Technical Update - January 2019

The month in brief

Welcome to the first issue of the IRPM Technical Update for 2019. In the week before Christmas an enormous amount happened in the leasehold sector, particularly with reference to government initiatives, regulations and legislation.

In this issue we take a look at the combustibles ban, the Law Commission’s commonhold review, the response from the PRS to the government’s immigration White Paper and the enactment of new legislation on Homes fit for Habitation. Property law expert Mark Loveday rounds up key case law from the last month and we look in detail at the government’s recently published implementation plan that will take forward Dame Judith Hackett’s review of safety in buildings following the Grenfell Tower fire in 2017.

As ever, we want to hear from you too. If you have a strong view or an innovative property-related idea that you think other IRPM members would like to hear about, contact the Editor at [email protected] 

 

IRPM News
CEO’s column: Your Government needs you! | Annual Seminar 2019: early bird tickets – get yours now!

In the news
No more combustibles for high-rise walls | Shelter: more than 3 million social homes needed | ALEP co-founder “much missed”

Social Housing
Councils to build more than 20,000 homes for social rent

Health & safety
Landlord receives six figure fine |Flats over famous pub found to be dangerous | HSE: landlord guilty of asbestos neglect

PRS and B2R
Government revises minimum rented room size guidance | New status checks must be 100% reliable says ARLA

Scotland and Wales
More affordable homes for Scotland | Working Group takes action to improve Scottish fire safety | Right to Buy ends in Wales this month

Legislation
Commonhold: the Law Commission wants your ideas | Third Reading for Tenant Fees Bill | Homes fit for habitation: Bill enacted

Legal update
Mark Loveday looks at this month’s key cases

Talking point
Service charges: you’ve got the power – or have you?
 
Topic of the month
Implementing the Hackett Review: what's the plan?

IRPM events
What’s happening when and where?

IRPM News

Your Government needs you!

Happy New Year and welcome back! It’s a busy time of year for property managers; budgets, invoices, receipts and accounts, plus all those winter repairs and issues. As the paperwork flies over your desk, give it a second glance and ask yourself if it looks good to our customers. If your [metaphorical] old mum or dad received that letter, would they understand it? Is the tone friendly or legalistic? It’s worth that second look. Those standard letters could be years old and the way we communicate with our customers is changing.

Talking of changes in communication, Government is asking for your wisdom on a tricky challenge. Grenfell survivor Edward Daffarn published a post on his Grenfell Action Group blog, before the tragedy, warning “only a catastrophic event will expose the ineptitude and incompetence of our landlord…”. Edward’s post was one of several warnings. Sadly, the warnings seemingly were not heard, or heard loudly enough, and we know the rest.

“See it, say it, sorted”; public transport wants every customer to play their part in keeping us safe. Government wants the same for housing and few would argue against the “residents’ voices” being heard when it comes to the safe management of their leasehold or PRS building. But what does that look like in practice? 

Residents should, at minimum, be told what they need to know and have access to safety information to satisfy themselves that all is well. But government wants to go further and encourage resident engagement; for residents to play their part in the safety of their building, to understand their responsibilities and to call out failings.

Yep, I know. Some residents are great, keeping an eye out for problems and working with their property managers. However, in the real world we also know residents who block fire routes with bikes and push chairs, have BBQs on their balconies, store flammables in meter cupboards and remove or defeat fire doors.  Property managers have their duties and new ones are coming, but residents also have a responsibility to act, well… responsibly. IRPM are working with government to help deliver Dame Judith Hackitt’s recommendations, but government wants to hear from IRPM members too (scroll down for more of this in Topic of the month). How do we work with residents to make sure they are not just informed, but engaged with the safety of their building? Click here to respond to Government’s call for evidence. You will find it interesting; the questions they are asking residents are thought provoking, to say the least.

Finally, CPD. This year IRPM will be checking every record and contacting every member who has not completed theirs. As government decides what to do about mandatory qualifications/accreditation, we must demonstrate that IRPM members are true professionals. Please, if you haven’t yet completed your record, log in and tick that job off your list. Thanks!

Andrew Bulmer, IRPM CEO

 

Annual seminar 2019: early bird tickets - get yours now!

Discounted Early Bird tickets are on sale until 31 January for the 2019 IRPM annual Seminar to be held at the Queen Elizabeth conference Centre in Westminster on 13 June. If we match the popularity of last year’s event, then buy your tickets early as they will sell out fast.

Click here to read more about what we have in store for you – and don’t forget to check the website on a regular basis, as we will be updating details of speakers and sponsors as they are announced. Add the date to your diary and don’t miss out - we look forward to seeing you there. 

 

In the news

No more combustible cladding for high-rise blocks

On 21 December 2018 the government brought in a clear ban on the use of combustible materials on the external walls of new buildings over 18 metres high which contain flats. Regulations were presented to Parliament on 29 November giving legal effect to the ban which also includes new hospitals, residential care premises, dormitories in boarding schools and student accommodation over 18 metres high (source: LEASE).

The ban applies to new building work as well as existing buildings that are undergoing a change of use to become a building included in the list above. So, for example, office buildings being converted to apartments will also have to comply with the ban.

All materials which become part of an external wall or specified attachment must achieve European fire rating Class A2-s1, d0 (limited combustibility) or Class A1 (non-combustible) including balconies, sun shadings and solar panels attached to an external wall

The regulations do not apply where a building notice or an initial notice was given to, or full plans deposited with, a local council before 21 December 2018 and either the building work to which it relates has started before that day, or is started within two months from that day.

The regulations apply in England only.

Read the new regulations here.

Shelter: more than 3 million social homes needed

In January, following a year-long research project involving hundreds of social tenants and more than 30,000 members of the public as well as housing experts, Shelter presented their recommendations for tackling the housing crisis to the Prime Minister and Labour leader Jeremy Corbyn.

According to the charity, more than 3 million new homes are needed. An estimated 6,500 more social homes were delivered last year, but Shelter is calling for 155,000 to be built between now and 2039 - each home part- funded by the government. Around 1.27 million of those homes will be required for homeless households, those living with a disability or long-term illness, or living in very poor conditions.

Shelter also recommends that those in need who would not qualify under the current system should also be provided for, including “trapped renters” – young families stuck with expensive rents and little prospect of being able to buy their own home.

The charity estimates that 700,000 homes should also be built for older private renters struggling with high housing costs beyond retirement. Figures have been calculated using government data and figures from the Office for National Statistics.

According to a report on the Huffpost website, the proposals would cost nearly £11bn on average each year during construction. However Shelter estimates that the benefits would outweigh the costs as some two-thirds would be recouped through housing benefit savings and an increase in tax revenue. Additional research from Capital Economics estimates that the investment will have “fully paid for itself” after 39 years.

ALEP co-founder “much missed”

In December, the industry was shocked by the sad news that Alex Greenslade, who founded the Association of Leasehold Enfranchisement Practitioners (ALEP) with his sister Anna Bailey, has passed away.

Alex had worked with leaseholders since 1998 and was also co-founder and chairman of the Leasehold Group of companies. He was a regular in the News on the Block Hot 100 and was presented with the ERMAs Outstanding Achievement Award in 2017.
 
ALEP’s spokesperson Clare Grove said “Alex was a professional, a stickler for detail, a mighty intellect and a stalwart of the enfranchisement sector. Together with Anna, he founded our association with the aim of bringing together those with expertise in this niche field, to tackle the behaviour of those he always called the ‘dabblers’ and to provide a badge of assurance to both leaseholders and freeholders. He will be much missed by all who had the pleasure of working with him over the years.”

 

Social Housing

Councils to build more than 20,000 homes for social rent

Councils in England expect to build at least 20,500 homes during the next three years following the abolition of the cap on HRA borrowing, reports Inside Housing.

In October, the government abolished the cap on how much councils are allowed to borrow through their Housing Revenue Accounts (HRAs). The surprise announcement came three days after bidding closed for £1bn of additional HRA borrowing over three years promised in the 2017 Budget. Almost £2.9bn-worth of bids were submitted – around three times the amount offered – and the huge interest shown by local authorities was allegedly instrumental in the decision to scrap the HRA cap.

Inside Housing also reports that two local authorities are taking advantage of the scrapping of the borrowing cap to buy up former Right to Buy properties and rent them out as social housing.

Nottingham City Council has announced a £5m scheme to buy former council houses and Leicester City Council this week also approved a similar project that will see £8m spent on buying up a mix of former council homes and privately owned properties. A report published in May revealed that councils have spent £50m of funds raised through Right to Buy sales since 2012 buying back homes sold under the scheme.

 

Health & safety

Landlord receives six figure fine

Lincoln Magistrates’ Court has handed down a huge fine of £404,886.90 to Mr Bijan Keshmiri for a total of 28 offences in respect of two of his properties. According to PM Legal Services, this is believed to be one of the biggest financial penalties ordered against an individual landlord in the UK.

The properties breached several fire and safety requirements including:
•    Inappropriate locks on fire exits / fire doors being sealed shut
•    Faulty smoke detectors and no fire blankets in the kitchen
•    Poorly made repairs increasing the risks of fire spreading
•    Risk of electrocution from a light
•    Issues with window sill latches causing uncontrolled ventilation and risk of occupants falling from a window
•    Exposure to the risk of Legionella bacteria due to the hot water supply tank not being sealed with a lid
•    No emergency lighting in communal areas or the stairwell, thereby creating a serious risk of injury

The size of the penalty levied in this case should act as a deterrent to other landlords who are tempted to breach health & safety regulations.

Flats above famous pub found to be dangerous
Three brothers that owned rented flats above the famous Thomas A Beckett pub in London’s Old Kent Road have been fined, have been given a confiscation order and must pay costs, together with their property management company following their “negligent and dangerous management.” In total £109,000 was levied by the court (source: Property Industry Eye).

Council officers visited the property in August 2016. The fire protection in the accommodation was found to be poorly maintained: the fire alarm system didn’t work, the fire doors were not up to standard and the fire extinguishers had not been tested or maintained. Further to this, flats within the property were found to be unlicensed and illegally over occupied.

According to Letting Agent Today, the property management company was also found to be falsely claiming to be a member of NALS and using a SAFEagent logo when it was not a member of either organisation.

HSE: landlord guilty of asbestos neglect

A recent prosecution brought by the HSE highlights once again the need for vigilance when dealing with works which may expose residents and/or contractors to dangerous asbestos fibres.

At the end of last year, the HSE took legal action against landlord Wah Kei Dany Ng of Penns Lane, Sutton Coldfield and building contractor Jasvir Singh Sangha of Tunnel Road, West Bromwich, after asbestos fibres were released during a building project.

The landlord pleaded guilty to breaching Regulation 4 of the Construction (Design and Management) Regulations 2015 and was fined £1,200 and ordered to pay costs of £607. The building con-tractor pleaded guilty to breaching Regulations 5 and 16 of the Control of Asbestos Regulations 2012 and has been sentenced to 150 hours unpaid work and ordered to pay costs of £596.

Speaking after the hearing HSE inspector Gareth Langston commented: “Asbestos surveys need to be carried out prior to any construction work which disturbs the fabric of a structure.”

 

PRS and B2R

Government revises minimum rented room size guidance

The government has clarified its guidance on minimum room sizes for rental property. Since October 2018, one person over 10 years old had to have a room at least 6.51 square metres to sleep in and two people over 10 had to have at least 10.22 square metres to sleep in. Rooms slept in by children of 10 years and younger had to be at least 4.64 square metres.

When the guidance was issued, the Residential Landlords Association (RLA) raised concerns over the regulations saying it was concerned that the changes could have seen councils required to take action against landlords where a tenant gave birth and as a result there were two people in a room sized for one. “A landlord who sought to evict in this scenario would be carrying out unlawful discrimination” said the association.

The government has now issued a new guidance note that says in instances where a tenant has given birth to a child since moving into a House of Multiple Occupation, there is an expectation that local authorities will not be acting in the public interest if they commence a prosecution.

You can read the updated guidance here.

New status checks must be 100% reliable says ARLA

The government’s White Paper on post-Brexit immigration policy, published at the end of December, revealed plans for a single, skills-based immigration system to be introduced for both EU and non-EU citizens who want to come to the UK to live and work once freedom of movement comes to an end.

Existing arrangements for UK residency and, by implication, right to rent checks, will remain in place in their current form until that time, when the government intends to deliver a fully digital system for landlords and agents carrying out these checks. The new system will replace the use of cards and make updates to current status immediately available. This will enable prospective tenants to quickly and easily share their status with landlords and letting agents.

According to a recent report in Landlord Today, “while right to rent checks on non-EU citizens are likely to remain firmly in place, the proposals raise the prospect that responsibility for detecting fraud among ID documents of EU nationals passes back to Immigration Services, partially removing the burden felt by landlords and letting agents when faced with unfamiliar identity documents or evidence that they have allowed a tenancy on the basis of a high-quality forgery.”

A new digital status system for EU nationals has been welcomed by ARLA Propertymark, but the data must be “timely and 100% reliable”, says chief executive, David Cox. “It’s absolutely vital that any immigration proposals address the need for a simple and reliable system which will allow landlords and letting agents to treat applicants equally and fairly,” he said.

“Many tenants and landlords in the UK are very concerned whether choices they are making now on new tenancies and those coming up for renewal, will still conform in months and years to come.”

 

Scotland and Wales

More affordable homes for Scotland

Latest figures from the Scottish government show a 21% rise in the number of affordable homes delivered in Scotland during the last year.

Official Statistics released in December reveal that:

• 8,767 homes were delivered for the year to September 2018.
• A total of 80,104 affordable homes have been provided since 2007.
• Per head of population, 50% more affordable homes and more than five times as many social rented properties have been provided in Scotland than in England since 2014.
• There were 5,340 social rented homes delivered, an increase of 864 homes, or 19%, on the previous year.

Commenting on the figures, Housing Minister Kevin Stewart said: “During the course of this Parliament we are investing more than £3 billion to deliver our target of at least 50,000 affordable, high-quality homes, including 35,000 homes for social rent”.


Working Group takes action to improve fire safety in Scotland

Sound alerts for evacuation in high rise buildings and extending the mandatory installation of sprinklers in new flats, will be introduced in Scottish legislation next year.

An additional key change in building standards will be to reduce the height from 18m to 11m and extend the range of new buildings for the use of non-combustible cladding.

The changes are part of a number of actions for improving building and fire safety which were agreed in December by a Ministerial Working Group set up following the Grenfell Tower tragedy. These include:

• Extending mandatory installation of sprinklers in flatted accommodation and in larger multi-occupancy dwellings and those which provide care.
• Measures to improve evacuation, using sound alerts and two escape stairs in all new high rise residential buildings.
• Developing a new documented compliance plan for high risk buildings to be prepared and maintained by the owner or developer - from pre-application to completion. This will set out the verifier planned inspection regime.
• Strengthening enforcement guidance.
• Development of a database to capture and maintain safety critical information for existing high rise residential buildings.
• Specific fire safety guidance to residents of high rise domestic buildings and the introduction of guidance for fire risk assessments.

These are in addition to the new minimum standard for smoke and fire alarms, where the existing high standard currently required in private rented housing is being extended to cover all homes. The new standard will come into force from February 2021.

Click here for further information on the improved standards for fire and smoke alarms that were published in 2018.

 

Right to Buy ends in Wales this month

Housing association and local authority tenants in some parts of Wales have until January 26 to use the Right to Buy and associated Schemes after which they will be abolished in Wales.

The Welsh Government has issued a reminder that under the Abolition of the Right to Buy and Associated Rights Act people who are eligible and wish to buy their own home must have completed an application form available from their landlord or the Welsh Government website and submitted it to their landlord before the upcoming deadline of 26 January 2019. 

Right to Buy has already been suspended in Anglesey, Carmarthenshire, Denbighshire, Flintshire, Powys, Swansea and Cardiff. Information on the legislation and how it will affect tenants is available on the Welsh Government website at www.gov.wales

Legislation

Commonhold: the Law Commission wants your ideas

The Law Commission is currently undertaking a project looking at aspects of the law of commonhold which may be preventing its uptake. The Commission has been tasked with proposing reforms to reinvigorate commonhold as a workable alternative to leasehold, for both existing and new homes.

In response, it has now has published its consultation paper on commonhold reform: Reinvigorating commonhold: the alternative to leasehold ownership, following a Call for Evidence published in February 2018. A Welsh summary of the Consultation Paper will be available shortly.

Responses to the Call for Evidence highlighted a number of issues within the current law of commonhold which may be making commonhold unattractive to homeowners and across the wider property sector.

The consultation paper sets out a number of provisional proposals to make commonhold work for homeowners, developers, mortgage lenders and across the wider property sector. These include:

• Enabling commonhold to be used for larger, mixed-use developments which accommodate not only residential properties but also shops, restaurants and leisure facilities.
• Allowing shared ownership leases and other forms of affordable housing to be included within commonhold.
• Making it easier for existing leaseholders to convert to commonhold and gain greater control over their properties.
• Improving mortgage lenders’ confidence in commonhold to increase the choice of financing available for home buyers.
• Providing homeowners with a greater say in how the costs of running their commonhold are met.
• Enabling homeowners to end unattractive long-term contracts imposed by developers.

To read the proposals in full and submit your response by 10 March 2019, click here.

Third Reading for Tenant Fees Bill

The Tenant Fees Bill goes to the House of Lords on January 15 for its Third Reading – giving the Lords their last chance to make final amendments.

In December, at Report Stage in the House of Lords, the government amended the Bill to lower the cap on deposits to no more than five weeks’ rent for properties with an annual rent of less than £50,000. “We believe these amendments strike a fair balance between improving affordability for tenants whilst ensuring that landlords and agents have the financial security they need” said the Ministry of Housing, Communities and Local Government.

Following its third reading, the Bill will be returned to the House of Commons for debate and is then expected to receive Royal Assent and pass onto the statute books. However, the government will not publish an implementation date for the ban on tenants fees until the Bill is enacted.

Homes fit for habitation: Bill enacted

The Homes (Fitness for Human Habitation) Act 2018 was enacted on 20 December and will come into force on 20 March. The Act amends the Landlord and Tenant Act 1985 sections 8 to 10 and inserts new sections 9A, 9B and 9C. It will apply to all new tenancies of less than 7 years granted on or after 20 March, including ‘replacement’ tenancies and all periodic tenancies that are in place 12 months after the commencement date, ie 20 March 2020.

The new Act introduces a covenant that the landlord will maintain the property they are letting in a condition that is fit for human habitation at the time the lease is granted and will remain so for the duration of the lease.

The covenant includes all parts of the building in which the landlord has an interest. So for tenants in blocks of flats, the common parts as well as the rented accommodation must be fit for habitation and maintained properly for the duration of the tenancy.

What constitutes ‘unfit for habitation’ is outlined in the Act as follows: "In determining for the purposes of this Act whether a house or dwelling is unfit for human habitation, regard shall be had to its condition in respect of the following matters

• repair,
• stability,
• freedom from damp,
• internal arrangement,
• natural lighting,
• ventilation,
• water supply,
• drainage and sanitary convenience;
• facilities for preparation and cooking of food and for the disposal of waste water in relation to a dwelling in England,
• any prescribed hazard, outlined by the Housing Health and Safety Rating System (HHSRS)".

However, there are a number of exceptions which are outlined in s.9A(2) and s.9A(3) which states that landlords are not:

• responsible for lack of fitness caused by the tenant’s failure to behave in a tenant-like manner (s.9A(2)(a)), or where lack of fitness is caused by a breach of covenant (s.9A(3)(a)).
• obliged to rebuild or reinstate a property in the case of destruction or damage by fire, storm, flood or other inevitable accident.
• obliged to maintain or repair anything the tenant is entitled to remove from the dwelling.
• obliged to carry out works or repairs which, if carried out, would put the landlord in breach of any obligation imposed by any enactment (whenever passed or made) – this would include things like breaching planning permission, or listed building consent, or conservation area requirements.

Finally, the landlord is under no obligation to carry out works where they require the consent of a third party such as a superior landlord or freeholder, a neighbouring leaseholder or owner, or a council and the landlord has made reasonable efforts to obtain consent, but it has not been given.

To read the full details of the new Act

 

Legal update

Stemp v 6 Ladbroke Gardens Management Ltd

Mark Loveday looks at a case that turned on whether a landlord can waive the right to forfeit a lease in respect of a forfeitable breach of covenant.

In the recent case of Stemp v 6 Ladbroke Gardens Management Ltd [2018] UKUT 375 (LC), Upper Tribunal, the Stemps owned a long lease of a flat in Kensington where 6 Ladbrooke Gardens Management Ltd was the freeholder.

A dispute arose between them about service charges. As a result, the freeholder incurred legal costs of £43,969.96 and demanded payment of the whole amount from the leaseholder individually under a covenant in the lease which provided that they must pay: “on demand all costs charges and expenses (including legal costs and surveyor’s fees) which may be incurred by the Lessor or which may under the terms of the Lease or otherwise become payable by the Lessor under or in contemplation of any proceedings in respect of the maisonette under section 14[6] or 147 of the Law of Property Act 1925 …” This kind of costs provision is commonly found in residential leases.

Under the Housing Act 1980 s.81, the freeholder could not forfeit the lease without first getting a decision that these administration charges were payable and therefore applied to the First-tier Tribunal for a determination that they were due. The Tribunal allowed recoverable legal costs of £26,381.98 whereupon the leaseholder appealed to the Upper Tribunal.

On appeal, the Stemps argued that after the freeholder incurred the legal costs, it waived its right to forfeit by the following:

• Various emails from the freeholder’s managing agents about leaks, fire safety and other matters. The emails were addressed to the Stemps and other lessees and were marked “Dear Leaseholders”.
• Consultation notices for major works under s.20 Landlord and Tenant Act 1985.
• Two requests for access to the Stemps’ flat under the provisions of the lease.
• A demand for interim service charges made by the agents on 3 September 2016.

Decision
The Upper Tribunal held that it was possible for the freeholder to waive the right to forfeit the Stemps’ lease pending the application to the Tribunal under Housing Act 1980 s.81.

The proper approach for waiver was “to consider objectively whether in all the circumstances the act relied on as constituting waiver is so unequivocal that when considered objectively it could only be regarded as being consistent with the lease continuing”. In the light of this test, it found that:

• The communications which used the expression “leaseholders” did not constitute an unequivocal act of waiver.
• Neither did the s.20 consultation documents.
• The demands for access did not amount to waiver.
• However, a demand for rent falling due after the landlord has such knowledge constitutes a waiver of the right to re-enter.

It followed that the freeholder could only recover legal costs from Stemp under the above provision prior to 3 September 2016, when the managing agents waived the right to forfeit. The Upper Tribunal quantified these at £10,766.

What can managing agents learn from this case?
If a leaseholder breaks the terms of his/her lease (for example by unauthorised alterations, nuisance or failing to pay charges etc.) the managing agent has limited tools available to force compliance. The most obvious remedy is the fairly draconian threat that the landlord will forfeit the tenant’s lease. But the ancient remedy of forfeiture is encrusted with rules protecting the tenant, particularly the complex principles relating to ‘waiver’ of the right to forfeit. The managing agent’s interim service charge demand in this case effectively cost the freeholder £16,000.

Every case turns on its particular facts. But this decision illustrates that, as a general rule of thumb, a managing agent will not inadvertently waive the right to forfeit a lease by routine emails, consultations or correspondence with leaseholders. But a landlord will usually lose the right to forfeit a lease if its managing agent demands interim rent or service charges. If in doubt, in cases of forfeiture, a ‘rent stop’ should immediately be applied to the lessee’s service charge account. Legal advice should then be sought from solicitors before taking any other steps.

Other recent must-read cases

Aldford House Freehold Ltd v Grosvenor (Mayfair) Estate [2018] EWHC 3430 (Ch)

Although there have been five House of Lords/Supreme Court decisions about whether premises are a “house” for the purposes of the Leasehold Reform Act 1967, there is a dearth of authority on what constitutes a “flat” for the purposes of the Leasehold Reform Housing and Urban Development Act 1993 s.101.

In this case, the High Court held that whether premises are a “flat” depends on whether they were constructed or adapted for use for the purposes of a dwelling. The test is not whether the premises are actually fitted out so they can actually be used for living in. It held that flats which were not completed or decorated were still “flats” for the purposes of enfranchisement legislation.

Case law is also listed on the Resource Hub and updated on a weekly basis.

 

Talking point

Service charges: you’ve got the power – or have you?

Gordon Whelan asks whether the ‘right to inspect’ gives leaseholders the ability to take a landlord or managing agent to task over service charge expenditure

Section 22 of the Landlord and Tenant Act (LTA) 1985 gives lessees the right to inspect “accounts, receipts and other documents” supporting a summary of service charge expenditure. But how powerful is this statutory right?

Section 22 states that where a tenant has obtained a summary of relevant costs then they may request in writing that within six months of receiving the summary the landlord provides facilities for inspecting the “accounts, records and other documents supporting the summary”.

The landlord must do this within one month of the request and documentation must be available to the lessee for a period of two months. Failure to allow access without a reasonable excuse is a summary offence and liable to a maximum fine of £2,500.

So what is the extent of the inspection that can be undertaken by the lessee? There seems to be some confusion over this point. As an accountancy practice, we were recently asked to assist with a section 22 request and the managing agent insisted that the inspection only extended to the invoices that supported the expenditure headings in the Income and Expenditure report.

This confusion can also be found in the Code of Management Practice for the Association of Retirement Housing Managers (ARHM). Clause 5.4 of the Code states that, “the service charge accounts should include a note explaining that leaseholders have the right to request to inspect supporting receipts and invoices” along with a reference to section 22. The Code does not reflect the full wording of the legislation and thereby inadvertently suggests that the scope of inspection is restricted to receipts and invoices. I am indebted to Shula Rich, leasehold campaigner and a director of the Federation of Private Residents’ Associations (FPRA), for bringing this point to my attention.

In the case of Taber v MacDonald 1999 (31 LHR 73) a prosecution was brought for failure to comply with a section 22 demand. The Divisional Court Judge in this case interpreted section 22 to mean that the inspection extended to every single voucher that had been available to the reporting accountant when the section 21 report on the summary of expenditure was produced.

Again, this interpretation restricts the scope of inspection to just vouchers and seems incorrect to me and at odds with the wording and intention of the legislation. To inspect “documents” widens the scope significantly and implies that the intention of the legislation is to allow the lessee to follow the audit trail from the headings of expenditure in the accounts through to the original source document that committed the service charge expenditure in the first instance. This can extend to documents that originate from outside the accounting records including contracts with suppliers, purchase orders and legal documents.

ARMA’s Guidance Note D14 highlights that section 22 is part of the principle in property management of openness and transparency and all ARMA agents are expected to have built in procedures to allow lessees to scrutinise expenditure without having to issue a section 22 request.

Our recent experience with non-ARMA agents and those without IRPM qualifications suggests that these principles are not shared across the board. Far from openness, the strategy has been to be obstructive and to make the inspection as difficult as possible.

At Haines Watts, we believe section 22 should be an effective right for lessees wishing to inspect their service charge expenditure. It would help if there was clear consensus about the definition of “accounts, receipts and other documents” and the extent of lessees’ statutory right to inspect documents concerning their affairs.

 

Topic of the month

Implementing the Hackitt review: what's the plan?

In December, the government published its plan for implementing changes to the regulatory framework around building safety. The plan sets out the government’s programme of work “to ensure people who live in residential high-rise buildings are safe and feel safe, now and in the future” and has been put together in response to the recommendations set out in Dame Judith Hackitt’s Independent Review of Building Regulations and Fire Safety: final report, published in May last year.

The report looked at the regulatory framework around the construction, maintenance and ongoing use of buildings, with a particular focus on multi-occupied, high-rise residential buildings. 

The implementation plan covers four key areas:

• Creation of a stronger and more effective regulatory framework, which will have responsibility and accountability for keeping people safe at its core. The government is pledging to prevent people from flouting the system through tougher oversight and a stronger and more effective sanctions and enforcement regime.
• Developing a better understanding of what is required to ensure buildings are safe through clearer standards and guidance, as well as improving the rigour of the product labelling, testing and marketing process to ensure that people working on buildings use safe products.
• Putting residents at the heart of the new regulatory framework through better engagement between them and those managing their buildings, as well as providing more effective routes for escalation and redress when things go wrong. We will ensure building owners reassure residents by providing them with better information about the protection measures in place in their buildings. 
• Working with industry, the government aims to drive cultural change to increase responsibility for building safety, including by improving the competence of those undertaking building work. This will complement the tougher regulatory oversight regime and sharing of good practice.

The plan also sets out some of the changes that will be put out to consultation this spring, which the government hopes will make a significant difference to all those who are involved in designing, building and owning buildings and, in particular, for those who live in them.

• For those who live in high-rise residential buildings: an assurance that safety is actively managed and a means of recourse if safety concerns are being ignored; and more information on the safety measures in the building and clarity on their role in ensuring their homes are safe.
• For those who regulate the buildings: greater powers to intervene and greater ability to pursue those who do not follow the requirements.
• For those who develop the buildings: a requirement to be explicit about how safety is incorporated in buildings, a clear set of gateway points to engage with the regulators and a transparent recording and handover of safety information.
• For those who own existing buildings: an active demonstration that the ongoing safety of the building is being managed effectively.
• For those who provide materials used in construction: greater oversight that products are safe and are being marketed as safe.

For each of these, there is a requirement for a clearer set of responsibilities with accountability at the right level and transparent, easy-to-follow guidance to operate within. Ultimately, says the MHCLG, the reformed regime should be effective, proportionate and risk-based, supporting continued, but safe, productivity and innovation by industry.

The government is already consulting on a new Approved Document B (fire safety) and a call for evidence (see below) was launched in December as the first stage of a technical review, gathering expert evidence to enable revision of the existing industry guidance.

Amended guidance on restricting the use of desktop studies was also published in December and such assessments for external wall systems on certain buildings have now been banned. (See In the news above).

Perhaps the most important aspect of the government’s implementation plan, according to the Secretary of State for Housing James Brokenshire, is that a stronger voice for residents will be at the heart of the new system. “Residents must be better informed, empowered and engaged,” he says, pledging to “ensure the new system drives better engagement between residents and those managing their buildings; provides access to appropriate information; and opens up more effective routs for escalation and swift redress when things go wrong”.

Finally, the plan sets out how the government will work with industry to help it lead the required culture change and prioritise public safety.

Read the full report here.

Alongside the implementation plan, MHCLG has also published a Call for Evidence which invites views on how residents and landlords/building managers of multi-occupied buildings work together regarding fire and structural safety and good practice and on how residents are supported to each play a part in meeting their responsibilities and help keep their homes and buildings safe.

The Call for Evidence is available here.

Please follow the link and submit your responses to government, copied in to IRPM on [email protected] by 11.45 on 12 February 2019.

The IRPM is broadly supportive of the recommendations and will be submitting its response in due course. You can read more about the views of the IRPM on the issues raised by the Call for Evidence here.

 

IRPM Events

Diary dates

To ensure you remain up-to-date with all IRPM events check the website here.

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
26 September 2019 – AGM 2019
26 September 2019 – Fellows Day 2019