediately if it can be demonstrated that any lessee will be disadvantaged were it not. For example if anyone was to be without heating or hot water or suffer a leak or threat to their safety or security.
5. 30 days is more than a sufficient time to consult. 21 days would reduce the timescales and benefit everyone. Technology has significantly speeded up communications since the 1980s.
6. The consultation limits should be divided equally across all units to avoid the issues set out in part 2 of the problems above, a long shot I know.

Consultation is an important tenet of residential block management and has changed the way that landlords and managers behave. But through time it has become less valuable as a tool in its current form and now hinders best value for leaseholders, increases costs and diverts management time. Inflation and improved communication channels mean that in it is no longer fit for purpose and should be carefully reviewed. We live in hope...