Flat Living Issue 4 by Belinda Thorpe

Flat-Living.co.uk

Legal update

KEEPING YOU UP TO DATE WITH ALL LEASEHOLD MATTERS

£2.50 Spring 2010

SEE INSIDE p6

News & views

Help & advice

p12

Right to manage

p16

Insurance

p22

Neighbour disputes

p33

Management fees

p36

Service charges

PLUS MUCH MORE

THERE ARE OVER 1.8 MILLION PRIVATE FLAT OWNERS IN THE UK The Journal for Residents’ Management Companies supported by ARMA

Front cover image kindly supplied by JJ Homes. 13

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Welcome

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Contact Published by www.flat-living.co.uk Ltd, 5 Addisons Way, Lilleshall, Newport TF10 9HH Tel: 0845 257 6374 Fax: 0845 257 6319 Email: info@flat-living.co.uk !LTHOUGH EVERY EFFORT IS MADE TO ENSURE THE ACCURACY OF MATERIAL PUBLISHED IN &LAT ,IVING -AGAZINE THE PUBLISHERS CANNOT ACCEPT RESPONSIBILITY FOR THE VERACITY OF CLAIMS MADE BY CONTRIBUTORS OR ADVERTISERS #ONTRIBUTORS AND ADVERTISERS MUST ACCEPT FULL RESPONSIBILITY FOR THE MATERIAL THEY SUBMIT FOR PUBLICATION IN PARTICULAR FOR ENSURING THAT THEY DO NOT INFRINGE COPYRIGHT INTELLECTUAL PROPERTY RIGHTS OR TRADEMARKS #OPYRIGHT FOR ALL MATERIALS PUBLISHED IN &LAT ,IVING -AGAZINE REMAINS WITH THE PUBLISHERS !NY BUSINESS ADVICE IS GIVEN FOR GUIDANCE ONLY AND READERS MUST CONSULT RELEVANT BODIES BEFORE ACTING ON ANY ADVICE GIVEN IN THE MAGAZINE 3OURCE !2-! &LATLIVING IS PUBLISHED INDEPENDENTLY OF ANY TRADE OR PROFESSIONAL BODY AND RETAINS EDITORIAL CONTROL OVER ALL ARTICLES THAT APPEAR IN THIS ISSUE Front cover image kindly supplied by JJ Homes.

WELCOME TO YOUR SPRING ISSUE OF FLAT LIVING MAGAZINE – packed with information to help Residents Management Companies and Leaseholders manage their responsibilities. Flat Living is delighted to have become the leading guide for Leaseholders and Residents Management Companies and we are pleased to offer a range of interesting topics this issue, including Right to Manage, neighbour disputes, plus an “at a glance” guide to service charges. Unfortunately the long awaited requirements relating to annual service charge summaries and separate bank accounts are still not available (see page 6) as soon as we have any more news we will post it in the latest news section of flat-living.co.uk, otherwise look for an update in our Summer issue. Our Insurance section on page 16 offers a fail safe guide to ensure you obtain the right cover for your block – protecting your assets as a leaseholder or your personal wealth as a Director or Officer. We have received many thanks from our readers who purchased our Health & Safety guide, this was obviously a concern for many of you – remember the most important thing is to understand what to look out for and make sure you document the checks that are carried out – being able to provide proof of what you have carried out – is key www.flat-living.co.uk remains a continually updated source of information, we are in the process of re launching our website to make it easier for visitors to find the information, products and service providers they are looking for, if there are any subjects you think should be included, please let us know. Don’t forget, there is an offer to subscribe to Flat Living Magazine for only £10, fill in the reverse of your delivery note to ensure you receive Flat Living Magazine each quarter, alternatively you can subscribe online at www.flat-living.co.uk or by emailing info@flat-living.co.uk. We hope you enjoy our Spring issue of Flat Living Magazine – please continue to send in your stories, questions and queries to the usual address or email us at info@flat-living.co.uk. 03

Contents

RTM

SERVICE CHARGES

Flat-Living.co.uk

News & Views

Help & Advice

Bruce Maunder Taylor to the rescue

Topic of the quarter

Pascal Wharton, head of SKY Homes, in the spotlight

Emergencies

Interview

12 16

MaintenanceLine to the rescue

DISPUTES

Accounting regulations; CARLEX; stamp out ﬁre

This month’s property manager

What, how and why?

Insurance Are you covered?

Look out for the signs

Safety signs for your block

45 46 Neighbour disputes

Can they be worked out amicably?

Right to manage

Service charges

Your at-a-glance guide and what to do when things go wrong...

Property management

Why does a building need to be managed? Management fees explained.

47 49

Conservation

The real cost

Fuel poverty

FPRA pressure to prioritise leasehold ﬂats

Enfranchisement

The role of the surveyor

ARMA managing agent directory

CONTENTS 04

Flat-Living.co.uk

News

Stamp out the fire London Fire Brigade (LFB) has pledged to reduce property ﬁres in the capital city over the next three years. Under its latest safety plan, agreed by the London Fire and Emergency Planning Authority, LFB has said it will slash the number of blazes in homes by 2% on current levels between now and 2013. Over the same period, the brigade will also attempt to slash fires in non-domestic properties - such as business premises by at least ten per cent. It has set even tougher objectives for the

decline of fires in rubbish by aiming to cut the number of incidents by 40 per cent. The amount of calls to bogus alarms as a result of faulty equipment will also be slashed by a tenth under the LFB pledges. Ron Dobson, London fire commissioner, said: “We are constantly updating the ways that we provide Londoners with the most effective fire and rescue service.” In an attempt to improve the efficiency of its fire fighters, LFB is also in the course of equipping its crews with new life-saving emergency care packs.

Still no ‘news’ on key accounting regulations

CARLEX founder for top job Melissa Briggs, a co-founder of the Campaign Against Retirement Leasehold EXploitation (CARLEX), stood at the general election as an independent MP in West Sussex on the issue of leasehold reform. CARLEX is a self-help group of leaseholders, tenants, their relatives and other interested persons in a loose association who are affected by or concerned about the actions, financial issues and operational practices of developers, landlords and management companies of retirement developments. Its aims on behalf of elderly and vulnerable people are to seek fairness and justice through the law and, ultimately, to achieve changes in legislation.

Brett Williams, chairman of ARMA, comments on the delays In the last edition we wrote, perhaps somewhat over optimistically, that the new service charge accounting requirements relating to annual service charge summaries and separate bank accounts, were expected to be implemented on 6th April. Now it is Mid-May as I write and the new regulations are still not out and we have no ﬁrm indication when they will be. And with the intervening general election, some bets

are now on for as late as 1st October. It is not just a real disappointment that the new Regulations have yet to see the light of day, it is also a disgrace. A disgrace that two of the most important sections of the Act and arguably the key elements to reforming the leasehold system are still not in, eight years after the Royal Assent. It is not just about the chaos this delay has brought to the sector for managing agents, Right To Manage and Residents Management Companies; it is also about thousands of lessees who, until the new Regulations are finally implemented, are not getting the full and transparent protection of their service charge monies that they so deserve. Let us hope that the new government do not turn their back on the leasehold system and will put this firmly at the top of their agenda.

IRPM exam success

Institute of Residential Property Management (IRPM) Exam success enhances Mainstay staff skills. Mainstay is a successful property management company based in Worcester. All at Mainstay have been delighted by the recent success of their colleagues in the IRPM Level 1 exam. Overall, 41 staff sat the exam - by far the largest ever exam intake from Mainstay, and 81% passed first time. The management at Mainstay thanks the IRPM for their support, and for making special arrangements for the exam, which was held at Mainstay Head Office, in order to cater for the number of candidates. David Clark (MD) commented, “we are delighted with this result, which shows our commitment to ensuring our staff have the best possible support and training. It is only by having highly qualified and dedicated staff that Mainstay can be sure of delivering the best quality property management to its customers and clients. Congratulations to everyone and especially to Rachel Satchwell and Dawn Williams, who shared the highest mark with 89%.”

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help & advice

The BMT Surgery

Bruce Maunder Taylor, a chartered surveyor and member of ARMA’s Council, provides answers to readers’ questions. If you have a question, email it to info@flat-living.co.uk.

I am a Director of an RTM Company, we want to demolish an old and inadequate bin store and rebuild a new one, large enough to include recycling bins, near the front entrance of our site where there is, at present, an area of shrubbery, overhung by trees, and which is difficult to keep in presentable order. We assumed that would be all right and proceeded, but the freeholder has claimed we have no right to do it, that we are trespassing on his property, and is claiming damages. What is our position? Name and address withheld

Your freeholder is not that unusual and we are hearing of similar problems with other RTM companies. The RTM Company has acquired a Right To Manage, it has not acquired any property rights. If the landlord cannot be persuaded to be reasonable, you will have to consult a lawyer. Some leases provide that all the outside areas are common parts with the lessees enjoying wide-ranging common rights. Some leases provide that the outside areas are Reserved Property or some such similar expression, with the lessees having

On the top floor in our block of flats there is one particular lessee who uses the flat for about 4 weeks a year. For the remainder of the year he lives elsewhere and we now find that, when not in residence, he has the water left on and the heating turned off. Last winter an un-insulated pipe in his flat burst causing serious damage to both his flat and the flats below, and a building insurance claim of over £50,000 (quite apart from any contents claim by the individual lessees). The insurance company loss adjuster has asked questions about how long the flat was left vacant. We are worried whether the claim will be denied because the flat was left vacant for so long each year. Name and address withheld

Anecdotal evidence suggests that few people read their insurance policy or understand its detailed limitations until a claim is made. Different insurance policies have different levels of cover and/ or limitations. Most policies have some sort of restriction or limitation about vacant properties. There is usually a section in the policy that deals with Unoccupied Buildings Conditions.

very limited stated rights, possibly only with a right of access and egress to and from their flat, and no stated right to enjoy the gardens or other outside areas. A lawyer is also likely to look for any provision in the lease in the landlord’s obligations for storage and removal of rubbish or waste from the site. It is not unusual for freeholders to try to take over a valuable roof space or basement area from which some money can be made: sometimes the freeholder is successful, sometimes not. It is unusual for a freeholder to cause difficulty over the re-sitting of a bin store. If he really wants to be difficult, and if it is right that you are technically trespassing on his Reserved Property, he might take an action against the RTM Company for damages, or take some physical action with regard to your new bin store. How much both parties would have to pay in litigation costs, and how much sympathy either party might get from the Courts is open to question. Whether or not the freeholder’s real intention is to try to sink the RTM Company with a view to recovering management control is a possibility. Our advice is to ask for a meeting to try to understand what is really behind this freeholder’s actions. That may cause a resolution to be reached, or it may result in you taking competent legal advice.

Blocks of flats with a significant number of holiday flats or other reasons for them being unoccupied for long periods of time, really ought to circulate an advice note to all lessees explaining the steps that must be taken so that the insurance cover is not prejudiced. In regard to your particular question, the insurance terms have not been attached to your letter and they will have to be carefully considered. It may be that the claim for damage to the unoccupied flat can be avoided by the insurance company, leaving that lessee to repair his own floors, decorations and other damage, but it is doubtful that the loss adjuster can avoid the claim to other occupied flats lower down the building which were affected. It may be appropriate for your management company to look at your standard form of lease. Many modern leases have a schedule of regulations which can be amended or added to by the landlord fairly easily. Does your lease have any regulation or other covenant which has been breached by this lessee who left his water on and his heating off? Can he be pursued for any uninsured losses or any consequential increase in next year’s insurance premium? In general this experience leaves lessons to be learned and things to be thought about.

Flat-Living.co.uk

Topic of the quarter

Turn on, tune in, switchover All TV reception in the UK will switch from analogue to a digital signal by 2012. Pascal Wharton, head of Sky Homes, explains how the switchover will affect leaseholders.

The digital switchover process started in 2008 and is being done region by region across the UK, starting with the Border area. Anyone who still has an analogue reception system after the switchover in their TV region will no longer be able to watch TV. The date at which the TV goes digital in your region will depend on where you live – in a few parts of the country it has already happened (Border, Granada, Wales and the West Country).

So what does all this mean for viewers? Pascal Wharton explains: “The switchover means a better quality signal with more choice of channels for viewers. Here at Sky, we have a ‘platform-neutral’ communal solution called an Integrated Reception System (IRS) which offers exactly that”. In order to find out what was needed to help the switchover run as smoothly as possible, Sky undertook a detailed survey where it found that 57% of private flats were not ready for switchover. “This could lead to problems, says Wharton, “possibly even leading to a blank screen for residents”.

MINIMUM HASSLE To help with this, Sky has launched a dedicated team whereby an account manager is assigned to oversee individual projects and ensure that blocks of flats can be made ready for the switch with minimum hassle. The new team has been put together specifically to

help managing agents - offering as much help as required to ensure the process runs as smoothly as possible. The team can also put Resident Management Companies (RMCs) in touch with local installers who have in-depth knowledge of their regions. The onus is now on RMCs and agents to ensure that leaseholders are ready for the new service. Wharton emphasises that Sky’s advice is for RMCs to ensure that their housing stock is ready for switchover well in advance of the change. Sky’s new team can help right from the start of any switchover project - offering free estimates through to presentations and demonstrations on completion of the process. “The aim is to make the process hassle free and easy for residents,” says Wharton.

COST? Of course, the burning questions for RMCs and residents will be, how much is all this likely to cost? There is no simple answer to that question as costs vary with the system required and the type and size of block; Sky has a number of financial options available and some are eligible for subsidies. However, Wharton is quick to point out that Sky will always work closely with RMCs and agents to put the correct solution in place. “The new Sky switchover team is here to help. All the work carried out by local installers will be approved to a Sky quality standard and residents can sign up to Sky even after their communal system has been put in place. The worst case scenario is that residents could be faced with a blank screen.” The first step, says Wharton, is for RMCs and/or managing agents to go to www.sky. com/managers- where they will be able to find out when their area switches to digital and get details on options available. Residents should go to www.skyforflats.com where they can look at the latest offers and/or register their interest.

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Flat-Living.co.uk

Emergencies

MaintenanceLine - dealing with emergencies If a pipe bursts in the middle of the night in a block of flats, it’s likely that an anxious lessee will call his or her managing agent first. But the managing agent may not have immediate access to their files. Meanwhile, the water keeps gushing, causing more and more damage. Lessees are frustrated and distressed. Managing agents have to take stressful calls at antisocial hours, which they may not be fully equipped to deal with. Very often, the broker or insurer doesn’t hear anything about the burst pipe until they receive a claim for the resulting damage. That means the single biggest factor driving the cost of that claim – the length of time that the water is gushing – is completely out of their control. That’s why there is a need for a new service to bring managing agents back in control of emergency repairs By swiftly responding to emergencies, whether they’re insured or not to help mitigate losses at the earliest possible opportunity. Here is a case study of how it can work in practice. There had been a break in the mains inlet pipe in the flat above and water was discovered flowing through the ceiling one evening. The lessee in the flat below didn’t know where to find the stopcock so he called the out of hours emergency service arranged by his managing agent. Within two hours, a plumber was on site to trace and repair the damaged pipe and stop the flow of water. As a result, the total cost of the damage was limited to £750. Based on the experience of Cunningham Lindsey of many incidents like this each year, they say that if the water had carried on flowing for another two hours, the ceiling would have collapsed. Replacing it and redecorating the kitchen would have cost £2,750. After eight hours, kitchen units would need to be completely

replaced. The flat would become uninhabitable, adding loss of rent and the expense of alternative accommodation to the bill. The water would also have penetrated the next flat below. By now, the cost would be £22,750. What makes an out of hours emergency service a success? UÊ 1 Ê -iÀÛ ViÊ i ÌÀiÊ > i`Ê LÞÊ Ã i`Ê V > ÃÊ ÌiV V > ÃÊ > `Ê loss adjusters, used to dealing with distressed callers. UÊ ÛiÃÌ i ÌÊ Ê /Ê> `ÊÌi i« iÊÃÞÃÌi Ã° UÊ ÊÌÀ >}iÊÃÞÃÌi ÊÜ V Ê i «ÃÊ>`Û ÃiÀÃÊiÃÌ>L Ã ÊµÕ V ÞÊ ÜÊÕÀ}i ÌÊ a problem is and whether an out-of-hours visit is really necessary. It’s common practice for managing agents and landlords to nominate a general building contractor but, because they’re paid per call-out, they can incur a lot of unnecessary cost. UÊ Ê«Ài >««À Ûi`Ê >Ì > Ê iÌÜ À Ê vÊV ÌÀ>VÌ ÀÃ]ÊÜ Ì Ê>}Àii i ÌÃÊ in place that guarantee supply, fix competitive call-out rates and set service levels. As well as carrying out emergency repairs, the contractor can generate next day estimates for permanent fix. UÊ ÊÃi> iÃÃÊ ÊÜ Ì ÊV > ÃÊ > ` }Ê> `Ê ÃÃÊ>` ÕÃÌ }Ê ÊVÕÃÌ iÀÃÊ don’t have to give their details to several sets of people: one contact and everything is resolved. &OR MORE INFORMATION ABOUT #UNNINGHAM ,INDSEYSd EMERGENCY SERVICE SEE PAGE

A Great Deal for our Customers Because we are the experts

Because we provide national resource at a local level

Before making a change speak to the leading independent managing agent. 01905 361082 / service@mainstaygroup.co.uk www.mainstaygroup.co.uk Block / Residential / Student / Commercial / Retirement / Mixed Use / Portfolio

Because we control costs and collect charges efficiently

Because we are driven by our customers

Flat-Living.co.uk

Interview

Rapid response is key to success Partner Dennis Brooke, gives us an insight into the Qualitas Residential approach to block management. with buildings, even if I’m no longer designing new ones. My architecture practice was very strong on construction cost control and this readily translates to budgeting and expenditure control for blocks of flats. As an intellectual challenge, interpreting leases could be equated to wrestling with a complex building contract. I could also say that I get to meet and deal with the nicest and most interesting people - which is largely true - but there is a small minority that are, let’s say, just interesting! (OW HAS THE RECESSION IMPACTED THE BUSINESS DURING THE PAST MONTHS AND HOW HAVE YOU STEERED THE BUSINESS THROUGH THIS PERIOD

(OW LONG HAVE YOU WORKED IN PROPERTY MANAGEMENT IN GENERAL AND AT 1UALITAS 2ESIDENTIAL IN PARTICULAR I founded Qualitas Residential in 1996 as a second career after architecture. Initially it was a lettings business but I never felt truly at home in that world. As an architect I had been used to more engaged client relationships than I was finding in lettings, and block management provides that, but over a longer term. (OW HAS THE SECTOR CHANGED IN THIS TIME When I was first offered a block to manage I knew nothing about the subject. I just decided that I would give such a willing service that by the time someone asked a difficult question I would be up to speed! I haven’t looked back, but I don’t think you could do that now. Legislation has become so prescriptive that it is difficult to be right all the time - even when you know what you should be doing. It is vital to keep abreast of new developments: ignorance would be professional suicide. 7HAT IS IT ABOUT PROPERTY MANAGEMENT THAT INTERESTS YOU There is clearly an affinity between property management and my previous career as an architect. I still get to find out what is wrong

The recession has had little effect on us. We have continued to take on new business, and our portfolio has continued to grow. We did lose solicitors’ enquiry fees for a while when the housing market died, but they are back to normal now. 7HAT ARE YOUR FUTURE PLANS IN TERMS OF MERGERS ACQUISITIONS AND OR TAKING ON NEW INSTRUCTIONS My business partner and I merged our fledgling businesses and it has been a great success. Our growth has been steady and consistent, fed mainly by word of mouth referral. I think we are likely to continue to grow our business on the basis of enquiries received and develop our resources in parallel. 7HAT UPCOMING LEGISLATION WILL EITHER ADVERSELY OR POSITIVELY AFFECT YOUR BUSINESS IN THE FUTURE We are all awaiting the implementation of Section 152 of the Commonhold and Leasehold Reform Act 2002. This will introduce prescribed statements of account for service charges and will, I think, be worth the effort. Beyond that there is the possible regulation of our profession, which I support in principle. My concern with new legislation is always that, although it is conceived (hopefully) out of an obvious need, it is often developed to the point that attracts ridicule. Sledgehammer and nut spring to mind!

7HAT DO YOU BELIEVE IS THE KEY TO SUCCESSFUL PROPERTY MANAGEMENT Response, response and response - I can’t see any argument against it. Virtually all our business comes from replacing other managers and, whatever the full range of problems may be, the first complaint is always, “they didn’t call us back or reply to letters and emails”. Rapid response is the front line in building and preserving your reputation. Behind that you have to have adequate systems to manage accounting, maintenance, health and safety, insurance etc, but it is your initial response to a query that reassures people that everything is under control. 7HAT IS THE BEST THING ABOUT PROPERTY MANAGEMENT !ND THE WORST I see block management as a very stable business. As an architect, and part of the construction sector that fluctuates wildly with the economic climate, I experienced the opposite. I appreciate the steady cash flow as opposed to having to put in thousands of pounds of work up front and hoping the client will then pay. I also appreciate not having to constantly find new work to replace what has been completed. Every new instruction builds the portfolio. On the downside, I miss the creative element of architecture. In property management, creativity is helpful, but in a completely different context! (OW DO YOU UNWIND OUT OF WORK I am into my third year of rebuilding a Marcos Mantula sports car. It wasn’t supposed to take that long but I am not the first to fall into that trap. Unlike our management of blocks, the budget for this project is completely out of control and will never be revealed!

Flat-Living.co.uk

RTM

The Right to Manage: what, how and why? Dudley Joiner, chief executive of The Right to Manage Federation, explains the steps, procedures and pitfalls of the Right to Manage legislation. 12

Flat-Living.co.uk

RTM

COVER THE COST

ince William the Conqueror the common people of this country have suffered under the feudal system he introduced. Originally the crown bestowed land on favoured barons who leased it to peasants whose daily toil generated exorbitant rents for the lords of their land. Almost a thousand years later not much has changed. Wealthy landlords still control much of our property and continue to demand ground rent. The system is known as leasehold and the peasants paying the rent are lease-holding tenants.

On paper the leasehold system sounds reasonable. Tenants pay the landlord a modest ground rent for the land on which the building stands and a service charge to cover the cost of maintenance of the structure and the common parts. Unfortunately too many exploitative landlords see fit to take advantage of their monopoly position and introduce commissions and handling fees on top of the services provided to the extent that they can commonly double or triple their income. Then there are landlords who totally neglect their responsibility for maintaining the building, which rapidly falls into disrepair devaluing the properties of all leasehold owners. In 1997 the Labour Party published a policy document entitled ’An End to Feudalism’ and Parliament subsequently introduced The Commonhold and Leasehold Reform Act (2002). Due to pressure from landowners, transferring to commonhold requires 100 per cent leaseholder approval and unsurprisingly this aspect of the legislation has been a dismal failure. However all was not lost because the same legislation introduced another option for leaseholders known as the ‘Right to Manage’ or RTM. In a nutshell, RTM legislation entitles leaseholders in blocks of flats to take control of their building and either manage it themselves or more commonly employ a professional managing agent to manage it on their behalf. It is a no-fault process, it does not require landlord approval neither is it necessary to prove landlord deficiency or negligence or pay the landlord any compensation. As long as the RTM claim is supported by at least half the leaseholders in any individual block the landlord cannot legally obstruct the process.

STATUTORY QUALIFICATION In order to be eligible for the Right to Manage both the building and the applicant leaseholders must meet a statutory qualification. A qualifying tenant is a leaseholder whose lease was originally granted 13

Flat-Living.co.uk

RTM

for a period exceeding 21 years. The building will qualify if at least two thirds of the flats are let to qualifying tenants and the premises consists of a structurally detached building or part of a building that can be served independently. A building will not qualify if more than 25 per cent of the floor area is nonresidential, if there are multiple landlords or it is a block of four or less flats with one flat used by the landlord for principle residence. Properties owned by the local authority are excluded. The Right to Manage must be exercised by an RTM company incorporated with prescribed articles. All leaseholders are entitled to become members with individual liability limited to £1. Since November 2009 RTM companies only require a single director but typically comprise a board of three or more members. Although legislation requires 50 per cent of leaseholders to become company members before an RTM claim notice can be issued it is generally advisable to aim for at least two thirds to join the company, which avoids any criticism that the procedure is undemocratic.

PRESCRIBED ROUTE The formal procedure for exercising RTM is started by an RTM company serving a claim notice on the landlord. Thereafter it follows a prescribed route comprising further notices and counter notices. RTM is usually determined within two months with the right to take over management following three months later. The benefits to leaseholders are obvious and flat owners all over the country are now turning to RTM as the best solution to achieving higher standards of property management and increased value for the service charges they pay. Through RTM they have a voice in all key decisions and know exactly how they’re money is spent. A managing agent that is a member of the Association of Residential Managing Agents (ARMA) will provide the additional comfort of a government approved code of practice. More importantly leaseholders can terminate the management contract if the chosen company fails to meet expectations, which is a huge incentive to continually strive harder to provide the competitive services leaseholders demand.

Forming a management company and taking on responsibility for a block of flats is not a matter to be undertaken lightly especially considering the increasing amount of regulation and statutory requirements for health and safety, although appointing a managing agent reduces the potential risks. The RTM process is not complicated but it is complex and there are pitfalls awaiting those proceeding without professional advice. Innocent mistakes can result in a landlord challenging the claim, forcing leaseholders to apply to the Leasehold Valuation Tribunal, which can prove costly if mishandled. Professional RTM costs vary from about £100 to £300 per flat according to the size of the block. In addition the landlord is entitled to costs incurred in transferring management, such as legal and audit costs, but these must be reasonable. All these risks are controllable and generally are far outweighed by the advantages of controlling management and service charges. $UDLEY *OINER IS THE CHIEF EXECUTIVE OF 4HE 2IGHT TO -ANAGE &EDERATION WHICH OFFERS A COMPREHENSIVE LOW COST SERVICE TO LEASEHOLDERS SEEKING 24- AND HAS ALREADY HELPED HUNDREDS OF LEASEHOLDERS BREAK FREE FROM LANDLORD MONOPOLY AND CHOOSE THEIR OWN MANAGEMENT #ONTACT TEL EMAIL INFO RTMF ORG UK WEB WWW RTMF ORG UK

THE ROLE OF SOLICITORS IN RTM The law relating to RTM is complex and there are many pitfalls, writes Graham Jaffe of Jaffe Porter Crossick LLP. Instructing a solicitor ensures that the interests of the qualifying tenants are protected and that they are on an equal footing with the landlord who will invariably instruct a solicitor to act upon receipt of an initial notice. An experienced solicitor will: UÊ >`Û ÃiÊ ÊÌ iÊµÕ> vÞ }ÊVÀ ÌiÀ >Êv ÀÊiÝiÀV Ã }ÊÌ iÊÀ } ÌÆ UÊ ivviVÌÊÌ iÊ V À« À>Ì Ê vÊÌ iÊ,/ Ê «> ÞÊºÌ i Company”) that will exercise the claim including the Ê >«« Ì i ÌÊ vÊ> Ê>VV Õ Ì> ÌÆ UÊ Û ÌiÊÌ iÊµÕ> vÞ }ÊÌi > ÌÃÊÌ ÊLiV iÊ i LiÀÃÊ vÊ Ê Ì iÊ «> ÞÆÊ UÊ ÀiV i `Ê>Ê > >} }Ê>}i ÌÆ UÊ `À>vÌÊ> `ÊÃiÀÛiÊÌ iÊ Ì > Ê Ì ViÆ

UÊ ÀiÃ« `ÊÌ Ê>ÊV Õ ÌiÀÊ Ì ViÊ vÊÀiµÕ Ài`Æ UÊ ÃiÀÛiÊ> Ê v À >Ì Ê Ì ViÊ ÊÌ iÊvÀii `iÀÆÊ> ` UÊ i ÃÕÀiÊÌ >ÌÊÌ >ÌÊ > >}i i ÌÊ ÃÊivviVÌ Ûi ÞÊÌÀ> ÃviÀÀi`Ê on the acquisition date. The Company will inherit the existing management arrangements which may be inadequate or defective. A solicitor can analyse the legal consequences and advise the Company on the best way to modify the situation, by for example, making provision for a reserve fund. A solicitor experienced in dealing with RTM will always be more accountable than a non-professional RTM advisory company. RTM provides a relatively inexpensive way for qualifying tenants to acquire the management of their building without incurring the cost of acquiring the freehold. There is limited scope for the landlord to object or delay the process particularly where an experienced solicitor is instructed.

Flat-Living.co.uk

Insurance

Insurance:

are you covered? Is your insurance policy adequate for the needs of your block? Before the worst happens and you need to make a claim, Flat Living’s essential guide to insurance will help you check that you have the right cover in place.

esidents Management Company (RMC) directors and committee members often take on the task of arranging buildings insurance on behalf of their fellow residents. Ensuring your block is adequately covered is a major responsibility – and ensuring a competitive price as well as comprehensive protection for leaseholders’ property can be quite a challenge. First, it is important to ensure that your Building Sum Insured is adequate and that the cover you obtain is wide enough to protect the interests and investment of you and your fellow flat owners. Despite the current economic climate - with interest rates at an all-time low and property prices depressed - should disaster strike, don’t assume the cost of replacing your home has gone down. Building material and labour costs continue to rise and it is vital to ensure that you 16

take out insurance based on an up-to-date reinstatement valuation. Re-valuations should be carried out at least every five years, by a chartered valuation surveyor, and will take into account any changes or improvements made to the property since the level of cover was first set. Many people wrongly assume that, if the cost of repairing their property under a claim is less than the sum insured, it will automatically be paid. This is not true: payouts are based on the level of cover being sufficient to reinstate the whole property. The second -and vitally important – thing to remember is that policies are not all the same. The company offering the cheapest deal may not necessarily provide the level of cover you need. So before you take out any policy, check that it includes the following: (continued over the page)

Flat-Living.co.uk UÊ UÊ UÊ UÊ UÊ UÊ UÊ UÊ UÊ UÊ UÊ UÊ UÊ UÊ

Insurance

º Ê, Ã Ã»ÊV ÛiÀÊ V Õ` }ÊÃÕLÃ ì Vi®Ê « ÞiÀÃÊ >L ÌÞÊ ÃÕÀ> ViÊ *ÕL VÊ> `Ê*À «iÀÌÞÊ"Ü iÀÃÊ >L ÌÞÊV ÛiÀÊ ÌiÀ >Ì ÛiÊ VV `>Ì Ê ÀÊ ÃÃÊ vÊ,i ÌÊ ÃÃÊ vÊ iÌiÀi`Ê7>ÌiÀÊ ÃÌÊ vÊÌÀ>V }Ê i> >}iÊ vÊ Ê ÀÊÜ>ÌiÀÊ ÃÃÊ vÊ ÀÊ > >}iÊÌ ÊV Ìi ÌÃÊ ÊV Õ > Ê>Ài>ÃÊ > >}iÊÌ ÊÕ ìÀ}À Õ `Ê* «iÃÊ> `Ê >L iÃÊ 1 ÀiÃÌÀ VÌi`ÊV ÛiÀÊ ÊÛ>V> ÌÊ ÀÊÀi Ìi`Êy>ÌÃÊ ÀÊ apartments > >}iÊÌ ÊwÝi`Ê} >ÃÃ]ÊÃ ÜiÀÊÌÀ>ÞÃÊ> `ÊÃ> Ì>ÀÞÊwÌÌ }ÃÊ -Ì À Ê`> >}iÊÌ Êvi ViÃÊ> `Ê}>ÌiÃÊ i}> ÊiÝ«i ÃiÃÊ ,i« >Vi i ÌÊ vÊV Õ > Ê` ÀÊ V ÃÊv Ü }Ê theft of keys ÃÃÊ vÊ,iÃ ì ÌÃÊ > >}i i ÌÊ «> ÞÊV>Ã °Ê

Most residential buildings insurance policies have a minimum of £1,000 subsidence excess. However the excess for all other damage is usually negotiable. RMC directors should always check that the description of the property insured is accurate and includes cover for the outbuildings, gates, fences and underground pipes and cables that the RMC is responsible for insuring. Also, most policies are index linked to ensure the sums insured remain adequate - do confirm with your insurer that this is the case. In addition to buildings insurance, there are some specialist areas of cover that RMCs should also be aware of:

DIRECTORS AND OFFICERS: TAKE COVER RMC directors or officers can be held personally liable for their actions while working on behalf of leaseholders. Taking out Directors and Officers Liability insurance provides defence costs and/or compensation for civil liability charges relating to any “wrongful act” in connection with RMC matters. Such acts are defined as any actual or alleged: UÊ UÊ UÊ UÊ UÊ UÊ UÊ

Ài>V Ê vÊÌÀÕÃÌÊ Ài>V Ê vÊÜ>ÀÀ> ÌÞÊ i} iVÌÊ ÀÀ ÀÊ " ÃÃ Ê ÃÃÌ>Ìi i ÌÊ Ã i>` }ÊÃÌ>Ìi i ÌÊ

Different policies may contain different definitions so do read the small print. There will also be exceptions to this type of cover – again these will differ but are likely to include: UÊ UÊ UÊ UÊ UÊ

Ã iÃÌÞ]Ê À>Õ`]Ê > V ÕÃÊ `ÕVÌÊ ÀÊ*iÀÃ > Ê*À wÌ°Ê ` ÞÊ ÕÀÞÊ Ì iÀÊÌ > Ê`ivi ViÊV ÃÌÃ®Ê *À «iÀÌÞÊ`> >}iÊ iÃ]Ê«i > Ì iÃÊ> `Ê`> >}iÃÊ * ÕÌ Ê

Some standard policies – for example the one offered to property owners by Aviva - include this type of cover as an extension to their buildings insurance policy. However, if your insurer does not offer this, it is worth finding a reputable company that specialises in Directors and Officers insurance to give you peace of mind that any cover you take out will be adequate for your needs. Gary Green from Angel Underwriting, a leading specialist on Director and Officers insurance offers a cautionary tale, highlighting the problems that can arise where RMC directors do not have this type of cover. Leaseholders of a block of flats successfully brought an action against the residents committee for failing to appoint a building company in a timely fashion to repair external brickwork on the building. Damage had been caused following a heavy rainstorm and reported to the committee, however repair work had not been commenced several months later when a subsequent rainstorm 18

caused further damage. This is the kind of situation that could easily have been avoided had the committee in question put an appropriate insurance policy in place.

GOT A LIFT? YOU NEED ENGINEERING INSURANCE AND INSPECTION Most insurance policies taken out on blocks of flats will cover damage to passenger lifts as a result of an insured peril such as fire, accidental damage and malicious damage. However these policies do not normally extend to damage caused by the breakdown of the passenger lift or to the legal requirement to have lifts regularly inspected. Enter the specialist Engineering Policy, which most of the leading insurers offer. Such policies are designed to help property owners comply with their legal obligations to have their lift inspected by a competent authority - at six monthly intervals. A record of these inspections must be kept and/or a certificate issued.

TERRORISM: COULD YOUR BUILDING BE A TARGET? Do we really know who our neighbours are? Even if you live in the quietest rural area and think your block of flats is never likely to be a target for terrorists, think again. Tempting, isn’t it, when arranging renewal of your residential buildings insurance, to leave out terrorism cover to save a few pounds. After all how could your property possibly be at serious risk of being a target for terrorist attack! Your building may not be a target but individual residents could be threatened - if for example they are employed by a laboratory that uses animals for medical testing purposes. Or you could be living next door to a bomb maker – he or she wouldn’t exactly advertise the fact. A standard buildings insurance policy will not provide cover for a terrorist attack. However unlikely it might appear, if an incident did occur and there was no insurance in place, the RMC directors could be held responsible. Don’t forget that directors have personal responsibility for their decisions and actions within the Residents Management Company. Taking out the appropriate cover is a small price to pay in comparison to risking your personal assets.

GETTING THE BEST FROM YOUR BROKER In the next issue of Flat Living we will be looking at the pros and cons of buying insurance through a broker and offering some tips to help you ensure your quote is as competitive and comprehensive as possible.

Cunningham Lindsey’s MaintenanceLine MaintenanceLine delivers branded out of hours emergency assistance on behalf of managing agents and RMCs for the benefit of lessees/tenants of blocks of flats and other housing developments. By covering all kinds of building and facilities related emergencies it helps mitigate insured losses too. Going beyond conventional buildings insurance and funded emergency assistance, while supporting both. Cunningham Lindsey's management contractor, Oriel, is available to be used for all emergencies or your own contractors can be used if preferred. Oriel is also an option for reactive and planned maintenance. For further information contact Residentsline on:

0800 281235

Please quote reference: Flat Living

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Flat Living call 0845 257 6374

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Disputes

Love thy neighbour? Roger Southam, owner of property management company Chainbow, reveals his personal experience with neighbour disputes and provides practical advice for leaseholders that face this dilemma. on how well drafted they are and what residential regulations have been provided. For example, if a lease prohibits pets or barbecues how much is it worth spending on legal fees or surveyors to pursue the breaches and how can a leaseholder be forced to comply at reasonable cost? Therefore, in some instances the lease terms can be a source for dispute and in these situations the managing agent needs to be firm and fair to ensure even handedness to all or real problems will result.

POTENTIAL DISPUTES

iving in a block of ﬂats comes with responsibility and a need for all to be considerate to each other. Some of the situations we as property managers have seen demonstrate just how differently people live, as well as how much some wish to dictate their neighbours’ lifestyle. This can be from general annoyances right through to fragrant abuse. It is always extremely difficult for the block manager to intervene or get embroiled in neighbour disputes. However, from our perspective this does not mean an agent buries their head in the sand. You only have to watch the occasional TV programme of ‘Neighbours from Hell’ to very quickly see that nothing is ever as it first seems. I remember one show where both neighbours complained about each other; one said that the other caused a lot of noise and the other that his neighbour was OCD on complaining about everything when nothing was wrong. Guess what? There wasn’t a lot of noise at all and the OCD guy was an obsessive complainer! Some say that the proliferation of Buy-to-Let’s have added to the issue on neighbour disputes, as it is felt people on assured shorthold don’t care as much as lease owners. From our experience, this is certainly not the case. It is an even balance between the two. Some owners are irresponsible and some tenants are irresponsible; it is certainly not all one way. Which brings it down to human nature and people either know how to live and let live and co-exist amicably or they don’t.

PEOPLE MEDDLING It would also be fair to say that disputes can arise from people meddling or wanting everything perfect as much as playing music loud. Over the years we have seen extremes where one tenant wanted someone stopped from smoking in a communal garden and talking on his mobile in an annoying voice! We had one resident management company director who wanted the resident of the flat opposite him stopped from hanging shirts in his window (as the lease only allowed curtains) and then went on to complain about the mess in the flat he could see! One would always assume that the lease would be the arbiter of all matters and the foundation to avoid disputes. Well, it really depends 22

So whilst the lease dictates living and environment standards for leaseholders it does not really avoid potential disputes. We have had serious situations where there has been threatening and abusive behaviour or music played loudly all night. The police and the local authorities are there for handling such matters but it is important that the managing agent brokers the situation to try and mitigate the situation and avoid it exacerbating. In doing this it is vital that a clear statement is given from the start to manage expectation and that the person or people affected need to engage with the authorities. The Local Authority noise control departments are normally fairly responsible and handle matters well. It does rely on working with them and not “calling wolf” on the situation.

Flat-Living.co.uk

Disputes

The one thing that can heighten conflict is to ignore matters and hope they go away. They seldom do. Matters normally become exaggerated in the mind of the affected person. If it is an issue for which there is little or no solution such as leaving rubbish outside of a bin store or noise that isn’t as bad as someone thinks then the only answer is to acknowledge and try and convince through effective communication the need to be respectful to all. We once had someone who claimed the lift was too noisy and must have a fault. We had out consultants, lift engineers, independent reports, none of whom found anything wrong. We took these actions because the individual was looking for legal redress and we felt we must cover all options to save a lot of needless legal expense for the rest of the leaseholders. So being proactive is safeguarding potentially large expenses for the majority of homeowners.

work with all and to do what their title suggests – manage. This means letting all leaseholders having access to documents, reports, meeting minutes, contractor quotes, etc. It won’t solve all the problems but it does make it easier for the awkward people to see evenness in dealing, and to try and build, a community.

COURT ACTION

t %PO U JHOPSF UIF TJUVBUJPO o BDLOPXMFEHF UIBU UIFSF JT B problem (no matter how trivial it may appear) and deal with it in a fair manner.

The worst we ever came across was a tenant who habitually brought court action against the Resident Management Company directors while, at the same time, the block’s managing agent with made up charges such as scratching his car, denying him access to amenities, stealing plants and soil but leaving the plant pot! This racked up tens of thousands in pounds in legal fees, needlessly, which the previous agents put through the service charge. The result was all homeowners were paying for a personal dispute. When we took over the development as managing agents we incurred no legal fees and I wouldn’t let anyone else in my office but me deal with him. He was basically a bully and just needed someone to stand up to him and not be intimidated. Why he was like that I have no idea, and care even less, it just needed someone to protect the interests of the majority of homeowners! So sometimes there is nothing you can do but to accept that everyone is different. But generally the best course is for the agent to make sure they have effective communication tools, are there to

Dealing with disputes – a summary: If you find yourself in the difficult position of mediating between warring neighbours, here is a quick guide to dealing with the problem fast and effectively.

t *G UIF 3.$ EJSFDUPST mOE UIFZ DBOOPU EFBM XJUI UIF QSPCMFN themselves by talking to the parties involved and coming to an amicable agreement, the issue should be escalated, not allowed to fester. t *G ZPVS CMPDL IBT B NBOBHJOH BHFOU UIFZ NBZ CF BCMF UP IFMQ deal with the problem as objective neutral parties. However, not all agents are willing to get involved and RMCs may have to fall back on their own good judgement. If all else fails, a professional mediator may be enlisted to help. t %FQFOEJOH PO UIF OBUVSF PG UIF EJTQVUF B TVSWFZPS PS solicitor may be needed to resolve the issue fairly and to the satisfaction of both parties. Bear in mind that this may become costly and that both parties to the dispute must be prepared to accept the outcome as final.

Flat-Living.co.uk

Neighbour disputes

Neighbour disputes Neighbour disputes when they arise can be some of the most acrimonious (and expensive) type of legal proceedings, writes Mark Chick of Bishop & Sewell LLP. Needless to say neighbour disputes are of course best avoided. Sometimes a little planning and preparation before undertaking a course of action (for instance carrying out works, or even having a party or an event) can pay dividends in avoiding future difﬁculties. From the legal point of view disputes often arise out of the following:UÊ 7 À Ã UÊ Ãi UÊ VViÃÃ UÊ *>À }Ê UÊ , } ÌÃÊV Ì> i`Ê ÀÊ ÌÊV Ì> i`Ê ÊÌ Ì iÊ` VÕ i ÌÃÊ such as leases) UÊ ,iÃÌÀ VÌ ÛiÊV Ûi > ÌÃ UÊ ¼ Õ Ã> Vi½ÊqÊiÃÃi Ì > ÞÊÃ iÌ }Ê Ê iÊ«iÀÃ ½ÃÊ«À «iÀÌÞÊ Ê V>ÕÃ }Ê>Ê i}> Ê¼ Õ Ã> Vi½ÊÜ V Ê >ÃÊ>ÊÛ>À iÌÞÊ vÊ i}> Ê meanings) to other property Sometimes with careful legal preparation these problems can be avoided. For instance, if there appear to be legal problems with rights concerning the property the first port of call must be the title documents to ascertain what the position is. If the position is unclear then sometimes an application for a declaration as to the extent

of the relevant rights from the court may be a more cost effective solution than waiting for problems to arise and then dealing with these over time, in a way that ultimately leads to proceedings. Similarly, with leasehold properties lots of the problems that arise in practice could be avoided by a careful reading of the lease itself and making applications for permissions early on, or by investigating fully the extent of the available rights. Even with freehold properties there can be restrictive covenants on the title, which may prevent certain types of activity or development. Investigating the enforceability of these first can save certain headaches later on. After all no-one wants to demolish or reduce the size of an extension or addition to their property after it has been built. The above of course says nothing of breaches of the myriad statutory constraints applicable to works e.g. planning permissions, building regulations consents, noise control, electrical and gas safety, listed buildings and conservation areas. Of course sometimes disputes cannot be avoided and in ‘emergency’ cases e.g. unauthorised works or persistent breaches of the legal rights that you are entitled to as a property owner forceful measures (such as injunctions) may be required. Likewise a proportionate but firm response to any actions, which are causing problems will usually pay dividends in the longer term, particularly where the costs of proceedings themselves will later be an issue. Similarly, if mediation (or sometimes a free dispute resolution process) is appropriate this too needs to be considered.

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ARMA

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ARMA

Why does a building need to be managed at all? A building will not manage itself, and there is much to be done if the leaseholders are to receive the services promised in the leases and the building kept in good repair; insurance needs to be put in place and renewed on time; bills need to be paid and services maintained; local authority and legal requirements must be met. The leaseholders’ capital investment in their flats must be maintained and their individual rights of enjoyment of the flats ensured.

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o matter who manages the building, there are certain tasks to be carried out; there is little variation in these whether the building is a house converted into a few ﬂats or a substantial purpose-built block or estate. Careful forward planning is necessary in terms of major works of repair, both in the specification and pricing of the work and, perhaps more important, in the financial provision for them. The terms of the leases providing for collection of service charges may not necessarily be compatible with the immediate funding needs of the management company or the building. Accurate planning and collection demands an assessment of the needs for the year ahead, some months in advance of that year’s beginning, when shortages of money for urgent works can be serious. Whoever is responsible for the management of the building – whether it is the actual landlord or the leaseholders in the form of a resident management company or Right to Manage company acting in the landlord’s place – will have significant duties and responsibilities under the lease and under legislation. It is essential that the manager fully understands and appreciates these responsibilities if the residents are to receive the services due to them and the building is to be maintained. These responsibilities arise in three areas: covenants in the lease, statutory requirements and codes of management practice.

COVENANTS IN THE LEASE The lease sets out both the relationship between the landlord and the individual leaseholder and the rules and obligations to be observed. The leaseholders participating in the management company may agree mutually convenient arrangements between themselves for the collection of service charge monies, rent and timetables for repairs and maintenance. However, if these arrangements are in any way contrary to the lease, they cannot be imposed or otherwise relied upon if a single leaseholder objects; in a dispute, the specific requirements of the lease must prevail, no matter how much more convenient the management company’s arrangements might be. It is most important, therefore, to ensure that the management company fully understands the terms of the lease and makes no irreversible decision that might be inconsistent with the lease; this may lead to loss to the company or action against it or against individual directors. Those leaseholders in a position to make decisions for the company must appreciate these restrictions, both in their fiduciary duty to the company as directors, and to the individual leaseholders as the landlord. continued on page 31 27

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ARMA

PROPERTY MANAGEMENT

Residential Block Managers throughout North West London since 1970 enquiries@wilson-hawkins.co.uk www.wilson-hawkins.co.uk 33-35 High Street, Harrow on the Hill HA1 3HT

020 8422 3333

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ARMA

KEY: Area 5: North Thames Area 6: South Thames Area 7: South West

5 7

LANDLORD’S COVENANTS OFTEN INCLUDE: UÊ UÊ UÊ

UÊ

ÃÕÀ> ViÊqÊ LÌ> }Ê> `Ê>ÀÀ> } }ÊÌ iÊ ÃÕÀ> ViÊ>ÌÊÌ iÊLÕ ` }° ,i«> ÀÃ]Ê > Ìi > ViÊ> `Ê > ÀÊÜ À ÃÊqÊÕ« ii«Ê vÊÌ iÊÃÌÀÕVÌÕÀiÊ of the building, to maintain it in a proper condition for the residents. *À Û Ã Ê vÊÃiÀÛ ViÃÊqÊ i>Ì }]Ê } Ì }Ê ÊV Ê>Ài>Ã]ÊV i> }]Ê grounds maintenance etc; caretaker, scheme manager or porterage services. Particular care needs to be exercised in the employment of staff who will have statutory employment rights. v ÀVi i ÌÊ vÊÌi > ÌÃ½ÊV Ûi > ÌÃÊqÊÀi}Õ >Ì Ê vÊÌ iÊÕÃiÊ vÊÌ iÊ flats, application of covenants against sub-letting, business use etc, enforcement of lessees’ rights of quiet enjoyment (peaceable occupation) in the event of disturbance by other residents.

Each lease will set out the particular covenants applying. Leases are often complex in form and language, and not readily accessible to the lay person. There is no general standard model lease and leaseholders looking to manage their own buildings should seek advice to ensure a full understanding and application of the landlord’s covenants. Breach of the landlord’s covenants can lead to legal action by the lessees against the defaulting landlord.

STATUTORY REQUIREMENTS The company will need to be fully aware of the requirements of the Landlord and Tenant Act 1985 (as amended by the Commonhold and Leasehold Reform Act 2002) upon the manager relating to information to be provided to flat-owners, reasonableness of costs and formal consultation procedures and be able to put them into practice. Even where there appears to be a general consensus of support by the flatowners to the company’s proposals, say in a vote at a meeting, this will not remove the obligation for compliance with the statutory procedures. PROVISION OF INFORMATION TO THE LESSEES – under the Landlord and Tenant Acts 1985 and 1987 (as amended) the landlord must, on the lessee’s request, provide summaries of service charge costs and details of the insurance arrangements, and make available for the lessees’ inspection all relevant invoices, documents etc, including the insurance policy. Departure from these duties of information can render the landlord liable to litigation and even to criminal prosecution. Under further amendments made by the Commonhold and Leasehold Reform Act 2002, (but not yet commenced, see page 32 for the latest update) the RMC will be required to issue summaries of service charges to all leaseholders on a yearly basis, whether requested or not. In case of failure to provide the summary, the leaseholder has a statutory right to withhold payment of the service charge. If the RMC is unable to comply with this requirement, it will thereby endanger the future service charge income. As from 1st October 2007, all demands for service charges must be accompanied by a prescribed summary of leaseholders’ rights. The demand will not be valid without the statement and, again, the leaseholder will legally be able to withhold the payment. 4HIS PROVISION ALSO APPLIES TO ADMINISTRATION CHARGES CONSULTATION ON PROPOSED SERVICE CHARGE EXPENDITURE – the landlord or management company must formally consult the lessees where the landlord, or the company, proposes to carry out works resulting in a charge to any flat of more than £250, or to let a contract for a term of more than 12 months which will cost any flatowner more than £100 a year. The consultation is a formal process, set in legislation, and the landlord must generally invite comment and observations on the proposals from the lessees and give reasons for the final decision made. Failure to comply with the process can result in the landlord being unable to collect any more than the statutory amounts, whatever the actual cost of the works or the contract. 3%26)#% #(!2'% -/.)%3 4/ "% (%,$ /. 42534 – all money collected from the leaseholders in respect of any service charge are

required by law to be held as a trust; provisions of the 2002 Act will require these funds to be held in designated accounts to which the leaseholders have full rights of information and inspection. It is most important that service charge funds are kept separate from money belonging to or chargeable to the RMC as a company; the costs arising from running the company may not be deducted from service charge monies unless expressly provided for in the lease. DEMANDS FOR RENT – whatever the terms of the lease, the ground rent is not recoverable unless properly demanded, in the prescribed manner. The RMC will have to make satisfactory arrangements for the issue of these demands if the rental income stream is not to be affected. REASONABLENESS OF SERVICE CHARGES – any service charges levied by the landlord must be reasonable, in terms of both cost and standards. Collection of the charges is not legally enforceable in the event of either being found not to be reasonable by a court or tribunal. Inability to collect service charges in respect of works done or services provided under contract can have disastrous consequences for resident management and Right to Manage companies operating without substantial cash reserves. HEALTH AND SAFETY – the landlord has responsibilities in complying with a very wide range of Health and Safety requirements, with serious consequences if they are neglected. The common parts of the building become a place of work for purposes of H&S regulation when there is a workman on the premises and this introduces compliance requirements well beyond the landlord’s contractual responsibilities under the lease. There will be a need to maintain an asbestos register, to carry out inspections and testing of electrical equipment and other machinery in the building and to provide H & S information to contractors. This is an area requiring specialist input. Statutory requirements go beyond the issues highlighted above and are likely to include the environment, Disability Discrimination and many more. 4HE INFORMATION CONTAINED IN THIS ARTICLE HAS BEEN TAKEN FROM THE BOOKLET c!PPOINTING A -ANAGING !GENTd PRODUCED JOINTLY BY 4HE !SSOCIATION OF 2ESIDENTIAL -ANAGING !GENTS !2-! 4HE !SSOCIATION OF 2ETIREMENT (OUSING -ANAGERS !2(- AND ,%!3% THE ,EASEHOLD !DVISORY 3ERVICE &OR MORE INFORMATION ON APPOINTING A MANAGING AGENT VISIT WWW ARMA ORG UK

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Expert comment

What is a management fee? Brett Williams, chairman of the Association of Residential Managing Agents (ARMA), and Partner at Curry & Partners in Birmingham, provides insight and clarification on an often contentious issue. “I personally pay the managing agent of the block of leasehold flats where I live a £1,800 management fee each year – isn’t this excessive? What do they do for such a fee?” This is a genuine question that was put to us at ARMA and we receive many like it each year. The initial answer is that the £1,800 is not the management fee. It is the service charge which lessees are committed to pay under the terms of the lease they have entered into when they bought the flat. This charge will often include insurance, lighting, cleaning and repairing of common parts, maybe gardening, the cost of estate staff as well as a possible contribution to a reserve fund. The charge will also include, where the lease permits, a management fee for the agent, which will only be a fraction of the total service charge and will usually include VAT. Even with this clear in their minds, many lessees still question the management fee and how it is arrived at, often because they are not party to the contract that employs the managing agent. People often fail to realize that the management fee is the managing agent’s only source of income. Without the fee, there is no other way that they could pay for the offices, salaries and training of staff they rely on to operate and deliver the services it promises.

BEAR IN MIND Lessees now and again approach us for guidance on what is an average or reasonable fee and in reality we cannot answer them. 32

Firstly, because as a trade body we wish to see open market forces on fees not a ‘going rate’. Secondly, every block of ﬂats is different in terms of size, age, estate staff, mechanical installations etc. and every managing agent will operate in a slightly different way providing varied service levels. But lessees should bear in mind that, say, a £175 p.a. per ﬂat management fee equates to about 50 pence a day to have most elements of their ‘home management’ dealt with – I am not sure you could get anywhere near such a deal if this related to the management of a freehold house! At the same time, many lessees will have seen their management fees increase over the last few years. This is because our sector is hit with direct and fringe legislation, which affects the way we have to manage buildings. So I have a word of warning for lessees – ‘beware of cut price management fees’. Yes, look at the cost but also look to see if the managing agent can deliver the service that you want at that fee. In fact cost should not be the issue, it is whether the fees offer value for money. Because the confusion over how management fees are arrived at and what they consist of is all too common, ARMA has published a Lessee Advisory Note, Management Fees, which you can read on the next page and also download from www.arma.org.uk. This explains the requirements of the recognised Codes of Practice, what fees might be payable over and above the annual day-to-day management of a property, and the need for transparency on such matters as commissions.

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ARMA

ARMA LESSEE ADVISORY NOTE: LAN 13 Management Fees Note:- One of ARMA’s key roles is to provide its members with technical support. However, from time to time, technical or other issues arise where guidance for lessees as well as their property manager is deemed appropriate. Such guidance is contained in these Lessee Advisory Notes (LANs) which ARMA members can copy and distribute to their clients and lessees as appropriate.

SUMMARY UÊ

UÊ

, Ê>ÃÊ>ÊÌÀ>`iÊ À}> Ã>Ì Êv ÀÊ>}i ÌÃÊ` iÃÊ ÌÊÃiÌÊ> ÞÊ fee levels for its members or give any advice on what are market levels for fees. / iÀiÊ ÃÊ Ê À Ê ÀÊÃÌ> `>À`Ê > >}i i ÌÊviiÊv ÀÊ > >} }Ê a block of flats. The fee will depend upon the size and type of property and the precise range and quality of services required. , Ê ÃÊ ÜiÛiÀÊV ViÀ i`ÊÌ >ÌÊ ÌÃÊ i LiÀÃÊ>VÌÊiÌ V> ÞÊ when negotiating with and charging fees to landlords including resident management companies (RMCo) or right to manage companies (RTMCo). 7iÊV> ÊÌ iÊ > ` À`Ê ÀÊ, É,/ ÊÌ iÊV i Ì°Ê- ÊÜiÊ >ÛiÊ set out here what we believe is good practice for agents about management fees with their clients.

THE LISTS OF SERVICES/DUTIES OF AGENTS ARMA has adopted a similar approach to the RICS code in its model management agreement for agents and their clients. The agreement requires the agent to agree two lists of services/duties with a client: one list will be done for the standard management fee and one will be charged additional fees if carried out. It also requires the agent to declare commissions. Further in practice the standard fee will normally be stated as an annual fee for the whole development in total; not per unit. The per unit figure can be easily calculated and be used to make comparisons between agents. The management agreement should also be clear on whether the agent has the right to deduct its fees on certain dates from client monies held or whether fees can only be deducted with the express approval of the client, and when and how fees will be reviewed.

MANAGING AGENTS AND MANAGEMENT FEES

FEES AS A PERCENTAGE OF COSTS

The management fees paid as one part of a leaseholder’s service charge are the lifeblood of firms of managing agents. Those fees pay for the offices, salaries, national insurance, pensions and training of staff; and the computers, telephones, post, stationery and other things that agents have to provide. Without management fees there would be no managing agents. The rest of the service charge is used to pay for the services, repairs and insurances required.

With regard to the use of percentages as a basis for fees, both ARMA and the RICS believe this is poor practice because they establish an immediate conﬂict of interest between the client and agent. However, there are leases which require the use of percentages and the landlord will have to charge in this way and so agents may have to follow.

THE CODE OF PRACTICE RE MANAGEMENT FEES

By referring to fees as per unit of accommodation we are referring to an average basic fee per unit on the property. So if the fee were £6000 for 30 units the average would be £200. This does not of course mean that that is how this average fee will be charged to lessees. The apportionment of service charge costs including the fees will be determined by the lease.

ARMA members agree to abide by the RICS Service Charge Residential Management Code (2nd Edition, effective from 6 April 09) which states as follows: • “Managing agents and their clients should enter into written management contracts. The basis of fee charging and duties should be contained in the agreement.” • “Your charges should be appropriate to the task involved and be pre-agreed with the client whenever possible. Where there is a service charge, standard annual fees are usually quoted as a ﬁxed fee rather than as a percentage of outgoings or income. This method is considered to be preferable so that tenants can budget for their annual expenditure. However, where the lease speciﬁes a different form of charging, the method in the lease will be used by managing agents.” • “The managing agent should give, consistent with the terms of the contract with the client, reasonable and adequate notice of any increases in charges.” • “ If the managing agents’ charges are agreed to be subject to indexation, the index to which they are linked should be agreed in advance in writing.” The RICS code sets out the duties or services that would normally be covered by the standard annual fee of the agent, what is usually referred to as the management fee. It also suggests a list of other duties and services provided by agents that would normally be charged for outside of the standard annual fee. Such extra services and the fees to be charged or the basis for charging should also be made clear as part of the management agreement.

FEES AND AN AVERAGE PER UNIT

MAJOR WORKS, LONG TERM AGREEMENTS AND FEES It is normal practice that additional fees to the standard fee will be charged for the handling of major works and long term agreements, including the sending of the required consultation notices under section 20 of the Landlord and Tenant Act 1985.

COMMISSIONS The RICS code states that “insurance commissions and all other sources of income to the managing agent arising out of the management should be declared to the client and to tenants.” The RICS code does not say when the declaration should be made but ARMA is clear that this should also be part of the management agreement and be declared before the contract is entered into by the client and the agent. ARMA’s stance on commissions is that transparency and openness are required by agents as follows: “If an agent receives commission directly or such commission is paid to any other member of the same group of companies as a result of undertaking the management, then ARMA requires that it its declared to the client, whether an investor landlord or residents management company. If a lessee or residents association makes a written request then an agent should declare any commission receivable.” 33

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ARMA

HANDOVER OF SCHEMES AND FEES ARMA encourages competition between agents and competitive levels of fees are part of normal business activity. If an agent is to take handover of a scheme previously managed by another agent we believe that caution should be exercised. In particular, the prospective agent needs to be aware if there are any disputes over unpaid fees and whether documents and funds available for continuing management are available. The prospective agent should ask the client to give access to the previous agent before handover with the ability to gather enough information to ascertain whether the fees proposed are sufficient for the problems that may be handed on from the previous agent. ARMA also believes that agents should consider a one-off charge for work involved with the handover of management and the taking on and setting-up management by a new agent. It is ethically wrong for an agent to undercut a previous price if it knows that it cannot then devote the staff and other resources required to deliver the services promised at the price proposed.

DISPUTES ABOUT MANAGEMENT FEES A client is quite entitled to dispute the fees charged by an agent even though the fees billed are as set out in the management agreement. If a client does dispute the fees charged then agents should furnish with the fee account or on request without further charge such details and evidence required to allow the client to understand the basis for the charges and the level of service provided. If an agent claims fees that are not in accordance with the management agreement or estimate provided in advance then the agent should provide, at the time of billing, a full and detailed explanation of the reasons for the difference.

THE LAW AND MANAGEMENT FEES Any management fee charged by a landlord under a long residential lease is subject to the Landlord and Tenant Act 1985 deﬁnition of service charges (S19). So that fee can be challenged by any lessee as to its reasonableness and payabilty (S27A) before a Leasehold Valuation Tribunal.

ADMINISTRATION CHARGES Many items which lessees may regard as management fees are not such as deﬁned in Landlord and Tenant law. Only the standard fee for the provision of services and fees for major works and long term agreements will fall within the deﬁnition of management fee used by Leasehold Valuation Tribunals. Other fees such as those for alterations, subletting, registration of assignments and deeds of covenants are classed as administration charges and can be challenged as to their reasonableness and payability at LVTs. These fees will normally be agreed with the client as part of the management agreement. Association of Residential Managing Agents Limited (ARMA) 178 Battersea Park Road, London SW11 4ND Tel: 020 7978 2607 Fax: 020 7498 6153 Email: info@arma.org.uk Website: www.arma.org.uk 7HILST EVERY EFFORT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION CONTAINED IN THIS ,ESSEE !DVISORY .OTE IT MUST BE EMPHASISED THAT BECAUSE THE !SSOCIATION HAS NO CONTROL OVER THE PRECISE CIRCUMSTANCES IN WHICH IT WILL BE USED THE !SSOCIATION ITS OFFICERS EMPLOYEES AND MEMBERS CAN ACCEPT NO LIABILITY ARISING OUT OF ITS USE WHETHER BY MEMBERS OF THE !SSOCIATION OR OTHERWISE 4HE ,ESSEE !DVISORY .OTE IS OF A GENERAL NATURE ONLY AND MAKES NO ATTEMPT TO STATE OR CONFORM TO LEGAL REQUIREMENTS COMPLIANCE WITH THESE MUST BE THE INDIVIDUAL USERdS OWN RESPONSIBILITY AND THEREFORE IT MAY BE APPROPRIATE TO SEEK INDEPENDENT ADVICE

ARMA Lesse Advisory Notes also available from www.flat-living.co.uk and www.arma.org.uk 34

services for managing agents, freeholders, developers and RMCs

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Service charges

Your at-a-glance guide to service charges Leaseholders living in residential blocks are under an obligation to pay an annual service charge to their landlord to cover the cost of providing services and maintaining the common parts of the building they occupy, writes Lesley Davies. Residents commit to pay a proportion of these running costs, which will vary depending on your lease terms and the level of service and maintenance provided.

The lease will probably also contain a ‘sweeping clause’. This is designed to cover any services not specified in the lease. If the lease doesn’t have one of these, residents are only legally obliged to pay for the services that are listed.

entitled to add a reasonable management fee to the charge but should not make a profit. If the lease doesn’t provide enough information about service charges for residents to determine whether or not they are paying a fair rate, they are entitled to a breakdown of costs to check whether they are acceptable. Landlords are legally obliged to allow residents to inspect and take copies of accounts, receipts and other relevant documents. If this information isn’t forthcoming or leaseholders feel they have been unfairly treated, they should take professional advice from a chartered surveyor who specialises in residential leasehold property, or from a housing lawyer.

HOW MUCH IS THE RIGHT AMOUNT?

WHAT IS A SINKING FUND?

The amount leaseholders pay in service charges can vary from year to year and will undoubtedly rise with inflation. Landlords are

Leaseholders only have to contribute to a sinking or reserve fund if this is stated in the lease. However, having one in place

UÊ Ü >ÌÊÃiÀÛ ViÃÊ ÕÃÌÊLiÊ«> `Ê for and when; UÊ ÜÊÃiÀÛ ViÊV >À}iÃÊ>ÀiÊ apportioned between residents; UÊ Ì iÊÜ>ÞÊ ÊÜ V ÊÌ iÞÊ>ÀiÊ calculated; UÊ ÜÊÌ iÊ > ` À`ÊÜ ÊV iVÌÊ the charges; and UÊ Ü iÌ iÀÊ ÀÊ ÌÊÌ iÀiÊ ÃÊ>Ê sinking fund in place.

WHAT DOES THE SERVICE CHARGE COVER? Service charges differ from lease to lease, depending on the size and quality of the building in question. A typical service charge might cover any or all of the following:

UÊ i iÀ> ÊÀi«> ÀÃÊ> `Ê maintenance UÊ i> }Ê vÊV Õ > Ê>Ài>ÃÊ and windows UÊ ÝÌiÀ > Ê > Ìi > ViÊÃÕV Ê as grass-cutting and gardening UÊ ,i`iV À>Ì ÊvÕ ` UÊ vÌÊ > Ìi > ViÊ> `Ê insurance (even if you live on the ground floor) UÊ ÀiÊ µÕ « i ÌÊ > Ìi > Vi UÊ Õ ` }ÃÉ«À «iÀÌÞÊ Ü iÀÃÊ insurance - although this may be paid separately UÊ > Ê> `Ê>VV Õ Ì> VÞÊ charges UÊ > >}i i ÌÊviiÃ UÊ - }Ê ÀÊÀiÃiÀÛiÊvÕ `Ê Details of what is in included in the service charge are included in the lease. This will give details of:

Flat-Living.co.uk can be of positive benefit to both landlords and residents as it should ultimately save either party having to find large sums of money at short notice for major items of repair. As buildings age, more maintenance will inevitably be needed. For example, in ten years’ time a new roof, downpipes or heating system may be required. The benefit of a sinking fund is that each resident contributes a set amount of money each year to this fund via their service charge, which then covers the cost of major repairs when they are needed. However, as Shelter points out on its website (www.shelter.org. uk) if leaseholders sell their home before the money has been spent on repairs, the landlord is under no obligation to refund the monies. If you don’t already have a sinking fund for your building and want to set one up, a formal agreement must be established between the landlord and all the other leaseholders.

CHALLENGING CHARGES If leaseholders are unhappy with the cost of their service charge or believe they are getting little in return, they are entitled to write to their landlord/freeholder and try to negotiate a lower charge or improved service. If this does not produce results, the next step is to go to a Leasehold Valuation

Tribunal (LVT), which comprises three members including a legally qualified chairperson and has the power to decide whether or not the services the landlord is charging is a reasonable rate for the service delivered. It is not advisable for residents to withhold their service charge because if it is not paid they could end up in court or - in extreme cases – be threatened with eviction.

THE LEGAL FRAMEWORK Under the Commonhold and Leasehold Reform Act 2002,

Service charges

landlords are obliged to provide tenants with detailed information including: UÊ Õ> Ê>VV Õ ÌÃÊÃiÌÌ }Ê ÕÌÊ details of service charges incurred UÊ ÊÃÕ >ÀÞÊ vÊÌi > ÌÃ½ÊÀ } ÌÃ and obligations in relation to service charges UÊ ÊV «ÞÊ vÊÌ iÊ« VÞÊ vÊ insurance for the building

also consult with tenants if expensive work is needed and the landlord wishes to:

In some circumstances the tenant may withhold payment until the landlord complies with these requirements. (source: The Service Charge Company) Under the Act, Landlords must

If the landlord doesn’t meet his obligations under the Act, the tenant will not have to pay more than either £250 or £100, unless the LVT rules that he has to.

UÊ >ÀÀÞÊ ÕÌÊLÕ ` }ÊÜ À ÃÊ costing more than £250 per tenant per year; or UÊ -Õ«« Þ }Ê> ÞÊV Õ > Ê service (such as gardening/ cleaning) which will cost more than £100 per tenant per year

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Expert comment

When things go wrong with service charges… John Mills, a technical consultant to ARMA, looks at some typical situations where things can go wrong for directors of resident management companies (hereafter RMCos) illustrated with cases that went to the Leasehold Valuation Tribunal.

irectors of RMCos are in the position of having to wear two hats at the same time. They are directors of a limited company and so responsible to the shareholders; and responsible for the management of a block of ﬂats and so have to comply with the leases granted to the lessees and landlord and tenant legislation. These two roles often cause confusion for directors and can lead to costly mistakes. This article looks at some typical situations where things can go wrong illustrated with cases that went to the Leasehold Valuation Tribunal. When the lessees of a small block of seven flats in Huntingdon took on self-management of their small block in 1990 it was admitted at the tribunal that ”nobody looked at any leases which were mostly held by banks. Although nobody seems to recall precisely how this came about,

the decision was taken to apportion charges equally between flats”. Things went well for many years; the lessees met at their AGM and decided the budget for service charges at their AGM. But when major expenditure was needed for repairs one of the lessees, who was not one of the lessees when the company was formed, got his solicitor to check his lease. He found that his lease only required him to pay a 9.5% share of service costs, not one seventh. He took his case to the tribunal.

PAYMENTS ADJUSTED The tribunal decided that the RMCo had no right to go against the leases and that the lessee was entitled to have his service charge payments adjusted to the correct percentage of costs; and that he

Flat-Living.co.uk was entitled to backdated adjustment for the last 10 years that he had been in residence. The moral is that no decision of the directors of a company or its shareholders can overturn the requirements of the leases. Things also go wrong with annual statements of account for service charges. This RMCo had brought a case to recover arrears. The lessee paid minimal interim service charges but had not paid any balancing deficits due for four years. The lease was quite specific about what was required for the annual service charge statement; one requirement was for certification as a fair summary by an accountant. The RMCo had agreed that to save costs certified accounts were not necessary. The LVT found the actual service charges were reasonable but that the RMCo could not recover the shortfalls due because it had failed to follow the terms of the leases; no certification, no total of interim service charges, no indication of a positive or negative balance. So the LVT decided that there were no arrears owing until the annual service charge statements for those years had been correctly issued. The moral is that to satisfactorily demand service charges at a tribunal or court an RMCo has to show that it has produced annual statements of account for service charges in accordance with the leases. In this next case an RMCo thought that producing annual accounts for the company audited by an independent auditor should suffice for the purposes of service charges. The leases of this block in London provided for an annual payment in advance of £100 but at the end of each financial year any deficit could be demanded from leaseholders as a one-off payment by the RMCo serving a statement certified by a surveyor. Further it was possible to increase or decrease the £100 in advance if the new figure was also certified by a surveyor. The RMCo of this block of 10 flats had never issued any surveyor’s certificates. Each year the service charge to be levied had been agreed by a resolution at a company meeting after looking at the company’s annual accounts.

VIGOROUSLY PURSUED One lessee challenged the service charges demanded over a fiveyear period. Her claim was that no more than £100 per annum was payable. This was despite the facts that the lessee was a previous chair of the RMCo, had paid more than £100 per annum when she was the chair, and she had vigorously pursued other lessees for the service charges demanded by the RMCo when she was chair. A leasehold valuation tribunal had some sympathy with the RMCo and decided that the lessee and ex-chair of the RMCo should not be able to overturn what had happened because her actions had shown she agreed with what had been done. The lessee appealed to the Lands Tribunal and it decided that the terms of the lease were paramount. So the service charge payable for each of the five years in question was £100. The lessee then went on to argue that the RMCo was not in a position to retrospectively issue any surveyor’s certificates and so demand higher sums. The Lands Tribunal decided that this was possible; there was nothing in the leases that set a time limit on how long after each financial year the RMCo could issue the statement with a surveyor’s certificate. However if the RMCo did decide to do this one assumes that the 18-month’s rule would come into play; it would also be difficult to find a surveyor to certify accounts from several years ago. The moral of this case is that just because an RMCo produces independently audited accounts of the company for Companies House, which include income and expenditure for service charges, does NOT mean that is sufficient to correctly demand service charges. The RMCo needs to comply with what the leases require for an annual statement of account for service charges. There is a clear difference between a service charge statement and a company statement of account;

Expert comment

most leases do not require that a set of accounts in the format for Companies House is what is required for service charges.

CHALLENGED BY LESSEES And what of expenditure on major works and the requirements to consult under Landlord and Tenant Law-S20 consultation? Reddings Court Management Company in Birmingham was challenged by lessees about major works to install security lighting. The RMCo’s evidence was that the matter had been agreed at a shareholder’s meeting. The LVT decided that this was not a good reason to fail to do what the law required and so the cost of works was limited to £250 per leaseholder. The moral is that decisions taken by directors or shareholders of an RMCo, even if unanimous, cannot override Landlord and Tenant Legislation. In summary as one tribunal put the matter so well (with the exception of the use of tenant for lessee): “The Tribunal would draw the attention of the parties to the importance of a clear distinction being made between the operation of the leases and the role of tenants as tenants on the one hand, and the operation of the Management Company and the role of the tenants as shareholders on the other. The Tribunal is only concerned with the operation of the lease and therefore resolutions and minutes of the Company carry little if any weight.” Cases quoted can be viewed on the website www.rpts.gov.uk t #MJTT .JMM $IJQQJOH /PSUPO $". 6' -4$ t 3VTTFMM 3PBE .PTFMFZ #JSNJOHIBN #*3 00$) -4$ t "QTMFZ $PVSU "ZMFTCVSZ $". 6# And website www.landstribunal.gov.uk t #IBNCBSJ W 8JMMPX $PVSU .BOBHFNFOU -39 t 'PS B CFUUFS VOEFSTUBOEJOH PG UIF WBSJPVT SFMBUJPOTIJQT between lessees and RMCos go to www.arma.org.uk and download ‘GN12: Lessees and Residents’ Management Companies’.

MANAGEMENT PROBLEM? • Service charge and management disputes

• Unresolved and repetitive repair problems

• No effective procedures for collecting service charge arrears

• On-going rows between those who will not pay and everyone else

• Rebel lessees

• Accounting information out of date or just plain wrong

• Major works project under-funded or out of control • Problems with sub-lettings and unauthorised alterations

• Repetitive or dodgy insurance claims, high premiums and loaded excesses • Failure to achieve a co-operative approach to managing the block.

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Safety signs

What Safety Signs does our block need? For any Residents Management Company (RMC) that employs staff, for example cleaners etc the installation of safety signs is part of their legal responsibility to ensure their employees’ and the general public’s

health, safety and welfare at work. The health and safety law states that an employer must make the workplace safe and without risks. Safety signs are required to alert people to the hazards

around them and to show safe working procedures. There are a number of styles of safety signs. The use of a certain type depends on the message that the sign carries.

Green Signs can either tell people the location of certain safety equipment, like first aid equipment, where fire exits are located.

Red Signs are used solely to show the location of fire extinguishers and other fire safety equipment.

Blue Circles give orders: you need to do whatever is written on the sign. In flats a prime example would be a fire action notice.

Red Circles with a diagonal line through show that you cannot do whatever is shown on the sign. For example, No smoking signs.

Yellow Triangles are used to make people aware of something that is dangerous, for example asbestos.

Many places of work now require health and safety signs by law. Signs are used to ensure that they are “multi-lingual” so whatever the language of your ﬂat owner, employee or visitor they can be quickly understood.

Blue mandatory signs are required for doors that need to be kept shut for fire safety reasons, for example, fire doors.

Various Fire Safety Signs are available to purchase from www.flat-living.co.uk. To see a list of the signs available please see www.flat-living.co.uk/products/fire_safety_equipment.htm

Flat-Living.co.uk

End note

The cost of conservation By Bruce Maunder Taylor

ecently, I received one of those questionnaires from a University student doing his dissertation on energy conservation in buildings. Are buyers and residents aware of the need? To what extent do costs and potential savings inﬂuence them? Do they review their standards periodically? Do they actually do anything about it? I mentioned it to one of my local estate agents who made an unfortunate remark about the usefulness of Energy Performance Certiﬁcates and the paper they are written on. Many blocks of flats have installed energysaving light bulbs. Why? To save energy costs? To reduce the frequency of bulb replacements? To increase security by having the lights on longer without increasing the cost? To help to protect the environment and reduce the carbon footprint? The reasons are mixed; the answer is ‘it depends’.

CAPITAL COST When the un-insulated flat roof of a block of flats has to be renewed and the surveyor recommends high quality insulation, how often is a calculation made showing the additional capital cost compared with the annual savings? One of the hidden problems is the tendency Ì Ê ÃÌ> Ê` ÕL iÊ} >â }Ê" ÊqÊÜ Ì ÊÌÀ V iÊÛi ÌÃ®]Ê draught proofing to doors and other openings, and then complain to the managing agent that there is a water penetration problem that is ruining all the new decorations. The managing agents (or their surveyor or builder) report that

it is condensation. The lessee (or their tenant) denies it and an unnecessary dispute arises. Air, at a particular temperature, can hold a corresponding amount of humidity or moisture. If the temperature rises, the humidity can also rise. If the temperature reduces, then humidity levels will fall and excess humidity must condense. In outside conditions, condensation results in dew or frost. In inside conditions, condensation will affect both the coolest surfaces and where there is least air circulation. Typically, this will be on windows, on un-insulated ceilings, and behind cupboards placed close to outside walls, etc. Sometimes, a flat occupier comes home from work, turns up the heating, cooks, breathes, has a bath or shower and generally promotes warm, moist air. The occupier then goes to bed, gets up in the morning, boils the kettle, turns the heating down, checks the windows are securely shut to avoid burglary risks, and goes to work. Condensation, possibly severe, can result.

feeling groggy and tired in the morning, have persistent coughs and/or sore throats, and an increased risk of asthmatic-type problems. It is important to be able to reliably tell the difference between condensation and penetrating dampness. If it is condensation, it is important that the occupier adequately ventilates the flat with the ideal standard being three air changes per hour. That may not be energy efficient in the most stringent sense of that phrase, but that has to be balanced against the health of the occupiers of the flat.

EXCESS HUMIDITY The problems with condensation are not limited to excess humidity. A tell-tale sign of condensation is the appearance of spots of black mould on wall, ceiling and other surfaces. Mould reproduces by releasing spores into the air, which then settle on other damp surfaces to grow new mould spots. Humid air carries a larger amount of bacteria and viruses than dry air. Lack of ventilation means lower oxygen levels. The conditions that are ideal for condensation are the same conditions, which will cause the occupiers to wake up 45

Flat-Living.co.uk

End note

Adding fuel to the fire The Federation of Private Residents Associations (FPRA) has responded to the Fuel Poverty inquiry by calling on the next Government to prioritise leasehold flats, which make up some the most fuel poor households in the Country.

he FPRA has joined forces with a major coalition of antipoverty, energy, environmental and health campaigning organisations that have produced a charter of measures needed to eradicate the scandal of fuel poverty. It is calling on the next UK Government to commit to making all fuel-poor homes as energy efﬁcient as a home built today. The Federation is warning that although the Government has taken some welcome steps, targets to end fuel poverty in England by 2016 will be impossible to meet unless there are changes made to the current leasehold system to address blocks of flats many of which are not connected to the mains gas grid. Federation Chairman Bob Smytherman said: “It should be a right, not a privilege, for everybody to have a warm, dry home that they can afford to heat, including leaseholder flat owners. The main political parties have all exchanged rhetoric on the importance of ending fuel poverty but what we need now is concerted action. Any political party serious about ending the hardship millions of fuel-poor households are facing must commit to make existing fuel-poor flats as energy efficient as those flats that are built today.”

HARD TO REACH “The Federation is worried about the confusing and uncoordinated range of energy efficiency measures and their lack of measurable energy efficiency targets for ‘hard to reach’ properties like leasehold flats. Unless an improved national energy efficiency scheme is introduced to include leasehold flats, many more vulnerable pensioners, families and disabled people will be pushed into fuel poverty. “Although such a scheme would require significant investment from landlords and freeholders, it would help lift millions of the poorest flatdwellers out of fuel poverty and at the same time dramatically cut CO2 emissions, create more than 35,000 jobs, and put over £6 billion back into the economy.” The FPRA are joining forces with The Association of Residential Managing Agents (ARMA) to call on the Energy Retail Association and OFGEM to investigate UÊ 6 /Ê ÊÃÕ«« iÃÊÌ ÊV Ê«>ÀÌÃÊ vÊy>ÌÃÆ UÊ > ÕÀiÊ vÊÕÌ ÌÞÊV «> iÃÊÌ Ê>««ÀiV >ÌiÊÌ >ÌÊ,iÃ `i ÌÊ Management Companies (RMCs) that have responsibility for blocks of flats cannot be assessed like other commercial businesses. There is a lack of open competition for supplies to common parts and RMCs are being charged unreasonable tariffs which fall on leaseholders through the Ê ÃiÀÛ ViÊV >À}iÊ«>Þ i ÌÃÆ 46

UÊ

ÃV iVÌ Ê«À Ì V Êv ÀÊÃÕ«« iÃÊÌ ÊV Ê«>ÀÌÃÊ vÊ blocks of flats to avoid supplies being disconnected which will result in no fire alarm or emergency lighting in the blocks endangering life in the event of a fire.

Flat-Living.co.uk

End note

Joined-up enfranchisement

Justin Bennett of Langley Byers Bennett explains the role of the surveyor when considering the route to enfranchisement.

he chartered surveyor or valuer’s role in an enfranchisement can vary. The typical leaseholder when seeking enfranchisement or lease extension advice will generally revert to the conveyancing solicitor who dealt with the purchase of their ﬂat. The solicitor will discuss the legal issues and advise on the process and the implications of serving any Notice. The leaseholder seeking the advice will ask the solicitor to proceed. At that point the solicitor will advise their client that they need a surveyor. The process and circumstance will vary but the surveyor, in most instances, becomes the project manager of any enfranchisement process. The surveyor is the person who coordinates the various flat owners for access, inspection and hosts the discussion in relation to the price the leaseholders should pay to purchase their freehold. The surveyor is responsible for identifying the parts of the property that relate to the building and what relates to appurtenant land (such as outbuildings, gardens or garages). Invariably the surveyor will report his findings to the solicitor and the solicitor will then draw up a plan, which will be sent back to the surveyor to confirm.

VERTICAL DIVISION The surveyor will confirm the vertical division in terraces of flats to ensure that the building can be enfranchised. The solicitor will mark this to the plan and ask the surveyor to

approve it. Essentially the surveyor is involved at all stages. Once a Notice is served and the landlord obtains his valuation advice from his surveyor, the solicitor has a reduced involvement apart from procedural matters, which, although crucial, do not ultimately effect how much the leaseholder pays. The solicitor’s role is very much as the person responsible for ensuring procedural deadlines are met to ensure that neither the landlord’s nor the tenants’ Notices are deemed invalid or withdrawn. This role is vital. Before beginning the process either a solicitor or surveyor will establish how many flats there are and how many tenants will join in; if there are any non-qualifying tenants (those who own three flats or more); how long is left on the leases; and the level of ground rent. Normally a surveyor will prepare the tenancy schedule and a schedule of ground rents. Where there are commecial parts, the surveyor determines if infact the building qualifies. Beyond the initial exchange of Notices, the surveyor is actively involved in all elements of the negotiation of the price to be paid. Once the price is agreed, the surveyor is again involved in the apportionment of any premium amongst the various flats. In certain circumstances this may have already been determined by the participation agreement (the contract which all leaseholders join up to buy

the freehold). The surveyor will have assisted in the preparation of the percentage allocation based on his assessment of value of each flat.

EXPERT ADVICE In the event of dispute and if the matter goes to a Tribunal, the surveyor often coordinates the expert evidence and in most circumstances will be the sole expert acting on behalf of the leaseholders. The solicitor will prepare the background documents for the Tribunal. A barrister may be employed to advocate at any Tribunal Hearing or the surveyor acts as advocate and expert. Essentially, the solicitor’s role and surveyor’s role are distinct. The cost savings however by liaising direct with the surveyor in the first instance as opposed to the solicitor may be substantial. A competent surveyor has good knowledge of enfranchisement law and is able to advise and recommend a solicitor. However, invariably it is the other way around and a surveyor is recommended by a solicitor. An opportunity could be lost if the first point of contact is a conveyancing solicitor. Conveyancing solicitors do not always have specialist enfranchisement knowledge and therefore increased costs may be incurred at too early a stage.

YEARS

RTY

MAN

MENT 8

EBRATIN

8 OF PRO

Specialising in Block and Estate Management since 1990 Covering London and the South of England 24/7 Emergency Cover A family business offering a personal service tel: 01344 823650 email: enquiries@jmlettings.co.uk www.jmestates.co.uk

mortimer ad new.indd 2

3/12/07 09:44:37

Flat-Living.co.uk

EASTERN

/035) &"45 Adair Paxton LLP 0113 2054190 Appletons 01642 675 555 Atlantis Estates Ltd 0800 612 1515 Eddisons Residential Ltd 0113 243 0101 Omnia Estates Ltd 0114 2792840 Premier Property Management & Maintenance Co. Ltd 01226 770088 Sasso Estate Management Ltd 0191 212 5030 Town & City Management Limited 01325 389689 Town & City Management Limited 0191 3000 233 Watson Property Management 0845 458 1228

/035) 8&45 Andrew Louis Property Management Ltd 0151 330 5355 Atlantis Estates Ltd 0800 612 1515 Braemar Estates (Residential) Limited 0161 929 2300 Countrywide Managing Agents 0161 332 7551 Homestead Consultancy Services Ltd 01253 640040 Manchester Residential Management Ltd 0161 707 4873 P R Gibbs & Co Ltd 01942 844100 Portland Block Management Ltd 0161 799 6288 Premier Estates Limited 0845 491 8899 Realty Management Limited 0161 474 7677 Revolution Property Management Ltd 0161 850 0022 Royle Estates (Lancaster) Ltd 01524 36311 Scanlans Property Management LLP 0161 236 8888 The Guthrie Partnership 01565 755390 West Kirby Property Management Limited 0151 632 1844 Westwood Building Management 01253 735539

WALES Atlantis Estates Ltd 0800 612 1515 Compton Property Management Ltd 01792 315457 Seel & Co 02920 370100 Western Permanent Property 029 2023 5151 William Parkman & Daughters Limited 01495 244396

MIDLANDS Atlantis Estates Ltd 0800 612 1515 BK 0121 200 1100 Blue Property Management UK Limited 0845 331 3585 Centrick Property Management 0845 6800 981 Cottons 0121 247 2030 Countrywide Managing Agents 02476 550303 Countrywide Managing Agents 0121 454 9167 Countrywide Managing Agents 0116 254 8364 Curry & Partners 0121 233 0500 D & B Property Management Company Ltd 0115 979 2794 Freehold Property Services Ltd 0121 551 5988 Hadrian Property Management Company Limited 01543 410922 Lambert Smith Hampton 0121 236 2066 Mainstay Residential Ltd 01905 357777 Metro PM 0121 428 4747 MITIE Scotgate Ltd 01778 382240 Nock Deighton 01746 766998 Orchard Block Management Services Ltd 01604 620 422 Pennycuick Collins 0121 665 4150 Philip Laney & Jolly 01684 575100 Regalty Estates 0845 456 4980 Watson Property Management 0845 675 5676

Amber Management 0845 2713300 Atlantis Estates Ltd 0800 612 1515 Banner Property Services Ltd 01628 522888 Boydens 01206 762244 Broadlands Estate Management LLP 01908 698804 Bush Property Management Ltd 01603 614004 Carringtons Residential Management Ltd 01279 408740 Consort Property Management 08451 947044 Countrywide Managing Agents 01702 236402 Covenant Management 01993 847 601 DJC Property Management Limited 0870481 0110 Francis Butson & Associates 01480 226740 Hillcrest Estate Management Ltd 01277 356231 Homes & Watson Partnership Ltd 01277 355200 Hurford Salvi Carr Property Management 01992 500040 Jakes Property Services Ltd 01277 651432 Labyrinth Properties Ltd 020 8586 1185 Labyrinth Properties Ltd 01442 242726 Marlborough House Management 01582 798 148 Maunder Taylor 01707 871710 MCS 01920 466500 OM Property Management 01582 393700 PMS Leasehold Management Ltd 01206 835350 Qualitas Residential 01923 211331 Red Brick Management Ltd 08458 621823 RMG Asset Management Ltd 0845 002 4444 Rumball Sedgwick 01727 854516 Sheridan’s 01462 814087 Solitaire Property Management Co Ltd 0845 0345790 Sorrell 01702 342225 St Andrews Bureau Ltd 01223 352170 St Andrews Bureau Ltd 01992 501752 Touchstone 01908 633918 Trinity Estates 01442 437655

(3&"5&3 -0/%0/ Abbott Management 020 7225 1995 Adelaide Jones 020 7725 5800 Allsop Residential Investment Management Ltd 020 8675 7046 Amber Management 01992 769143 Arkleygate 020 8731 4577 Aspect Property Management Limited 020 7581 7900 Aston Rose 020 7629 1533 Atlantis Estates Ltd 0800 612 1515 Bells Chartered Surveyors 020 7228 4470 Blenheims Estate and Asset Management Limited 020 7368 4150 Bowood Commercial 020 7223 6940 Buckingham Management Services 020 7839 2347 Capital Property Management 020 7328 4001 Carringtons 020 8960 0001 Castlebar Management Ltd 020 8991 2564 Castlereagh Management Limited 020 7258 9670 Chainbow 020 7928 9944 Chelsea Property Management Ltd 020 7584 7850 Chesterton 020 7359 0922 City Estates 020 8809 5051 CJ Delemere International 020 8444 9914 Cluttons LLP 020 7647 7207 Cluttons LLP 020 7647 7488 Colin Cohen Property Management 020 8959 6870 Countrywide Managing Agents 020 8686 7773 County Estate Management Limited 020 7436 2080 Crabtree PM Limited 020 8371 7070 Craig Sheehan 020 7385 5020 Dauntons Soar Residential Management Services 020 7834 1032 Defries & Associates Ltd 020 8202 0759 Derek Flack & Associates Ltd 020 8374 7005 Douglas & Gordon 020 7963 4650 Drivers & Norris 020 7607 4040

Flat Living Issue 4

Articles inside

Enfranchisement

ARMA managing agent directory

Fuel poverty

Service charges

Help & Advice

Interview

Topic of the quarter

News & Views

Conservation

Right to manage

Neighbour disputes