Great Northern Tower Management Company Ltd Director’s Report August 2010
Introduction: The management company, GNTMC Ltd, is owned by the leaseholders of the 257 apartments. The first residents moved into the Tower in autumn 2006, and the last apartment was sold in 2008. The developers, Taylor Wimpey City (TWC), ran the management company until 30 March 2009. GWC set the service charge budget from 2005 and employed Stevens Scanlan as managing agents. After some months of discussion, and to avoid “management from a distance” continuing, three resident leaseholders agreed to step forward as directors in spring 2009 and replace the TW directors, and a fourth joined them in the autumn. Working with a wider group of residents and leaseholders, many of whom have taken responsibility for particular areas, we’ve made efforts to understand the issues and problems facing the Tower. This is the first ‘stakeholder’ Director’s Report, and while the accounts deal with the period to end December 2009, this report looks in more broadly at the period since handover by the TWC directors on 30 April 2009.
Inheritance: In those first few months it became clear that changes were needed, both in day-to-day arrangements, and to deal effectively with a number of major matters. The resourcing available to us was inadequate: the legal and technical issues involved in a large, mixed-use, complex citycentre block like GNT require tailored and highly professional solutions. The service charge budget set in 2005 in preparation for the developers sales campaign didn’t change until 2009, and then only at our request. We had limited information and many misgivings; we knew that both methodology and the elements within the budget needed review and revision. The scope of the contract we inherited with Stevens Scanlan was insufficient, and in our view required redefinition and re-tendering, not least to provide access to appropriate technical and professional services, and to ensure effective management of the concierge and caretaking team and relevant service providers and contractors. Action: While immediately addressing matters such as security, cash-flow, arrears and water charging, we embarked on a review and reorganisation of resourcing, to ensure that we put the GNT “house” in order for the medium to long-term. We used Build Consultancy as “client representative” on a part-time and tapering basis for 6 months from September 2009 to help us ensure that the Tower was not put into a vulnerable position, protect our individual and collective assets, and to avoid possibly far greater liabilities in future.
Specific Issues: A handful of major issues have taken the lion’s share of time and considerable financial resource: 1 Managing Agents: We made contact with leaseholders and resident directors in other similar blocks in the city centre, and found we were not alone in having to take action to rearrange management resources.
There is now an informal network of leaseholders in the city centre, which is a help in assessing issues, and sharing views and experiences. It was this network that mentioned Rendall & Rittner to us; a company relatively new to the region, albeit with 20,000 properties in management elsewhere. Following interview, we appointed them as agents from 1st January 2010. We were particularly struck by R&R’s strategy of combining first-rate customer service with economies of scale in respect of purchasing, which are then used to reduce service charges - as well as the strong and clear recommendation from those with first hand experience of R&R. R & R have since made good progress on day-to-day running of the building, e.g. concierge operations, cleaning, maintenance, redecoration etc. Both they and we are very much aware that more needs to be done and and can now that cash flow has stabilised. 2 Service Charge Arrears: On handover, we wee made aware of significant service charge arrears: £185,000 (56% of annual budget) at June 2009, excluding any amounts to be invoiced for Q3 and Q4/09. Some debtors had such long established poor payment records that their historic arrears cancelled out any service charge collected for the year 2009 at that time. Focussed and determined action has been essential. The change in management and diligent pursuit of arrears has improved the cash position of GNTMC significantly. However, there are still dozens of leaseholders who are not paying their service charges (current arrears are £140,000) and GNTMC has instructed debt collection lawyers DLA in respect of the collection of all monies outstanding except leaseholders paying by direct debit on a monthly basis.
3 Legal and Professional Advice: We needed technical and legal advice (we had none, nor, bizarrely, budget provision for it) and, after interview, appointed Linder Myers Solicitors in July 2009. The parties involved in the commercial sub-leases had been making alterations without consent, as had two residential leaseholders who wished to occupy communal spaces, not least bringing fire safety and structural integrity into question. GNTMCLtd has legal, technical and safety responsibilities it must discharge. If the residential transactions are agreed, the company will be required to prepare appropriate new leases, in consultation with the freeholder. Here is a little more detail: • 3.1 Commercial Units, Ground Floor
GNTMC had no information as to the health and safety aspects of the fit-out works, not least with regard to the kitchens, where gas is used for cooking. After careful consideration we decided to withhold the license on these and other grounds. Hills initiated court proceedings in September 2009, which are ongoing. However, Hills entered liquidation earlier this year. The proceedings against GNTMC have yet to be withdrawn.
• 3.2 20th Floor
One leaseholder has purchased all three apartments on 20th floor and wishes to convert them into one large apartment. He would like to incorporate the communal landing/lift lobby as well as the access corridor, and has already undertaken some works to this effect. Granting permission for such a venture is entirely at the discretion of GNTMCLtd, which is both responsible and accountable for management of GNT’s communal spaces, (which are amenities for all residents) not least in respect of fire and other safety issues.
We have taken legal and technical advice, on the basis of which we have declined to sell the landing; we have, however, agreed that sale of the corridor would be acceptable under certain terms, which are contained in a new lease for the new larger space. These conditions include:
• payment of a premium for the additional (corridor) space: 50% of which is required to go to the freeholder but the other 50% would be paid into the company’s account to be used to mitigate overall costs to the benefit of all leaseholders • compliance with a number of technical and safety requirements, not least with regard to the smoke extraction shaft which is situated along the corridor and runs vertically through the entire building to extract smoke from the communal areas in case of fire, for the safe-keeping of escape routes for residents, staff and visitors, and access for fire fighters. • payment of our legal and technical costs • clearance of the leaseholder’s substantial and long-term service charge arrears.
The leaseholder is unhappy with this, apparently in all respects, and would prefer to sue us for being unreasonable. A Mandatory Order is being prepared by our lawyers; the court will be requested to instruct reinstatement of the premises.
• 3.3 16th Floor
A similar situation exists on the 16th floor, where four apartments are involved, incorporated into one large space by the addition of the corridor, but not the hallway/lift lobby. In this case, though, the matter is no longer litigious. The leaseholder now understands the position and has recently agreed to proceed with a new lease as proposed by us on similar conditions to those set out above, including acceptable works to the smoke extraction system. An independent valuation is being arranged.
End of year position: We ended 2009 with new managing agents appointed, access to appropriate legal and technical advice, and a realistic - higher - budget set for 2010. Appointment of R&R was an important step: we asked them to act immediately in respect of service charge collection, and to work closely with Stevens Scanlan to achieve full handover by mid-February 2010. We appreciated that once basic handover arrangements was achieved, we would need to embark on a steady review of issues on our action list, including improvements in services and efficiency, security, operation of the parking areas, waste management and recycling, and relationships with neighbours. Service Charge Accounts 2009: In 2009 GNTMCLtd raised service charges of £455k, which included water charges for a full year for all apartments, and incurred day-to-day running expenses (e.g. concierge and caretaker wages, insurance, communal lighting) of £498k. GNTMCLtd incurred further expenses of £61k for professional advice in regards to the three legal cases detailed above, some of which should be recouped as the matters move forward. Given the Linder Myers Solicitors were appointed to legally represent the Company in these matters in July 2009. GNTMCLtd also appointed Build Consultancy to assist the Board with various matters on a p/t and tapering basis given concerns that the safety and integrity of the block could be compromised. A review of service levels and requirements resulted in appointment of new managing agents from 1 January 2010. Due to the ongoing legal actions, it was agreed to raise a service charge budget of £450k for 2010, despite there being reduced water charges (once individual water meters had been fitted), but to keep this under close review with regard both to the need to build up reserves and to potential to reduce day-to-day running costs.
What have we done since handover? We’ve: • reviewed the service charge budget to include realistic figures for, eg, a planned and programmed maintenance schedule, energy saving, and legal costs. • appointed Rendall & Rittner as our managing agents from 1 January 2010. • appointed lawyers and other professional advisors to address legal, technical and safely issues, including the commercial units on the ground floor and two residents in breach of their leases. • tackled United Utilities over bulk water charges: individual meters have now been installed for all units to allow fair billing according to usage and encourage reduction of water use. • improved cashflow: we’ve tightened up on payment requirements, reviewed the arrears position and debt recovery process and introduced a direct debit facility. We can only pay our team and contractors and make positive improvements to the building if everyone pays their bills. • assessed security of the building and including effective access control. Action taken: Fobs were reprogrammed in July last year and all fobs in circulation are recorded; Lift access now requires a code; Extension of the CCTV system; One-night-lets are pursued as these constitute a breach of the lease and can ultimate lead to forfeiture, i.e. cancellation of the lease. It appears one-night-lets are now less frequent; • The concierge team has undergone training arranged by Greater Manchester Police. • • • •
• exchanged the contract cleaning service for two in-house caretakers, working alongside the concierges as part of the GNT in-house team. Cleaning programmes and equipment have been reviewed and improved. • started redecorations, with the painting of the lobby area and the ground floor corridor. Replaced the carpet in the main entrance. We are in the process of scheduling redecoration for the remainder of the building. • commissioned a waste management strategy. GNTMCLtd is in contact with the operators of the restaurant units and will continue to attempt to enforce adherence to these rules but unfortunately can only react to continuous improper waste storage and use of facilities. • commissioned The Carbon Trust to identify energy saving measures: we’re now preparing a detailed plan with their help. • installed smoking stands outside the main entrance. • installed new signage throughout the building. • sought advice on a sensible alternative to the entryphone system, which still uses TW’s old plot numbers rather than apartment addresses. • produced ten newsletters and set up an initial website: www.gntower.com to Improve communication and transparency to leaseholders and residents. • assessed with our lawyers the corporate framework of GNTMCLtd to make it fit for purpose. A discussion paper in regards to the number of directors and criteria for election was circulated in September 2009. The Special Resolutions relating to this are enclosed within the AGM invitation pack.