16 minute read
We report on proposed changes to service charge accounting, the new energy code and the LEASE conference
Flat Liv ingNews
w h a t ’ S h a pp en in g i n l e a Se ho ld S ec to r
code of Practice leaseholders let down by new energy code
Thousands of residential leaseholders could face hefty backdated energy bills despite a new Code of Practice that is supposed to protect them, ARMA has warned.
The new Code, issued by the Energy Retail Association (ERA), is supposed to protect small businesses – including leaseholder run Residents Management Companies (RMCs) - from crippling backdated energy bills but completely fails to do so, according to the Association of Residential Managing Agents (ARMA). ARMA believes that RMCs will be left particularly vulnerable, saying, “These micro-businesses are run by volunteer leaseholders purely to manage the communal areas of their homes and do not make a profit. Unexpected bills, often the result of energy companies misreading meters, can run into tens of thousands of pounds and are especially damaging to the leaseholders who must then foot the bill through their service charge payments”.
Under the Code, energy companies commit to limit backdated bills to three years for electricity and five years for gas. ARMA says the limit should be one year, the same as for domestic customers and that the Code should be compulsory - so far it is voluntary and not all energy suppliers have signed up.
ARMA chairman Peter Dening, who is a partner at Pennycuick Collins in Birmingham, said: “We are very disappointed that the ERA has not gone further to protect leaseholders from the disastrous effects of backbilling. ARMA has campaigned for this Code of Practice so that energy companies will treat the communal areas to blocks of flats like the domestic premises they are. At a time when many families are struggling with fuel poverty, it is simply not fair that flat owners could still be billed for charges going back five years.’’
Mary-Anne Bowring, Chair of membership at the Institute of Residential Property Managers (IRPM) said: “Leaseholders should not be punished for the mistakes of energy suppliers. In these tough economic times it is simply not acceptable that residents can receive unexpected bills for thousands because their supplier has misread a meter. This is why we are backing ARMA’s call for a Code of Practice to protect leaseholders from the crippling effects of such mistakes and avoid unnecessary debt”.
ARMA estimates that for around 60% of the blocks of flats in England and Wales, the effective landlord for supplies to communal areas is an RMC. The organisation recently agreed a protocol with ERA to protect leaseholders from power disconnections to the communal areas of their property which can be downloaded from the ARMA website at www.arma.org.uk.
Mary-anne Bowring: critical of code the prestigious Walpole Mayfair building
Price record Mayfair still has Monopoly onprices
Despite the continuing slump in UK house prices, the sale of a penthouse apartment on Arlington Street in London’s exclusive Mayfair recently set a new price record, according to Property Week magazine.
The 3,100 sq ft apartment, which also boasts a substantial roof terrace, was sold to a British buyer for just over £14 million. At £4,542/sq ft, the apartment easily beat the £3,800/sq ft record previously set for this part of London.
The Grade II listed building, formerly the home of eighteenth century Prime Minister Sir Robert Walpole, has been redeveloped by Oliver Burns. Located opposite the Ritz the building comprises five luxury apartments. In contrast to the national trend, Property Week reports that prices in London’s Mayfair and neighbouring St James’ rose by 11% in the 12 months to February 2012.
The Government’s Urgent Issues Task force has consulted on proposed changes to the accounting procedures for Residents Management Companies when they deal with transactions for flat owners.
In May, a ‘draft abstract’ was issued in response to a request from the Institute of Chartered Accountants in England and Wales to look at the way service charges are dealt with in the financial statements of RMCs. This abstract dealt with: n Helping RMCs recognise which transactions need to be included in financial statements by identifying whether the RMC is acting as principal (landlord) or agent. Guidance on this is provided in FRS5 and in most cases the RMC is likely to be acting as an ‘undisclosed agent’ on behalf of flat owners. n Helping other people entering into a financial agreement with an RMC – including flat owners and creditors – understand the RMC’s position; n Confirming that money collected as service charges needs to be held in a statutory trust on behalf of residents; and n Protecting flat owners and anyone else using RMC financial statements by disclosing where information can be found that details the transactions made.
The consultation closed in June and the intention is that any changes made to the rules on service charge accounting will be applied to accounting periods ending after 31 December 2012, although early adoption will be permitted. all change for rMc accounting
design award award-winning penthouseavailable forrent
a glamorous award ceremony, held in nottingham’s newest £1m-plus penthouse apartment in may, celebrated the efforts by six design students from all over the country who were shortlisted for the national design academy’s (nda) recent competition. the students were asked to design the interior of the property at nottingham’s prestigious river crescent development from the layout and furniture right down to the accessories and final touches. the competition was won by 21 year old grace moulder, an interior design student from darlington who scooped a £3,000 cash prize and the chance to kick start her career in style. the evening also celebrated the luxury penthouse now being available to rent. boasting panoramic views of the river trent, nottinghamshire countryside and both of the city’s football stadiums, it is hoped that a local sports celebrity may take on the lease. the last big profile name to rent one of the penthouses was sven-göran eriksson during his brief stint as director of football for notts county. the national design academy (nda) is part of the nda foundation, a not for profit organisation that is committed to providing further and higher education access to all, regardless of their educational background. nda is also the uK’s largest interior design school, offering a wide variety of accredited diploma, degree and masters courses in interior design.
campaign Flat living launches ‘Know your lease’ campaign
Flat Living is launching a campaign to encourage flat owners to use properly qualified and experienced professional advisers. Our ‘Know your Lease’ campaign, is all about getting practical, straightforward advice from a leasehold specialist solicitor from the start of the home buying process. A properly qualified expert with knowledge of leasehold can explain the finer points of your lease to you, guide you successfully through the homebuying process and help you avoid any unexpected problems cropping up in the future. Understanding leasehold
Leasehold is a form of property ownership that dates back to the feudal system. Leases are often complex and written in hard to understand legal language. This means that leaseholders are often left confused and don’t always know their rights or obligations as flat owners. Most flats in England and Wales are owned under ‘long leases’( longer than 21 years) with the flat owner effectively renting the property for the length of time specified in the lease from a freeholder who owns the building that houses the individual flats. The lease is the legal document that outlines every aspect of the relationship between the leaseholder and the freeholder, including the rights and obligations of each of the parties and the way that service charges will be divided between the flats.
Leasehold conveyancing is more complicated than freehold conveyancing and attracts higher fees. A solicitor must check that the lease a flat buyer is entering into has been correctly drawn up and does not include terms that may be unacceptable either to the purchaser or the mortgage lender. The solicitor must also check the details and accounts of any management company or tenant’s association and the way your prospective property is managed. ask an expert
To promote a better understanding of leasehold among flat owners, Flat Living is emphasising the importance of understanding the lease you are buying and getting the right advice from the start. Knowing your lease means - when professional advice is sought - always using a solicitor with expertise in the leasehold market.
Flat Living is calling on organisations dealing with prospective flat owners to promote the use of appropriately qualified professionals to their clients, for example estate agents promoting the use of solicitors that specialise in leasehold. This will help make leasehold a more transparent form of tenure to the benefit of everyone who lives in a flat. Other organisations are already working towards this, with the London Assembly’s Planning and Housing committee calling for conveyancing solicitors to provide more information upfront to leaseholders and the Devon and Somerset Law Society recently updating their pre-contract enquiries form to ensure all the relevant information required is available to flat buyers and their solicitor. At Flat Living we would like to see all Law Societies and other organisations around the country following suit, ensuring that all flat owners have access to solicitors who specialise in leasehold conveyancing.
Lords debate ARMA welcoMes cAll foR RegulAtion, educAtion And tRAnspARency
Calls by Baroness Gardner of Parkes for regulation of managing agents, better education of leaseholders and transparency of service charges have been welcomed by the Association of Residential Managing Agents (ARMA). These were key points raised in a debate about the leasehold sector in the House of Lords in April.
ARMA’s chairman Peter Dening commented: “ We fully support Baroness Gardner’s call for regulation of managing agents and simplification of the law in this area and are disappointed at the government’s response. However, we are currently working on our own enhanced self-regulatory regime to further raise standards in the industry and provide greater protection for leaseholders.”
ARMA is already addressing some of the other concerns raised by Baroness Gardner including demanding strict entry criteria from prospective ARMA members. All members are required to sign up to an independent ombudsman scheme, have a published complaints procedure and demonstrate they are holding service charge money in the correct and legal format.
“We also believe in educating leaseholders and continue to provide free guidance on their rights and responsibilities including a best practice guide on service charge accounting to help improve transparency,” said Peter Dening.
peter dening: educating leaseholders
oLympics lAsting legAcyof new hoMes foR london
with weeks to go until the opening ceremony of the london 2012 olympic games, all eyes are focused on the new postcode of e20 in east london. once the games are over, from 2013 the area known as east Village will provide homes for more than 6,000 people. the olympic delivery Authority aims to create what it describes as “a lasting residential legacy” in the area, although the asking prices of homes will not be known for some time. the new neighbourhood will boast 3,500 new homes, most of which will be flats. these will be a combination of properties mainly for private rent and affordable homes either to rent or buy. the area will also include education and health care facilities, parkland, and public space as well as more than 30 shops, cafes and restaurants. during the games the flats in east Village will be home to the 16,000 athletes and officials from 200 countries coming together for the first olympics to be held in london since 1948.
new rics president, alan collett
events leAse hosts tenth AnnuAl confeRence
Two hundred people attended the tenth annual conference held by the Leasehold Advisory Service (LEASE) in London in May.
Alan Collett, then Presidentelect of the Royal Institution of Chartered Surveyors (RICS) and the first from the residential property sector for almost four decades, gave the keynote address. He stressed the importance of the RICS as a consumer-focused regulator for the surveying profession.
The address was followed by presentations and question and answer sessions from Ian Potter, Operations Manager for the Association of Residential Letting Agents (ARLA) on the effect of leasehold tenure on selling property and Emma Bulmer of the Department for the Environment and Climate Change on the implications of the government’s Green Deal for leasehold.
Andrew Belton of social landlord Notting Hill Housing highlighted the hard work and continuing challenges for a consumer focused housing association providing shared ownership homes. He was followed by Professor James Driscoll who reviewed the ten years since the Commonhold and Leasehold Reform Act 2002 and in particular the Greater London Authority’s recent review of service charges in London.
Both morning and afternoon sessions included themed discussions on valuation, legal developments, buy-to-let and serving leasehold customers. Delegates shared their own experiences and raised issues of particular interest.
Speakers at LEASE conferences consistently include some of the best thinkers in residential leasehold, representing property owners, managers, valuers, estate agents and lessees. For advance notice of other LEASE events including next year’s conference date, go to www.leaseholdadvice.org.uk
church repairs can prove costly
legal ChanCel repair liability limited from 2013
From 13 October 2013, chancel repair liability will no longer apply to flats and houses purchased in England and Wales, unless a notice is registered against the property in question at the Land Registry, says lawyer CMS Cameron McKenna. Many homeowners may not be aware of this liability, which is an ancient financial charge that may be levied against them to pay for repairs to the chancel of their parish church.
Chancel repair liability was historically applied to land owned by rectors. When land was sold following the dissolution of the monasteries in the sixteenth century, the charge passed to the general population and still applies to many homes around the country.
In 2003, a landowner was forced to pay a repair bill of around £200,000 plus costs when they contested the liability. Because it is hard to tell whether or not the liability will apply to a property, due to incomplete parish registers, homebuyers are generally advised to have a chancel repair search carried out and to take out insurance cover to protect them from an unexpected and potentially hefty bill if liability is identified.
However, all this will change next year when the law changes and the right to enforce chancel repair liability will no longer constitute an ‘overriding interest’. This means that after 13 October 2013, homebuyers in England and Wales will not be affected by the liability unless it is protected by a registered notice. However, CMS Cameron McKenna warns that where a notice or caution has been registered, the right to claim chancel repair costs from a property owner will permanently affect the land. Land acquired before 13 October 2013 will also continue to be affected indefinitely.
What this means in practice is that anyone buying a new home after that date will be saved the expense of a chancel search. If the liability to pay towards chancel repairs exists, in future it will be shown against the property’s title at the Land Registry.
lVT decIsIon ‘Care of the agent’ address not enough rules lVt
All service charge and ground rent demands must have the address of the landlord clearly marked on them according to a recent decision in the Upper Chamber of the Lands Tribunal. An address simply specifying ‘care of the managing agent’ is not acceptable.
In a recent member circular, ARMA reports on the case of Beitov Properties Limited v Elliston Bentley Martin (Ref. LRX 59/2011), pointing to the importance of the ruling for leaseholders and their landlords. The case concerned a landlord who had taken a lessee to the county court for payment of service charge debts and the matter had been transferred to the LVT. The lessee did not appear at the LVT and the LVT found the sums demanded reasonable but then also decided that the demands made were not valid because they did not contain the address of the landlord. This was not a point that the lessee had raised at any time.
The demands sent by the landlord’s agent included a statement that the address for service of notices under S48 of the Landlord and Tenant Act 1987 was ‘c/o of the managing agent’. This was found to be unacceptable and the Upper Chamber decision stated that “The purpose of the requirement in section 47 to include in any demand the name and address of the landlord, in my judgment, is to enable a tenant to know who his landlord is, and a name alone may not be sufficient for this purpose. To provide an address at which the landlord can be found assists in the process of identification”.
To read the full decision go to www.landstribunal.gov.uk/ aspx/view.aspx?id=852
Insurance brokers Challenged to ‘up their game’ for flat owners
Midway Insurance Services Ltd is challenging other insurance brokers to improve the services they offer in the blocks of flats market with the launch of their updated flats product “Ultimate Flat Owners”, underwritten by Aviva.
Paul Robertson, Midway’s Managing Director explains that the buildings insurance market for blocks of flats is one of the few remaining sectors that fails to offer its end customers competitive choice. Due to the unique nature of blocks of flats, the insurance policy is usually arranged by the freeholder and most flat owners have little choice or influence in the placement of their buildings insurance, despite the fact they pay the premium.
“It’s time for other brokers to up their game,” he says, adding that they need to improve in three specific areas by: n improving the level of advice they give; n understanding the needs of their clients and selling them appropriate products; and n improving the claim handling service they offer.
Paul believes brokers have a responsibility to ensure flat owners receive a fair deal. Too many policies are sold on price alone, he says, with insufficient consideration given to the product and how it suits the need of flat owners, who are the ultimate beneficiary of blocks of flats buildings policies.
Phil Bayles, Broker Distribution and Performance Director at Aviva says: “We are delighted to be supporting Paul and his team at Midway with the launch of their new ‘Ultimate Flat Owners’ product… We look forward to building on our long running partnership with Midway to continue to deliver a high value, great quality offering.”
