The month in brief
Welcome to the January 2020 issue of your Technical Update. We have started a new year and a new decade and we are working with a new government, but will much change for property management during the next 12 months?
The answer to that is a resounding ‘yes’. This week the Government has taken positive action on building safety, announcing a new tranche of measures to tackle the problems thrown up by high rise blocks that we are now all too familiar with. The Law Commission has set out its proposed reforms for leasehold enfranchisement and regulation is now in place on money laundering that will impact agents working in the PRS.
In this issue we take a closer look those upcoming reforms, report on the latest B2R statistics and developments and provide a round-up of the employment law changes in 2020 that are also likely to impact property management firms.
Mark Loveday provides our regular Legal column and our Topic of the Month this time round takes a closer look at recruiting and retaining on-site staff.
As always, we are keen to hear your news, views and queries and if you have a comment or an opinion to share, why not join the [email protected] with title "IRPM Update Idea - FAO Marketing"
Contents
IRPM News
CEO’s column | Early Bird Tickets on sale until end of January – don’t miss out!
Leasehold / block management
Government takes action on building safety | Law Commission outlines enfranchisement reforms | Only one block fully funded for cladding replacement by government to-date
PRS and B2R
B2R boost for the regions but investment down in 2019 | Landlords urged to prepare for new MEES regulations in April | Mandatory electrical checks expected this year | Birmingham’s biggest rental development completed | Final building at Royal Wharf tops out
Social Housing
Atkins to build ‘thousands’ of social homes in council collaboration | Councils still facing barriers to building home
Scotland and Wales
All new Scottish homes to have renewable or low carbon heating from 2024 | Welsh government moves to tackle ‘hidden homelessness’ | Regulating short-term lets in Scotland | New carbon monoxide lettings rules for Wales | Welsh government announces new five-year rent settlement | Scottish new build homes up by 18%
What’s new in HR?
2020 employment law: Eight action points for HR
Fire safety
Fire Safety Bill - more detail announced | Grenfell council calls for fire safety law change
Legislation
New money laundering legislation now in place
Legal update
Mark Loveday looks at a recent case that impacts on property managers
Talking points
Enfranchisement and PRS reform in the spotlight
Topic of the month
Is your on-site team happy?
IRPM events
What is happening, when and where?
What’s new on the Resource Hub?
IRPM News
New Year, new government – action at last
2020 is barely begun and we have two big happenings already this year that are high on the ‘need to know’ register, writes Andrew Bulmer
MHCLG (the Ministry for Housing, Communities and Local Government) has responded to the huge consultation on fire safety that followed the tragic events at Grenfell Tower in 2017, and the Law Commission has reported on leasehold reform.
Safety first
Government has published consolidated fire safety advice for building owners, which extends the number of buildings in scope and gives guidance on the thorny issue of fire doors. Even if you don’t manage towers, you need to read this, because, as we predicted, they are widening the scope of the advice to buildings below 18m.
HPL (High Pressure Laminate) cladding is also under scrutiny and there is tons of that on buildings across the country. While there is advice on checking with contractors and designers for ‘as built drawings’, that doesn’t get away from the issue of the final build being different from the supposedly as built drawings and not just poor construction on site. AN14 effectively continues as was.
One positive is the call for evidence in prioritising risk in existing buildings; essential given the limited supply of resources (trades, scaffolders, etc.) who can get buildings fixed. Safety must come first and buildings need to be checked so you know what you are dealing with, but while you are waiting to fix, at least you will have the knowledge to minimise risk in the interim.
What remains to be seen is the effect on buyers getting mortgages. Lenders are already questioning buildings below 18m and with most types of external wall system involving cladding, so in a sense, MHCLG are following the lending risk managers’ behaviour. Since the lenders were ahead to some extent, there may be little difference yet. It still seems the only way around nil-valuations is to get the external wall system checked.
A more detailed report follows inside this Tech Update and the government statement is here.
Law Commission and leasehold reform
The Law Commission has published a report setting out options for Government to reduce the price payable by leaseholders to buy the freehold or extend the lease of their homes. The report, together with a summary, can be found here.
This report puts forward three alternative schemes for determining the premium, which would make enfranchisement cheaper, saving leaseholders of houses and flats money, while ensuring sufficient compensation is paid to landlords to reflect their legitimate property interests. Each scheme uses a different basis to determine the price of enfranchisement, and facilitates further reforms to make the process simpler and to reduce uncertainty.
Again, a more detailed report follows below.
Andrew Bulmer is CEO of the IRPM
Early Bird Tickets on sale until end of January – don’t miss out!
Early bird tickets for the IRPM Annual Seminar 2020 are on sale now but prices will go up from 1st February. So don’t miss your chance to attend the leading property management event of the year at a rock bottom price.
This year’s Seminar will once again be held at the QE11 Conference Centre in Westminster on 21 May.
Last year’s tickets sold out fast, so save some money and book now! Early Bird tickets for IRPM members are just £99. The standard rate is £129.
Our platinum sponsors for 2020 are 4site & Data Energy and the programme will be announced in due course! Look out for updates on our event page here.
We look forward to seeing you there.
Leasehold / block management
Government announces new measures to improve building safety
Housing Secretary Robert Jenrick has announced a range of measures to ensure residents living in high rise blocks are safe in their homes. To give effective oversight of the design, construction and occupation of high-risk buildings, a Regulator will be at the heart of a new regime, established as part of the HSE.
Speaking in the House of Commons on 20 January, Mr Jenrick made it clear that building owners are responsible for ensuring their buildings are safe. Where there is no clear plan for remediation, the government will work with local authorities to support them in their enforcement options.
He also stated that from February, building owners who have not started to remove unsafe Aluminium Composite Material (ACM) cladding from their buildings will be named and shamed.
The government is set to consult on extending the ban on combustible materials to buildings below 18 metres and views will be sought on how risks are assessed within existing buildings to inform future policy.
The package of measures includes:
- A Building Safety Regulator - to be established in shadow form immediately, ahead of it being fully established, following legislation. The new Regulator will raise building safety and performance standards, including overseeing a new, more stringent regime for higher-risk buildings.
- Advice on building safety for multi-storey, multi-occupied buildings - the government-appointed independent expert advisory panel (IEAP) has clarified and updated advice to building owners on actions they should take to ensure their buildings are safe, with a focus on their external wall systems, commonly referred to as cladding.
- A call for evidence will be published, seeking views on the assessment of risks within existing buildings. This important step will help to gather ideas and lead to research which will provide a firm evidence base to guide decisions for both existing buildings and future regulatory regimes.
- Fire doors - The government welcomed the commitment by the Association of Composite Door Manufacturers to work with building owners to remediate their doors which failed tests. The government will continue to monitor the situation closely to ensure that this commitment is followed through.
- Remediation of buildings with ACM cladding - To speed up remediation, a construction expert will be appointed to review remediation timescales and identify what can be done to improve pace in the private sector. To ensure cost is not a barrier to remediation, the government is considering different options to support the remediation of buildings, examining options to mitigate costs for individuals or provide alternative financing routes.
- Combustible cladding ban - The government has launched a consultation into the current combustible cladding ban, including proposals to lower the 18 metre height threshold to at least 11 metres.
- Sprinklers - The consultation on sprinklers and other measures for new build flats concluded on 28 November 2019. The Government proposes lowering the height threshold for sprinkler requirements in new buildings and will set out detailed proposals on how the government will deliver the technical review of fire guidance in February.
- Fire Safety Bill - The government has also set out further details of the upcoming Fire Safety Bill being introduced to Parliament, which is set out in more detail in the government’s response to the Public Inquiry Phase 1 recommendations.
To read the announcement in full, click here.
Law Commission outlines enfranchisement reforms
On 9 January, the Law Commission published a report setting out options for Government to reduce the price payable by leaseholders to buy the freehold or extend the lease of their homes.
The report puts forward three alternative schemes for determining the premium, which would make enfranchisement cheaper, saving leaseholders of houses and flats money, while ensuring sufficient compensation is paid to landlords to reflect their legitimate property interests. Each scheme uses a different basis to determine the price of enfranchisement, and facilitates further reforms to make the process simpler and to reduce uncertainty.
Alongside the three schemes, the Commission puts forward a range of further options for reform. These include:
- Prescribing the rates used in calculating the price, to remove a key source of disputes, and make the process simpler, more certain and predictable.
- Helping leaseholders with onerous ground rents, by capping the level of ground rent used to calculate the premium.
- The creation of an online calculator for determining the premium to make it easier to find out the cost of enfranchisement, and reduce uncertainty around the process.
- Enabling leaseholders who are collectively enfranchising a block of flats to avoid paying “development value” to the landlord unless and until they actually undertake further development.
As well as reducing the price, these options could clarify and simplify the law, making the process of leasehold enfranchisement easier and less expensive to operate. The report also explains the limited role that simple formulae – such as a multiple of ground rent – could play in delivering reforms, while explaining that their wider use is not possible under the UK’s human rights laws.
This report does not express a view on which scheme and which options for reform should be adopted, as this is ultimately a decision for Government and Parliament. The Commission will, however, be making recommendations in the coming months for reforms to improve all other aspects of the current complex enfranchisement system, such as those who qualify for enfranchisement rights and the procedure that must be followed in order to exercise those rights.
Industry has given a mixed response, reflecting the fact that the report gave options rather than a definitive position.
Mark Chick, ALEP Director, and Partner and Bishop & Sewell: "The valuation aspect of leasehold is a complex subject and any future reforms need to ensure the right balance of fairness is struck between leaseholders and freeholders alike. Whilst the recommendations set out in the Law Commission’s report are a step in the right direction, they do not provide a clear-cut way forward. Instead, they present more options for debate at a time when what the sector needs is clarity and consistency. Importantly, any reform must work for all parties involved. ALEP eagerly awaits further reports from the Law Commission which will outline these proposals and help shape the future of the leasehold enfranchisement sector.”
Sebastion O’Kelly of LKP said: “The report is little less wholeheartedly pro-leaseholder than earlier incarnations - with lots of concern for the human rights of anonymous investors in residential freeholders, which most sensible people would not care less about - but if the most leaseholder friendly options survive the deluge of lobbying from the £2.5 billion a year sector, then it would be very welcome. Should leaseholders hold fire to extend their leases? No, just get on with it.”
The report, together with a summary, can be found here.
Only one block fully funded for cladding replacement by government to-date
In May 2019 the government launched its £200m fund to help owners of private blocks replace their ACM cladding. More than six months later, according to new figures from MHCLG, only four applications have been approved and only one of those is for the full cost of replacement, while the other three are for “pre-contract support” (source: Inside Housing).
Of the 78 other applications submitted, 15 have had their eligibility approved and eight have applied to recover either full costs or pre-contract costs. A total of 55 have submitted only a separate ‘eligibility’ application, of which eight have been approved.
The Ministry of Housing, Communities and Local Government (MHCLG) figures show that 315 buildings across England and Wales with ACM cladding are still to be fully remediated. A total of 91 of these are social housing blocks and 174 are privately owned. There are 24 privately owned buildings for which the cladding status is “still to be confirmed”.
A total of 135 buildings, across both the social and private housing sectors, have had remediation work completed as of the end of December – up by eight from the end of November. The Government has set a June 2020 deadline for dangerous cladding to be removed and replaced with a non-combustible alternative. However, in September London Mayor Sadiq Khan slated the deadline as “unrealistic and irresponsible”.
The MHCLG confirmed in January that despite the 31 December deadline, it will still consider applications to the fund if they are submitted as quickly as possible. However it is unclear for how long this will continue to be the case.
PRS and B2R
B2R boost for the regions but investment down in 2019
Analysis by Savills for industry trade body the British Property Federation (BPF) published in January, has found the number of ‘build-to-rent’ (B2R) homes has jumped hugely, with 150,000 homes in planning, under construction or completed.
There are now 152,071 B2R homes at various stages of completion in the UK. Of these, 40,181 of these are complete, with a further 35,415 under construction and 75,475 in planning This represents an increase of 15% over last year.
There has been a 51% surge in the number of completed rental homes in key regional cities, with Manchester, Birmingham Liverpool, Leeds, Glasgow and Sheffield leading the way. This increase means there are now more completed B2R homes across the UK’s regions than in London, although the capital still has more homes under development.
The regional breakdown saw Manchester and Salford topping the table, with almost 23,000 properties either completed or in the development pipeline. Birmingham meanwhile nearly doubled its pipeline from 4,800 homes, to over 8,000, with Leeds, Liverpool, Glasgow and Sheffield all seeing a major uptick in B2R activity too.
However, according to a report in Letting Agent Today, investment into the sector dropped significantly during 2019. According to research from CBRE, around £273.8m was invested in the fourth quarter of last year, bringing total investment in 2019 to £2.4 billion - a hefty 22 down from 2018.
Transactions for the second half of 2019 have been subdued compared to the last two quarters of 2018, most likely as a result of market uncertainty around the General Election” says James Hinde, the director of valuation and advisory services at CBRE. However, CBRE remains optimistic, saying the outlook for this year is “favourable” with some £1.5 billion worth of deals currently under offer.
“There are some very significant deals throughout the UK, but particularly in the regions, with due diligence well progressed, which suggests that 2020 could be a record year for investment,” says Hinde.
Hinde forecasts “rapid expansion” and CBRE’s forecast is for residential investment to rise by approximately 30% this year, with demand driven by “an increasingly diverse investor base from both domestic and overseas institutions.”
Landlords urged to prepare for new MEES regulations in April
Since April 2018, new rules have been in place across England and Wales, setting out minimum energy efficiency standards (MEES). The regulations prevent landlords from granting new leases for properties with an energy performance certificate (EPC) rating below E, unless the property is registered as an exemption.
From April this year, it will become illegal to rent any property that has an existing or continuing tenancy that fails to meet the minimum required energy rating. So landlords with rental homes that fall below the minimum rating will need to upgrade their properties before the new rules come into force.
The government is widely expected to raise this target in another couple of years, making C or D the minimum EPC rating, so property owners should take this into consideration when carrying out energy efficiency improvement works.
Mandatory electrical checks expected this year
The Electrical Safety Standards in the Private Rented Sector (England) Regulations 2020 were laid before Parliament in January. These are expected to be passed by the Commons and the Lords during the early part of this year, leading to speculation that agents and landlords will be expected to ensure electrical installation inspections and testing are carried out for all new tenancies in England from July 1 this year, or from April 1 2021 for existing tenancies.
ARLA says this will mean every fixed electrical installation in a rented home must be inspected and tested at least every five years by a qualified person.
Landlords will also be required to obtain a report of the results of the inspection and test, supply it to each tenant within 28 days and retain a copy until the next inspection is due. Private landlords will also need to supply a copy of the most recent report to any new tenant before occupation, or any prospective tenant within 28 days of a request from that prospective tenant. The new regulations must be taken seriously as breaches could result in fines of up to £30,000.
Birmingham’s biggest rental development completed
Allegro at Exchange Square is now home to 603 high quality rental apartments in Birmingham city centre. The B2R scheme has been funded by LaSalle Investment Management and is managed by Savills.
The landmark 25-storey residential tower offers 603 high quality apartments built exclusively for rent. Residents will be able to enjoy a state-of-the-art wellness centre, round-the-clock hotel-style concierge and use of the Allegro App which has been developed by property concierge platform Pinglocker. The app will allow residents to book services ranging from dog walking to private doctor appointments. Rents at Allegro start at £690 per month.
Final building at Royal Wharf tops out
The final, and tallest, residential building at Royal Wharf, delivered by developers Ballymore and Oxley, officially topped out. The major urban regeneration scheme, which will ultimately deliver 3,385 new homes, is creating a new town for east London, complete with health centre, pharmacy, primary school, nursery, community centre, and a high street and market square with 60 retail units.
More than 2,833 homes have been handed over to date, and when complete in 2020, the project will have been delivered in an ambitious timeframe of over five years using the Byldis MMC system. The development has seen over 17,000 operatives inducted on site, using 25% local labour.
Social housing
Atkins to build ‘thousands’ of social homes in council collaboration
Inside Housing reports that engineering giant Atkins is to use offsite construction to develop social homes on brownfield sites, as part of a new venture to tackle the housing crisis.
The London-based firm, will work with local authorities around the country, aiming to deliver thousands of new homes on brownfield land where construction was previously discounted.
Via a new division of the company called Everyone Deserves a Roof Over Their Head (EDAROTH), Atkins plans to build the homes using offsite techniques to offer an “end-to-end” solution for councils. The land and homes will be retained by the local authority, which will then either be run by the council or a housing association.
Councils still facing barriers to building homes
Despite government lifting the cap on borrowing against HRAs in 2018, local authorities are still facing obstacles to building more homes, according to new research published in January (source: Inside Housing).
A report by the Chartered Institute of Housing, the National Federation of ALMOs and the Association of Retained Council Housing shows that the 22 councils and arm's-length management organisations (ALMOs) polled would build more homes if there were fewer restrictions.
Both councils and ALMOs said they needed more long-term income stability and would prefer a 10-year planned rents policy from 2020 onwards, as opposed to the five years the government is proposing, as well as more flexibility to allow for regional differences.
The Right to Buy continues to present a problem, and in some cases it was cited as a disincentive to building, as new homes might have to be sold after only three years and possibly at less than what it cost to build them.The respondents to the research said that restrictions on how they can use the money they raise from selling homes for rent also limits building.
Scotland and Wales
All new Scottish homes to have renewable or low carbon heating from 2024
New regulations are to be developed in Scotland to ensure all new homes use renewable or low carbon heating from 2024.The move to increase energy efficiency and reduce carbon emissions for new build homes will run alongside a £30 million investment in renewable heat projects.
Renewable and low carbon heating systems will also be phased in for non-domestic buildings given consent to build from 2024 as part of a number of Scottish Government initiatives to help tackle the climate emergency.
In addition, the Scottish Government is reviewing the energy standards which are included in building regulations. These will improve the energy efficiency of new buildings and include measures in support of the move to low carbon and renewable heat.
Welsh government moves to tackle ‘hidden homelessness’
January saw the launch of a campaign to raise awareness of and tackle hidden homelessness by the Welsh Government (Source: BBC News). Recent statistics from homeless charity Crisis estimate that up to 3,250 households in Wales "sofa surf" on any given night. The figures include people who are staying on a friend's sofa, in a hostel or a night shelter, rather than sleeping rough on the streets.
Housing Minister Julie James said "If you don't have a place to call home it is likely that you are experiencing hidden homelessness". She urged people who find themselves in this situation to seek help from Shelter Cymru, which is being funded by the Welsh government to provide independent housing advice and support.
"We know there are far more individuals who are hidden from services, 'sofa surfing' or in temporary and insecure accommodation," said a spokesperson for the campaign. The Government says it needs to understand the scale of the problem in order to develop an adequate response. "The statutory homelessness statistics provide part of the picture, but this only accounts for those individuals presenting to services," it says.
Regulating short-term lets in Scotland
Local authorities in Scotland are to be given new powers to regulate short-term lets where they decide this is in the interests of local communities.Housing Minister Kevin Stewart announced measures in the Scottish Parliament in January to provide local authorities with the ability to implement a licensing scheme for short-term lets from spring 2021. This will enable councils to know and understand what is happening in their area, improve safety and assist with the effective handing of complaints.
The licensing scheme will include a new mandatory safety requirement that will cover every type of short-term let to ensure a safe, quality experience for visitors. It will also give councils the discretion to apply further conditions to address the concerns of local residents. Councils will be able to designate control areas to ensure that planning permission will always be required for the change of use of whole properties for short-term lets.
Ministers have also committed to considering how short-term lets will be taxed in the future to ensure they make an appropriate contribution to local communities and support local services.
New carbon monoxide lettings rules for Wales
The Welsh Government has announced it is to introduce new regulations to combat carbon monoxide poisoning (Source: Letting agent Today)
Section 91 of the Renting Homes (Wales) Act 2016, once implemented, will require landlords to ensure their dwelling is fit for human habitation.
Furthermore, section 94 of the Act requires the Welsh Ministers to make regulations relating to the determination of whether a dwelling is fit for human habitation. The regulations will require landlords and their agents to install working carbon monoxide alarms, smoke alarms and undertake an electrical safety test at least every five years.
The timescale for enforcing the regulations has not been confirmed but it is expected to be during 2020.
Welsh government announces new five-year rent settlement
Social rents in Wales can be increased by a maximum of Consumer Price Index (CPI) +1% for the next five years, under a new rent policy announced by the government in December (Source: Inside Housing).
Under the policy, landlords will be allowed to raise an individual tenant’s rent by CPI+1%, plus up to £2, as long as the overall average increase for their stock is no greater than CPI+1%. However, should CPI fall outside the range of 0% to 3%, the housing minister will determine the appropriate change to rent levels for that year only.
All social landlords will be required to prepare an annual assessment of affordability and cost efficiencies, and demonstrate that their homes and services represent value for money as part of their decision about rent increases.
Scottish new build homes up by 18%
Scotland has achieved the highest number of annual completions on new build homes since 2008. More houses were ready for people to move into in the year to June 2019 compared to the previous 12 months, with a total of 21,403 homes completed. This is a rise of 18% or 3,210 more homes than in 2018.
The increase in completed homes was seen in both the private sector and housing associations. Work to build 23,700 new homes was also started in year to June 2019, up 22% on 2018 figures, while nearly 11,000 affordable homes were started in the period to September 2019.
What’s new in HR?
2020 employment law: Eight action points for HR
The New Year begins with a new government, the prospect of Brexit and a number of employment law developments already on the horizon. What does HR need to do to meet its obligations and prepare for the year ahead?
This article sets out a number of areas for HR teams to look at in detail:
- Carry out Brexit workforce planning
- Review your contracts for IR35 in the private sector
- Comply with national minimum wage and other statutory rate increases
- Amend policies to include parental bereavement leave and pay
- Companies with more than 250 employees must Publish executive pay ratio report
- Comply with the new rules on written statements of particulars
- Change how you calculate holiday pay for workers with irregular hour
- Look out for other changes on the horizon including an Employment Bill, flagged up in the Queen’s Speech in December.
Read the full article in the Resource Hub.
Fire safety
Fire Safety Bill: more detail announced
The government has set out further details of the upcoming Fire Safety Bill being introduced to Parliament. Housing Secretary Robert Jenrick announced a range of measures on 20 January (see Leasehold / Block management in this issue) that aim to ensure residents living in blocks of flats are safe in their homes.
The new legislation will clarify the Regulatory Reform (Fire Safety) Order 2005, requiring residential building owners to fully consider and mitigate the risks of any external wall systems and front doors to individual flats.
The changes will make it easier to enforce where building owners have not remediated unsafe ACM cladding by complementing the powers provided under the Housing Act.
Grenfell council calls for fire safety law changes
The Royal Borough of Kensington and Chelsea (RBKC), which owned Grenfell Tower, is calling for new laws to step up councils’ fire safety powers (source: Inside Housing). The authority believes “more comprehensive legislation” is needed to allow councils to carry out building checks in line with recommendations made in phase one of the Grenfell Tower Inquiry. This would also ensure that private buildings are held to the same standards as social housing, the council says.
Kim Taylor-Smith, deputy leader and lead member for Grenfell, housing and property at RBKC, said: “Fire safety is a constantly evolving national issue and we are calling on the government to help ensure all local authorities are properly equipped to respond to changes, including developments from the public inquiry. We want to see more comprehensive legislation to increase the standards in all buildings owned publicly or privately, and additional powers to enforce against this.”
RBKC has said it has “sought to become early adopters” of proposals made by Dame Judith Hackitt in her review of fire safety and building regulations.
Legislation
New money laundering legislation now in place
Recent research from Transparency International reveals that £4.4 billion of property in the United Kingdom has been purchased using dirty money. In order to clamp down on money laundering, new legislation came into force on 10 January. The Fifth EU Money Laundering Directive means that letting agents must risk-assess their business processes and carry out thorough ID checks on customers.
Letting Agent Today explains that agents must carry out customer due diligence on landlords and tenants where renting is “for a period of a month or more, and at a rent which during at least part of that period is, or is equivalent to, a monthly rent of 10,000 euros or more”.
Agents must carefully consider how they might find themselves exposed to money laundering and to the risk of financing terrorism, ensuring they have measures in place to eliminate any risks from:
• Sending money to customers to or through high-risk third countries which don’t have effective systems in place to prevent money laundering or terrorist financing;
• Company services or transactions
• The financing methods used to support the business; and
• Other transaction-based activities such as non-face-to-face services.
Due diligence must also be carried out on all customers and third parties or ‘beneficial owners’, meaning the person on whose behalf a transaction is carried out, must in future be identified and any risks assessed. Their identity now has to be confirmed via an official identification document and their address verified.
Risk assessments must be recorded, kept on file and regularly reviewed. Any changes to a business, it’s financing or the environment in which it operates will trigger an updated assessment, which must be made available to HMRC on request.
Legal update
Chaun-Hui v K Group Holdings Inc
Mark Loveday looks at a recent case that clarifies the position on service charges levied under statutory managers appointed by the FTT
In the recent case of Chaun-Hui v K Group Holdings Inc [2019] UKUT 0371 (LC), heard in the Upper Tribunal (Lands Chamber) on 3 December 2019, a landlord claimed arrears of service charges amounting to £1,030,337.31 from a number of lessees of flats in London’s Park Lane.
The matter was transferred to the First-tier Tribunal. In total, £369,111.10 related to arrears which had accrued during periods when the premises were operated by a statutory manager appointed by the Tribunal under s.24 of the Landlord and Tenant Act 1987. The leaseholders attempted to argue that the landlord could not recover the £369,111.10 demanded by the statutory manager, but the Tribunal refused to allow them to raise the defence.
On appeal, the leaseholders argued it was the Management Order itself (and not the leases of the flats) which formed the basis of the manager’s functions and powers: Maunder Taylor v Blaquiere [2003] 1 WLR 379. Any relevant costs incurred by a manager on maintenance etc. were only recoverable from the leaseholders by virtue of the Management Order – not the leases. They argued that the regime of protection under sections 18-30 of the Landlord and Tenant Act 1985 Act did not apply to sums payable under a Management Order.
What was the decision?
The Upper Tribunal rejected the leaseholders’ argument. It was firmly of the view that payments made by reference to a lease are service charges falling within the statutory regime under sections 18-30 of the 1985 Act, whether during the term of a section 24 appointment or not.
Once a Management Order is made, charges payable by the leaseholders are recovered under the Management Order. But they are paid under the lease of the relevant flat. The imposition of a Management Order does not therefore displace the lease covenants and the lessees remain bound by them.
Why is this case important for property managers?
The appeal raises fundamental issues concerning the effect of the appointment of statutory managers by the First-tier Tribunal under s.24 of the Landlord and Tenant Act 1987.
Notwithstanding the appointment, the rights and obligations of leaseholders under the 1985 Act continue to apply. Leaseholders may therefore challenge ‘service charges’ demanded by the Manager under s.18 of the 1985 Act on grounds that the manager’s expenditure was not reasonably incurred etc., and the Manager must comply with statutory requirements for consultation about major works in s.20.
Mark Loveday is a leading Barrister with Tanfield Chambers specialising in leasehold management and enfranchisement work
Go to the Resource Hub for more case law.
Talking points
Enfranchisement reform: let’s call a halt to the hostility
Existing leasehold legislation is largely responsible for the current level of landlord and tenant disputes so let’s keep pushing for reform, says Nicola Muir.
Enfranchisement is notoriously complex, and few landlords or tenants can undertake the process without professional assistance. The Law Commission has just published its report setting out reforms to the current system to make enfranchisement simpler, cheaper and quicker. The recommendations, if implemented, should allow more scope for amicable settlements in lease extension or enfranchisement claims.
Our existing leasehold legislation is responsible for causing hostility and disputes during the enfranchisement process, due to strict requirements and draconian punishments. This is why those of us living or working in the leasehold sector should welcome recent proposals from the Law Commission which, if adopted, could benefit both leaseholders and freeholders when going through enfranchisement.
The current system creates an adversarial environment, whereas what we need is less of the ‘us vs. them’ mentality. It’s the outmoded enfranchisement process – not the individuals involved – that leads to disputes. Instead, what we need is scope for more negotiation, open dialogue and process-led interactions.
I believe firmly that enfranchisement claims frequently become hostile because aspects of the legislation can trap the unwary. If a tenant misses a deadline in the process, the right to an extended lease is lost and a new claim can’t be made for a further year. If the landlord misses a deadline, they may have to accept a low or unfair price for their interest.
This leads to artificial arguments about the validity of notices and methods of service. By allowing the Courts and Tribunals to take a more holistic approach which focuses on whether the tenant is actually entitled to a new lease rather than on whether they jumped through the necessary procedural hoops, the proposed new system should be easier, cheaper and quicker to operate.
The Law Commission proposes doing away with some of the existing draconian sanctions for both leaseholder and freeholder if key deadlines are missed during the statutory process. The new regime would be more flexible and would give the First Tier Tribunal a much wider jurisdiction to deal with the whole gamut of disputes which can arise in enfranchisement claims.
It remains to be seen whether the Law Commission’s proposals will become law, but they have generally been well received. There is no doubt that a more flexible procedure would open the door to more cases being settled amicably and the scope for disagreements being reduced. In the meantime, landlords and tenants should always try and reach terms within the statutory deadlines.
Nicola Muir is a barrister at Tanfield Chambers and a member of the Association of Leasehold Enfranchisement Practitioners (ALEP)
Will the government find the right balance in rental reform?
Natasha Rees takes a closer look at the likely abolition this year of Section 21, warning against shifting too far from the interests of landlords and investors
The Government's consultation on abolishing so-called ‘no fault’ evictions and enhancement of the mandatory grounds for possession closed on 12 October 2019 and it now intends to introduce legislation to underwrite the ban in 2020. While greater security for tenants is welcome, there are fears that abolishing Section 21 will have a significant impact on the private rented sector (PRS) as buy-to-let investors see a reduction in the control of their asset and may decide to invest elsewhere.
Under the current regime, a landlord can terminate an Assured Shorthold Tenancy (AST) when the fixed term comes to an end using a Section 21 Notice. The landlord does not need to rely on any default by the tenant to regain possession, hence the term ‘no-fault’ eviction. The landlord retains control of the term date, and thereby the ability to set a new rent.
The proposal to remove ASTs from the Housing Act 1988 means that all landlords – private and social – will only be able to offer fixed-term or periodic assured tenancies. Fixed-term tenancies will continue as statutory periodic tenancies unless they are ended by the tenant or the tenant defaults. To ameliorate the effective removal of ASTs the Government is proposing to enhance the grounds upon which a landlord can recover possession of assured tenancies, but those in the PRS are not convinced that these will be sufficient.
The proposed enhancements include introducing new grounds for eviction when a landlord wants to sell the property and extending the option allowing repossession based on use by the landlord's family. Also, the mandatory ground for possession based on rent arrears will be amended so that a landlord only needs to show two months’ arrears on notice and one month’s arrears at the time of the hearing. Serial defaulting will also become a mandatory ground for eviction. Although an accelerated court process for these mandatory grounds is proposed, there is no guarantee that the significant delays involved with bringing court proceedings for possession - currently five months between issue and obtaining possession - will be shortened.
The removal of Section 21 will also indirectly affect a landlord's ability to increase the rent. When the fixed term ends, landlords will have to rely on Section 13 of the Housing Act to increase the rent. This allows an annual increase to the market rent once a year. As this procedure allows the tenant to challenge the new rent in the First Tier Tribunal, landlords may introduce contractual rent reviews in line with the Retail Price Index.
In a rental market where demand is outstripping supply, it is vital that government considers investors and landlords. Those working and investing in the PRS must be reassured that they will retain the control they need to repossess properties swiftly for legitimate reasons and that rent levels will remain market driven.
Natasha Rees is a Partner and Head of Property Litigation at Forsters LLP
Topic of the month
Is your on-site team happy?
On-site staff are on the frontline of customer relations. Nick Regnier takes a closer look at getting the most from your team.Is morale low? Is productivity low? Perhaps there is a high turnover of staff? High levels of sickness or absence? Are staff unable to make decisions on their own and continually turn to you as the property manager? Maybe they are micro-managed on-site by an unsuitable line manager?
If you recognise one or more of these issues, read on for some tips to help turn your team into a happier and more motivated workforce
Leadership
Any on-site team needs to be led and managed, so a flat organisational structure is unlikely to be successful. We often see such an arrangement on site, with arm’s length supervision by the property manager from their office often a long way away. Such an approach can work if the property manager genuinely has the time to lead the team but the ideal scenario for a managing agent is to have a self-sufficient site team successfully leading itself. Look at the make-up of your current team. Assess the effectiveness of any leader figures currently in situ. In a flatter structure, is there an estate manager in the making that could lead such a team? A fresh reorganisation of the team around an effective leader could be the best thing you ever did for your client. Leadership starts with you, the property manager, empowering those on site.
Local talent
Easier said than done perhaps, but efforts should be made to source on-site members of staff locally first. Staff who can walk to work are likely to be there on time, feel less flustered, have more energy for the residents and last longer in the role.
It could be that the perfect concierge is on the doorstep of the block but not working where you would expect to find them. It may be worth using a recruitment consultant to source talented staff from surprising places.
Structure
In the same way as a property manager in an office environment would expect there to be structure to their role, on-site staff are no different. We have seen perfectly good on-site staff flounder when left to their own devices. Some simply don’t have the wherewithal to organise their own days and need to be spoon-fed tasks, although they do them very well! A clear umbrella job description is essential but supplement this with daily, weekly and monthly routines to provide the structure staff need. Get the structure right by listening to the feedback and finesse the detail with the staff rather than dictate it to them.
Horses for courses
Each residential development has its own identity and its own culture, because of its location, its residents, number of occupiers, the style of management and more. So any member of on-site staff needs to ‘fit in’. One concierge may be ideal for a slow-paced yet highly attentive building culture. However, the same person may flounder if they find themselves being very busy throughout the day. So if you manage a portfolio, if one member of staff is struggling with the ‘culture’ of the block they are assigned to, see if the member of staff can be re-assigned to a building that better suits their abilities.
Engagement
Following on from the previous point, you run the risk of losing a talented member of on-site staff if they are under-worked or bored. If they feel like a bum-on-a-seat at the front desk and nothing more, you won’t get the best from them. So empower the on-site team, delegating tasks to them and generally keeping them busy. An active, engaged member of staff is likely to give you and your residents many more years of attentive service. Ask yourself what more the on-site team could do to reduce the pressure on your valuable time and improve the residents’ experience.
Training and coaching
It goes without saying that on-site staff have a great deal of responsibility that by virtue of the fact that you are managing the block, means you have a great deal of responsibility too. How the staff are trained to know their building, understand the processes and procedures there, the roles and responsibilities of others, use of the managing agent’s proptech, how to lift heavy items safely, what to do in the event of a fire, and much more is crucial. Transferring knowledge like this, i.e. training, should not be taken lightly. Whether the consequences are unhappy residents or someone getting hurt, we’d all rather avoid the pain and ensure that staff are appropriately trained.
Then there’s coaching: enhancing knowledge and skills, and developing that person into something special. Training is vital but coaching – one-to-one, informal/unstructured chats, asking and listening, trusting, is what will turn an effective member of on-site staff into a happy one. Leaving training and coaching to chance is unlikely to generate a long term, happy team.
Proptech
Gone are the days when on-site staff are not expected to use a computer. In today’s workplace they are content to use PCs, smart phones and tablets, to do site inspections, manage keys, visitors and Amazon packages, report faults to the managing agent or directly to an approved contractor. Some estate managers run reports (e.g. service charge arrears; maintenance activity) ahead of RMC board meetings which concierge and other on-site staff also attend as a vital part of the team.
Don’t underestimate an on-site member of staff’s ability to use the proptech that you use every day. If you need the staff to use the same systems as you use, prioritise those who can demonstrate the right IT aptitudes at selection stage.
Compassion
Above all, whether the staff are employed by a third party, by the freeholder, or even by the managing agent you work for, they are likely to be fulfilling a vital customer-facing role. Encourage feedback, be compassionate to their personal circumstances, make sure you know what their longer-term plans are, respect their differences and empower them to make decisions.
Nick Regnier is managing director of Cledor.
IRPM events
Go to the Events page for more information
03 February 2020: Associate Exam Preparatory Workshop - London
04 February 2020: Associate Exam Preparatory Workshop - London
06 February 2020: Associate Exam Preparatory Workshop - Manchester
04 March 2020: Associate Exam - London & Manchester
17 March 2020: Associate Exam - Glasgow
21 May 2020: Annual Seminar 2020
What’s new on the Resource Hub?
Money laundering
Businesses regulated by money laundering legislation need to carry out a risk assessment to identify where they could be at risk. PRS specialist website Goodlord has produced a useful guide for property agents. Read it here
Employment Law changes in 2020
Will new employment legislation impact your business this year? This article sets out the likely changes you should be aware of.
