Technical Update - December 2018

IRPM News

CEO’s column | Annual Seminar 2019: book early!   

In the news

Government will support cladding removal on private blocks | Fire safety chief accused of ‘conflict of interest’ | £20m Ponzi scheme shut down by High Court | More than 14,500 new homes registered in October says NHBC | Airbnb: NI planning consent – could it happen here?

Social Housing

More social housing needed says Minister   

Health & safety

New health & safety qualifications launched | Health & safety statistics 2018 | Fire doors under investigation | Labour calls for sprinklers in high-rise blocks  

PRS and B2R

Homes fit to live in: second reading | Up to five months to reclaim rental property | Lewisham Council teams up with B2R giant for new PRS homes | World’s tallest modular towers are in Croydon   

Scotland and Wales

Scottish property Factors: registration renewal | Wales to adopt Scottish housing model | Welsh Housing Minister questions developers' approach to affordable housing  

Legislation

New legal requirements banning combustible materials in cladding | Considering the case for a Housing Court: call for evidence  

Legal update

Mark Loveday looks at this month’s key case

Talking points

UK property demands are changing: how should investors respond? | The Salisbury attack: What are the insurance implications

Topic of the month

Site staff and VAT – what are the implications?  

IRPM Events

What’s happening when and where?

IRPM News

2019 - Toxic is out, trust is in

Andrew Bulmer is hoping for a little more trust and respect from all sides of the property sector in the New Year

What’s your wish for the Christmas holidays? Peace on earth and goodwill to all? Sounds good - and if we can have some of that next year, it won't be a moment too soon. 

Catchphrases such as ‘toxic leasehold’ and ‘fleecehold’ make great headlines, but it’s time to move on and build the peace. The Law Commission is proposing, Dame Judith Hackitt is insisting, Lord Best is focussing, Westminster is legislating and Welsh government is watching thoughtfully. Big changes cometh, and much is welcome, but let’s be real. The old ways had their faults, but the new solutions will have faults too, and it will be IRPM professionals at the sharp end, trying to make it all work. That task will be a lot easier if there is a bit more trust and respect from all sides in the sector. Mandatory regulation and qualifications will help, as the rogues hopefully get driven out.

Christmas is also the season to give thanks and I’m going to start with you, our thousands of professional members, for raising standards and doing good work. It really matters, not just because it is the right thing to do but because Government is recognising your good work. Also, my grateful thanks go to the many volunteer members and friends of IRPM on your Board and Working Groups, who steer and advise your professional body and make sure it stays relevant, useful, remarkable value, and member-driven always. And a huge thank you to the brilliant IRPM staff team; in the office, our examiners, moderators, invigilators, contributors, editors and experts. They have delivered so much this year. It is a privilege to work with clever, creative people who are passionate about their work and truly care about how the Institute works for its membership. I thank you all.

Before I sign off, some notes and housekeeping. Please, get that CPD recorded. With Government looking over our shoulder, you can expect to be checked this year. It takes moments, and if you’ve forgotten your password, just call the office for a reset. Then you’re back in the groove and have access to your improved resource hub too.

And, good news - problem solved! The 2018 IRPM Annual Seminar was our largest ever, (the biggest event in our sectors in 2018, it turned out) we sold out again and it got a bit cramped. So, for 2019, we’ve found an even bigger venue; the amazing QEII Centre off Parliament Square, London. More space, better chairs, a thrilling location and an extended A-list programme of essential updates, need-to-knows, innovation, ideas and thought-provoking leadership. Plus, new for 2019, free private consultations with experts – book now on a first come; first served basis. Tickets have just gone on sale, still at just £79 early bird for members (non-member rate £240) including lunch, refreshments, exhibition and conference. Your IRPM Annual Seminar will be the event for 2019.  Don’t miss out; book your early bird rate tickets now (scroll down for more on this below) and we will see you there!

Wishing you all a peaceful and joyful season with simple service charge budgets and no emergency call outs! Happy holidays everyone!

Andrew Bulmer is IRPM CEO

 

Annual seminar 2019: book early! 

Our 2018 Annual Seminar was the biggest leasehold/build-to-rent event of the year, selling out with more than 500 attendees. So for 2019, as reported in the last issue, we are delighted to be holding next year’s event on 13 June at the Queen Elizabeth II (QEII) Centre, which can host up to 700 delegates.

It might be big, but the IRPM Annual Seminar is a friendly and positive event, providing thought leadership, insight and practical support for property management professionals in a fast-changing world.

Something new for 2019 are Consultation Bubbles, a private space for you to meet, get free advice and do business with our sponsors. Our Platinum sponsor for 2019 is property law specialist Brethertons, and our Gold Plus sponsors will be Abbatt Property Recruitment, Dean Wilson Solicitors, 4Site and the Future Group. Click here for a list of other participating sponsors.

Discounted tickets are available for those purchasing from now until 31 January 2019.

Early Bird tickets for IRPM members are just £79.

Non-members tickets are £240. Places are limited, so book your place now.

Over the next few months we will be announcing more details of our sponsors and speakers - click here for details. Don't forget to add the date to your calendar and don't miss out! 

We look forward to seeing you there.  

In the news

Government will support cladding removal on private blocks

The government has announced it could provide “financial support” for local authorities to remove dangerous cladding from private buildings (Source: Inside Housing).

The Ministry of Housing, Communities and Local Government (MHCLG) said councils will get “the government’s full backing, including financial support if necessary” over private blocks. Earlier this year,  the government pledged to fully fund the replacement of cladding on social housing tower blocks but made no financial commitments for private buildings. Now the MHCLG says local authorities “will recover the costs from building owners” but did not reveal how this would happen.

A total of 289 private sector high-rise buildings have been identified as having unsafe cladding as of the 31 October, with remediation finished on just 19 of these blocks. There are still 98 of these buildings which have no plans in place for cladding removal.

In a statement to parliament, Communities Secretary James Brokenshire said the lack of action by some building owners had prompted the action. The MHCLG will now write to local authorities where owners refuse to carry out work and offer them support to take enforcement action.

The ministry has also added to the Housing Health and Safety Rating System operating guidance, with clearer instructions on how to assess high-rise buildings with unsafe cladding.


Fire safety chief accused of 'conflict of interest'

The head of a government fire safety panel set up in the wake of the Grenfell Tower blaze has been urged to declare a conflict of interest after it emerged he certified cladding similar to that fitted to the north Kensington high rise.

According to The Independent, Sir Ken Knight a former chief fire officer, signed off on building materials in his role as director of Warrington Certification, which have come under increasing scrutiny after the devastating fire at the 24-storey block that killed 80 people in June.

Now experts have said he should justify his independence on the fire safety panel after his previous role emerged. Sir Ken refuted the allegations that his former role impacts on his current work, saying he was unpaid and to was there to approve the certification process rather than specific products. The Department for Communities and Local Government also defended his appointment.

£20m Ponzi scheme shut down by High Court

A property investment company operating a Ponzi scheme based on claims of capital appreciation and rental income has been shut down by the High Court.

Letting Agent Today reports it is accused of misusing almost £20m of investors’ money. Essex and London Properties Limited (ELP), based in Kent, claimed to purchase properties with the intention of selling them on at a profit or getting rental income for investors.

However the reality was that ELP only purchased a single property - a house in Harwich for £147,000 which is less than one per cent of the overall amount of money collected from investors. But the company gave information to investors claiming it had purchased numerous properties that had rapidly increased in value; it falsified Land Registry documents showing the company owned more property than it did. Essex Police, which has an ongoing investigation, calculates that to date, £18.9m has been obtained from creditors and investors.

Potential investors were approached directly or via intermediary platforms, who received 35% of the offered partnerships in a Limited Partnership scheme. The Insolvency Service says that any approach in this way to investors should be ignored and only communications from the Official Receiver, whose details are listed below, should be responded to.

More than 14,500 new homes registered in October, says NHBC

More than 14,579 new homes were registered in the UK in October, following the strong numbers seen in recent months according to the latest statistics from NHBC. This represents an 8% increase on October 2017 (13,482), with the private sector up 7% (11,097 compared to 10,383 in 2017) and the affordable sector up 12% (3,482 compared to 3,099 in 2017). Overall there is growth in eight out of 12 UK regions, including Yorkshire & Humberside (+34%), London (+31%) and the South West (+24%).

Commenting on the October figures, NHBC Chief Executive Steve Wood said: “Although there is some caution as we all wait to see what happens on Brexit, we are hopeful that this strong end to the year will be maintained, as the industry strives to build more new, high-quality homes that the UK needs.”

Airbnb: NI planning consent - could it happen here?

The Republic of Ireland has adopted new policies requiring owners in 'high housing demand areas' to secure planning consent if they want to let them via Airbnb and similar platforms for three months or more in a year. Only owners of second properties – buy-to-lets or holiday homes - will have to apply for consent, and owner occupiers will face no further restrictions in letting individual rooms. However, even they will have to abide by a 90-day maximum number of bookings in a year if they let their entire home.

The Irish Times, reporting the decision, says the move - which is likely to kick in next summer - follows from concerns that landlords who previously offered properties to tenants on the basis of traditional annual or multi-year leases are opting to let to tourists instead.

 

Social Housing 

More social housing needed says minister 

Addressing the Savills eighth annual housing seminar in central London in November, Housing Minister Kit Malthouse said he hopes changes in policy will kickstart a generation of councils building homes at lower rents (source: Inside Housing).

Government figures this month revealed that of the 222,190 net additional dwellings to be created in the 12 months up until 31 March 2018, only 6,463 were new social rent homes – just under 3% of all new dwellings. Mr Malthouse told the conference: “I can’t sit and give a Whitehall directive target for the nation’s homes, [3% isn’t enough] and that is why we have removed the HRA cap... we hope that this will kickstart a new generation on council houses in particular that are at social rent.”

The debt cap, scrapped after the Budget in October, was imposed by the coalition government led by the Conservatives in 2012. That government also removed all state funding for social rented housing for the first time since World War II, directing a limited pot of grant to higher affordable rents instead. The Government is now trialling a £200m pilot which will give residents across 45 housing associations in the West Midlands the right to buy their homes.  

Inside Housing revealed earlier this month that 9,000 households had entered the ballot for the pilot which is due to run until 2020.

 

Health & safety

New health and safety qualifications launched

EEF and the University of Portsmouth have joined together to launch a new series of qualifications for health and safety professionals, which they claim are rooted in a real-world business setting (source: SHP).

The first qualification is an entry level certificate of credit in health and safety management, which meets the academic requirements for Technical Membership (TechIOSH) without the pressure of exams. An advanced course, leading to a diploma in health and safety risk management, is also available, which is aimed at those looking to progress to Chartered membership of IOSH and assessed predominantly by evaluating work-based projects and assignments.

The course is based on the ISO45001 international standard and will put successful students ahead of the field in terms of health and safety management systems. It’s also designed to accommodate the demands of studying alongside a full-time job with a flexible modular structure that can be completed in six months or up to two years. Both courses are being run in the UK as public programmes and globally as in-company training programmes.

In October, EEF and safety specialists Arco published a report, which revealed that 97% of companies want the UK to stay in the European health and safety standards regime after Brexit. According to the report, just 3% of firms want to revert to pre-EU health and safety regulation levels.

Health and safety statistics 2018

Annual statistics from the Health and Safety Executive (HSE) show 1.4 million workers were suffering from work-related ill health and around 555,000 from non-fatal injuries in 2017/18. The annual statistics, compiled by HSE from the Labour Force Survey (LFS) and other sources, cover work-related ill health, workplace injuries, working days lost, costs to Britain and enforcement action taken.

Despite Britain continuing to be one of the safest places to work, key figures for Great Britain show that in 2017/18 there were:

• 144 fatal injuries at work
• 1.4 million working people suffering from a work-related illness
• 2,595 mesothelioma deaths due to past asbestos exposures (2016)
• 71,062 injuries to employees reported under RIDDOR
• 30.7 million working days lost due to work-related illness and workplace injury
• 493 cases were prosecuted and resulted in a conviction. Fines from convictions totalled £72.6 million

Workplace injury and new cases of ill health cost Britain £15.0 billion a year with 30.7 million working days lost.

Fire doors under investigation

The government is undertaking an investigation into the fire door industry following concerns about the consistency of flat front entrance fire doors against the required performance standards. Fire doors are being tested to the standard they are being marketed at in an accredited test facility.

Tests are being carried out according to Building Regulations guidance which states that fire doors (other than lift doors) should meet the required standards from both sides. The investigation into timber doors began in October 2018.

While testing is ongoing, there have been no failed tests to date. Should doors fail, a government-commissioned safety test, the supplier will be informed and asked to remove the product from the market. The company should then investigate the reason for the failure to understand what action they need to take to remedy the problem. In parallel, the government will inform National Trading Standards who will ensure local investigations are carried out to determine if and when the fire door concerned can return to market. They will also inspect the supplier’s operations and commission further investigations into other fire doors produced by the supplier as appropriate.

While testing is ongoing, building owners and residents should ensure all fire doors are kept in good condition and the self-closing mechanism working correctly. Deficiencies should be reported to the landlord or managing agent. Doors and the self-closing mechanism should not be removed as this increases the safety risk. Occupiers should test their smoke alarms regularly. Further fire safety advice for high-rise residents is available on the National Fire Chiefs Council website.

 

Labour renews calls for sprinklers in high-rise blocks

A recent investigation by the Labour Party has found that only 4% of council-owned tower blocks in London have sprinklers installed in their flats. As a result, Labour has renewed its calls for the government to spend £1bn retrofitting sprinklers in all social housing high rises.

The investigation used Freedom of Information laws to gather data from 29 London boroughs about more than 800 blocks of 10-storeys or taller. It found that only 32 have sprinklers installed. Though the prevalence of sprinklers in tower blocks is small, it indicates a fourfold increase from when Inside Housing carried out a similar investigation in 2015.

Since the Grenfell Tower fire in June last year, a number of social landlords have committed to installing sprinklers in their high-rise stock. Several councils have requested cash from Westminster to pay for the work without success. According to Inside Housing, which looked at data from 92 social housing blocks, sprinklers have suppressed 12 fires since 2010, meaning more than one in every 10 installed system has put out a blaze.

Sprinklers have suppressed 12 fires since 2010, meaning more than one in every 10 installed systems has put out a blaze The magazine’s Never Again campaign is calling on ministers to fund the retrofitting of sprinkler systems in all tower blocks across the UK, except where there are specific structural reasons not to do so.

PRS and B2R

Homes fit to live in: second reading 

The Second Reading in the House of the Lords took place in November for the Homes (Fitness for Human Habitation) Bill, promoted by Labour backbencher Karen Buck with strong support from the government and industry.

The Bill seeks to amend the Landlord and Tenant Act 1985, and the Building Act 1984. If it becomes law in 2019, the amendment will ensure that all landlords in the social and private sectors must ensure that their property is fit for human habitation at the beginning of the tenancy and throughout. Where this is not the case, the tenant will have the right to take legal action in the courts for breach of contract on the grounds that the property is unfit for human habitation.

The Bill extends to England and Wales but will only apply to tenancies in England. The Welsh Government has already included similar provisions in relation to housing fitness in the Renting Homes (Wales) Act 2016.

Five months to reclaim rental property

On average, private landlords have to wait more than five months to regain possession of a property when applying to the courts, according to new figures released by the Ministry of Justice.

The RLA told Letting Agent Today in November that the long delay in dealing with cases means landlords may go without any rent, or suffer damage to the property before the tenant finally has to leave. As a result, the RLA says, many landlords are using section 21, or ‘no explanation’ evictions, because the alternative process that requires applications to the court are too long and cumbersome.

The government is currently consulting on speeding up justice in the private rented sector and the RLA is calling for a fully-fledged and properly funded housing court to speed up access to justice for both tenants and landlords.

Lewisham Council teams up with build-to-rent giant for new private rented sector homes

Lewisham Council is partnering with a publicly listed private rented sector landlord to build 300 new homes in the borough, the council has announced.  The local authority has launched a partnership with Grainger plc to deliver up to 300 new private rented sector homes in New Cross Gate in South East London.

It will include long-term tenancies for Lewisham residents and will let 35% of the homes at London Living Rent. The planned development, based in Besson Street, will be managed by Grainger and will also comprise a GP surgery and pharmacy, an outdoor gym and office space for the New Cross Gate Trust. A planning submission is expected next year.

World’s tallest modular towers are in Croydon

The world’s tallest modular towers are being built in Croydon, South London. A new development at 101 George Street, Croydon, is a Greystar B2R scheme. It will comprise two towers of 37 (115m) and 44 stories (134m), housing 546 apartments, and, on completion, will hold the title of the first and second tallest modular buildings in the world.

Developers, Tide Construction and their associate company, Vision Modular Systems, will construct the modules for the buildings in a controlled factory environment in Bedford to ensure a higher quality finish. This method will produce 80% less waste and mean that fewer workers are needed on-site. It will also provide greater certainty on costs and time. Greystar and Tide have partnered on several schemes to date, including student accommodation at Chapter Lewisham, Chapter White City and Chapter Highbury II. Work on the new development is due to be completed over a 24-month period – with residents moving into the towers in the early part of 2020.

Scotland and Wales

Scottish property factors: registration renewal

The Property Factors (Scotland) Act 2011 has been in force for six years with 404 registered property factors and 20 registered property factors which are local authorities. These registrations are now due to be renewed and the Scottish Government has set out some guidelines for completion of applications.

A complete application must be received before expiry of a current registration or it will be removed from the register and a factor will no longer be able to legally operate. When completing an application for renewal, the following considerations should be taken into account:

• A registered property factor must be a ‘fit and proper person’ as detailed in the Act.
• Compliance with the Code of Conduct or a property factor enforcement order is required.
• The property factor registration number must be included in any document sent to a homeowner.

Since the Act came into force, a number of improvements have been made to the online register. Phase 1, which was completed in March 2018, tackled property and land uploads and the ‘user experience’, while phase 2 involved making improvements to the home screen, wizard and ‘resume application’ features, the login process, local authority areas and the overview screen.

The Scottish Government consulted on proposals to amend the Code of Conduct which sets out minimum standards for registered property factors in the delivery of services to homeowners to further strengthen the 2011 Act.  The consultation looked at a number of proposals with the main focus on:

• the Written Statement of Services (WSS) and when this should be issued;
• When and how a factor ‘must’ and ‘may’ make information available under the Code;
• The Code’s requirements on holding client money versus wider banking regulations; and
• Whether there should be further consideration of standardising the WSS and/or the complaints handling procedures.

The Scottish Government is currently considering representations made about the draft revised Code as a result of that consultation. The findings will be used alongside other available evidence to inform the Scottish Government’s decision whether to take forward these proposals and whether changes to the wider regime regulating property factors should be explored. The consultation can be seen in full at here.

Wales to adopt Scottish housing need model

Rebecca Evans, housing and regeneration minister for the Welsh Government, announced in November that in future housing need in Wales will be calculated using the model developed by the Scottish Government. She said the Scottish tool will be adapted for Wales “as an immediate next step”, with the first new estimates expected in early 2019.

At present, housing need estimates for Wales, which were last published by the Public Policy Institute for Wales in 2015, rely on household project data and “which are now out of date”. The new method will incorporate projections of newly forming households as well as existing need, and will provide an estimate broken down by tenure based on assumptions about income, rents and house prices.

Welsh housing minister questions developers' approach to affordable housing

Wales’ housing minister has expressed “concern” that developers may be dodging affordable housing requirements (source: Inside Housing). Appearing at Community Housing Cymru’s (CHC) annual conference in Cardiff in November, Rebecca Evans suggested house builders are delivering schemes marginally smaller than the thresholds which would require them to deliver greater proportions of affordable housing according to Welsh planning rules.

Affordable housebuilding in Wales fell 9% last year, while the Welsh Government has a target to deliver 20,000 affordable homes in the 2016/2021 Welsh Assembly term. The Welsh Government has commissioned an independent review of affordable housing supply, which is due to publish its findings in April next year.

Legislation 

New legal requirements banning combustible materials in cladding 

The Government has announced that the Building Regulations will be amended from 21 December 2018 to ban the use of combustible materials in the external wall of residential buildings (including hospitals, residential care premises, dormitories in boarding schools and student accommodation) at least 18 metres above ground level in England (source: CMS Law-Now).

The ban will apply to new building work and existing buildings which will be subject to a change of use to the affected category of building or material alterations. The Government has also announced remediation measures in relation to existing buildings.

Considering the case for a housing court: call for evidence The government has issued a consultation paper to “explore whether a specialist Housing Court could make it easier for all users of courts and tribunal services to resolve disputes, reduce delays and to secure justice…”.

The proposals were set out in November by Communities Secretary James Brokenshire, aiming to shake up the property dispute system and find better ways of resolving legal issues between landlords and tenants. The Government wants views and opinions on the:

• private landlord possession process
• user experience in both the county courts and the First-tier Tribunal for property cases
• case for a new Housing Court
• case for other structural changes such as an extension of the remit of the property tribunal

Other proposals include reducing the need for multiple hearings in different courts, transferring certain types of housing cases between the courts and tribunal to get quicker resolution and providing better guidance for landlords and tenants to help them access the legal system. Bodies representing landlords are particularly interested in reforming the current possession process and the National Landlords Association will be asking government in particular to look at the Section 8 possession process.

At the moment, claims the NLA, it takes about 18 weeks between a landlord making a repossession claim and getting the property back at an average cost of more than £5000. Download the call for evidence

Legal Update

Gateway Holdings (NWB) Ltd v McKenzie and Greenfield [2018] 

Mark Loveday examines a recent service charges recovery case with a sting in its tail  

In the case of Gateway Holdings (NWB) Ltd v McKenzie and Greenfield [2018] UKUT 371 (LC), Upper Tribunal, heard on 12 November, B was the owner of a flat in Warwickshire, and paid service charges for the 2013, 2014 and 2015 accounting years.

B died in 2015, and the flat was inherited by M, his daughter. In 2016, M applied to the First-tier Tribunal for a determination of liability to pay service charges under the Landlord and Tenant Act 1985 s.27A for the period both before and after she inherited the flat.

The First-tier Tribunal reduced the recoverable service charges payable under the flat lease for the 2013-15 service charge years and the landlord appealed. It argued that M, who was not “obliged to pay or entitled to receive a service charge” for 2013-15, had no right to apply to a Tribunal to determine those charges.

Decision

On appeal, the Upper Tribunal found for M. A residential leaseholder may apply to the first-tier tribunal under section 27A for a determination in respect of service charges paid by her predecessor before she acquired her lease.

The Upper Tribunal referred to the reasoning of the Court of Appeal in Oakfern Properties v Ruddy [2006] EWCA Civ 1389, which stated (albeit in a slightly different context) that:

“In my judgment there is no justification for implying any restriction into the entirely general words of section 27A of the 1985 Act.  In some cases, one may suppose, the applicant for a determination under that section as to the proper amount of service charge payable will be the party who is liable to pay the service charge, the subject of the challenge, and the respondent to the application will be the party who is seeking to levy it on the applicant; but there is no reason why this will inevitably be the case. …  As to possible abuses of process the leasehold valuation tribunal has ample powers to regulate its own procedures, including power to strike out vexatious or abusive applications.”

It agreed with the Court of Appeal that there “was no justification for implying any restriction into the entirely general words of section 27A(1)”. The opportunity to apply to the F-tT under section 27A for a determination concerning a service charge was not “restricted by the statute to those entitled to receive or obliged to pay the service charge in question”. 

The Upper Tribunal analysed (and criticised) the previous decision of the Lands Tribunal in Barton v Accent Property Solutions Ltd LRX/22/2008, where a service claim against a managing agent had been struck out on the ground that an agent was not a party to the lease. M could therefore properly challenge the service charges paid by her father. But there was a sting in the tail.

The Upper Tribunal pointed out that the result was of “no practical benefit” for M, since she had no right to direct repayment of the service charges overpaid by her father. B’s executors might well have a claim to recover this money, but M was not an executor and she would have to await the recovery and distribution of the funds by them.  

Lessons learned

In theory, the case widens the scope for new tenants to re-open and challenge historic service charges paid by their predecessors in title. A managing agent cannot simply answer that the charges were in fact payable by someone else – especially a previous tenant.

The decision that applications are “not restricted to those entitled to receive or obliged to pay the service charge in question” is stated in blunt terms. In practical terms, the claim suggests it is permissible for managing agents and other third parties to issue tribunal service charge applications in their own name.

It is not suggested it is good practice to do so, but there may be occasions when it is more convenient for third parties (such as head landlords) to prosecute claims to decide service charge liability. Furthermore, the undermining of the longstanding ‘protection’ afforded by Barton v Accent Property Solutions is unlikely to be welcomed by residential property managers.

Other must-read cases in November were:   

Triplerose v Patel [2018] UKUT 374 (LC), 16 November 2018. A tenant’s covenant prohibited any alterations to the “elevation” of a flat. The term “elevation” meant all external vertical surfaces of the flat (both front and rear), and not merely the front of the building.

Anchor Trust v Waby [2018] UKUT 370 (LC), 9 November 2018. A lease provided for management charges to increase each year by reference to the Retail Prices Index. This was not a “service charge” within the meaning of Landlord and Tenant Act 1985 s.18(1).   

Mark Loveday is a leading Barrister with Tanfield Chambers specialising in leasehold management and enfranchisement work

Talking point

UK property demands are changing: how should investors respond?  

Build-to-rent and co-living developments represent a major shift in the UK property market. So should investors now be looking at property as an operating asset, asks Tom Brown

Housing needs in the UK are changing amid declining levels of home ownership and lifestyle shifts. Rather than the traditional ‘buy-and-hold’ model, residential housing needs are shifting towards developments that are built for rent and aimed towards a specific demographic who are at a particular life stage.

As such, funding needs are changing to support these types of developments and this should lead investors to consider new ways of accessing the property market. For many years, the typical approach to property investing has been through longer-term investments in buy-to-let and equity.

While this ‘bricks and mortar’ approach has worked well for many investors, a fully-valued market in both the residential and commercial sectors means that capital appreciation opportunities are now looking limited. Instead, investors should be looking to work their property assets operationally through shorter-term loan opportunities, which are used to fund the development or redevelopment of buildings in niche areas of the market. By viewing property investments as operational assets, investors can access a growing market opportunity that offers the potential for greater long term reward.

While both the residential and commercial property sectors are experiencing significant change, new investment opportunities are opening up as developers adjust their product offerings to meet evolving economic conditions and lifestyles - and some of the most innovative developments are happening in the residential market.

Co-living, build to rent and the community

‘Co-living’ is an area of particular interest and future growth. These developments, which at this point are mainly focused in London, cater for young professionals’ more mobile lifestyles. They offer the convenience of all-inclusive costs, covering rent and bills as well as services such as cleaning and gym membership. This market is further developed in the United States and the evidence suggests widespread popularity in metropolitan areas such as New York and Oakland, California.

In addition to convenience, this type of living arrangement combines the benefits of feeling part of a community while at the same time offering individual privacy. Occupiers have shared living spaces, but they can also retreat to their own fully furnished private apartment. It presents an attractive choice for young people, especially as a national survey recently found that 16-34 year olds experience feeling lonelier than older generations (Department for Digital, Culture, Media & Sport, Community Life Survey 2016-2017). 

Co-living developments could also be targeted to people in later life who are downsizing though not yet in care and who would welcome the dual aspects of community participation and privacy. However, there are other benefits from these types of new developments than simply the potential they hold for investors. Co-living and other purpose-built rental developments may also hold wider economic benefits that could help the struggling UK high street. In effect, co-living provides instant communities and these, in turn, are likely to stimulate demand for service-type businesses like bars and restaurants since occupiers typically want to be close to amenities. Several local authorities are implementing initiatives to try to revitalise town centres primarily based around the idea of creating ‘community hubs’ through modernised libraries, leisure facilities and community events.

Through its focus on community, co-living sits well with this approach to town centre regeneration and may help to attract much needed investment, leading to potentially greater demand for existing vacant office and retail units.  

How can investors take advantage?

Investors can access these types of purpose-built rental developments through development finance or bridge loans, which are secured by the underlying assets and offer higher yields relative to UK government and corporate bonds – typically between 5% and 8% per annum net of fees. With banks and building societies retrenching from lending in the post-financial crisis years, this market presents a growing opportunity as developers look to secure funding from a diverse range of sources. Although still at an early stage of development, operational assets are a logical, modern way to benefit from an evolving and changing UK property market.

And finally…what about Brexit?

We have already seen price falls impacting London markets in particular caused, in part, by uncertainty following the 2016 referendum. Regional markets have benefitted from London’s ‘distress’ as investors look for value underpinned by the Help to Buy scheme, a reasonably buoyant economy and employment market. A Hard/No Deal Brexit appears to have been ruled out by both political parties and the EU, and there appears to be an increasing consensus that it risks unacceptable economic and reputational damage to the UK. The softer Brexit option feels the likely outcome which seems to me to look much like the status quo for the foreseeable future at least in economic terms, so I don’t see a material impact on residential markets. I would however be cautious for the present around projects and locations where a local economy/employment is dominated by one or two large employers. This is a particular concern if those jobs are sustained by our membership of the EU and its various treaties.  

Tom Brown is Managing Director at Ingenious Real Estate 

Salisbury – An act of terrorism, undeclared war, or attempted murder?

Paul Robertson asks what lessons can be learnt about block insurance from the nerve agent attack

You may have heard on the News in recent weeks that Zizzi’s restaurant in Salisbury has reopened after the nerve agent attack earlier this year and the BBC has just aired a documentary on the subject, which you can watch

But what really happened in Salisbury and how is any of this relevant to block management? Initially the media implied that the attack on the Skripal’s in March this year was an act of terrorism, as is frequently the case with any extreme incident until the real cause becomes apparent.

An act of terrorism is loosely defined as where someone working on behalf of an organisation commits an act intended to influence or overthrow a government. However a few days after the Skripals were admitted to hospital, things became far more complex with the UK government blaming the Russians.

From an insurance perspective, this was significant as it implied an act of undeclared war. The insurance industry has a standard exclusion for acts of war which includes ‘warlike operations’ even if war hasn’t been declared. The principle behind this is that only countries have large enough cheque books to cover the financial implications of war and therefore it is not considered insurable. So for the UK government to be blaming the Russians, potentially had significant insurance implications.

The general assumption is now that Sergei Skripal was in fact the subject of a failed murder attempt albeit the murder weapon was a nerve agent rather than a gun or a knife. This means – in insurance terms at least -  it was not an act of terrorism or undeclared war. But it took the relevant insurers some time to come to this understanding.

So apart from the cathedral having a rather spectacular spire, what can we learn from the events in Salisbury? Personally, I believe that insurers need to up their game with policy cover along with brokers and property managers alike. Imagine if a block of flats had been contaminated rather than a restaurant in Salisbury? How would lessees and residents be protected and how would a standard insurance policy for a block of flats respond to such a threat? As ever with these matters, the obligation to arrange appropriate insurance is defined by the lease on an individual block. But when the majority of leases were written these hazards didn’t exist.

Going forward, the big questions that the industry needs to consider are how do we provide insurance cover to protect against these emerging threats and are these unforeseen events even insurable?

Paul Robertson is MD of FirstSure Flats and Midway Insurance.

Topic of the month

Site staff and VAT – what are the implications?

Clarification on the issue of VAT on site staff has long been controversial in the block management industry. Either a large number of leaseholders were paying VAT unnecessarily or a number of managing agents and support firms were placing themselves at risk from a visit by the VAT team at HMRC.

During the past year ARMA has been in discussions with HMRC to clarify how VAT should be treated, “but also to explain to HMRC the various scenarios of site staff employment that are in place,” explains CEO Dr Nigel Glen. As a result, HMRC issued a clarification note earlier this year that came into effect on 1 November. Fortunately the advice was not considered to be retrospective. Click here to read the note in full.

In a recent blog, David Goldberg, MD of POD Management, who has been involved with ARMA on this issue, says that at a recent event hosted by recruitment consultant Deverell Smith it was apparent that managing agents still don’t completely understand the VAT rules for site staff. A helpful panel session, chaired by Debra Yudolf of SAY Consulting, set out to address the confusion and it comes down to this:

• If the person who owns the interest in the land employs the staff, VAT is not chargeable if they supply staff to the benefit of the service charge regime
• The test of who owns the interest is what happens if the lease was forfeited – who would it return to? If there is a Resident Management Company (RMC) or Right to Manage (RTM) company that employs the staff and the lease was forfeited, then the interest would normally fall to the landlord.
• So, if an RMC/RTM that does not own the freehold employs the staff, VAT is chargeable providing the cost of employment passes the current VAT threshold (currently £85,000) or the company itself is VAT registered.
• If the managing agent employs the staff and supplies them to anyone, be that the freeholder, head lessee, RMC/RTM etc, VAT is chargeable.

David goes on to raise a number of questions which IRPM members may find interesting.

• Will developers be less keen to request on-site staffing for developments when it may further increase the service charge cost to their potential purchasers? Does this impact the overall residential experience of owning a leasehold property in a development that would currently benefit from staffing on site?
• Will large developers / freeholders be motivated to bring the provision of staffing in house? Will this potentially extend to the provision of other management services?
• Does the provision of in-house services remove the ability to give a sense of independence and freedom of choice in relation to management services?
• Will this supress salaries for the on-site staff? As a result, could the on-site roles become less attractive to potential candidates.
• For an RMC or RTM company historically benefitting from not paying VAT on site staff costs, this can only create an increase in service charges. Will this affect a property’s affordability and resale value? Will it lead RMC / RTM companies reducing on site staffing provision and remove added-value services such as concierge?

So if the VAT rules apply, this means increased costs for leaseholders – which clearly has implications for our industry. As Nigel Glen says, “The heart of the matter is that only the entity that receives the forfeiture of a leasehold can claim the VAT relief. This leaves RTM’s and RMC’s with a difficult question to answer”. As this is a complex area, he advises RMC/RTM Companies who feel they need further guidance to contact a VAT specialist.

You can read David’s blog in full here.

 

IRPM Events

To check the latest IRPM diary dates visit our Events page.

6 February 2019 – Associate Exam Workshop, London

7 February 2019 – Associate Exam Workshop, London

26 February 2019 – Associate Exam, London & Manchester

26 March 2019 – Associate Exam in Glasgow

3 April 2019 – Member Exam Workshop, London

4 April 2019 – Member Exam Workshop, London

9 May 2019 – Member Exam, London & Birmingham

13 June 2019 – Annual seminar

14 August 2019 – Associate Exam Workshop, London

15 August 2019 – Associate Exam Workshop, London

11 September 2019 – Associate Exam, London & Birmingham

11 September 2019 – Member Exam Workshop, London

12 September 2019 – Member Exam workshop, London

26 September 2019 – AGM 2019

26 September 2019 – Fellows Day 2019

15 October 2019 – Member Exam, London & Manchester

Other events

7 February 2019 - UKAA Innovation Show 2019

This will be a great opportunity to meet fellow industry professionals and see a showcase of the best and brightest ideas, services and products aimed at the Build To Rent market in one place on one day! Entry is free of charge.