Opinion- Not happy, so not paying the Bill

 Owners regularly struggle with the ideas that common practise in most leases is that

1 You pay in advice the estimated costs of services “what they think they will spend”

2 The actual expenditure is not totalled until the end of the year “what they actually spend”

3 The difference Profit or loss known as surplus or deficit is then distributed.

Distribution may mean a repayment or a credit against the current service charges, rolled into the current year’s budget or transferred to reserves.

The logic of “I don’t pay for meal until I am happy and eaten it, do I?” doesn’t apply it is a canteen.

 I am omitting some leases where the interim is small often for historic reasons or where they are charged for in arrears.

The single tow biggest misconceptions are

1 It’s a one off inclusive fee to the landlord or their  agent who in turn employ sub contactors and have to provide service no matter what and accept the cost and risk on non-payment just like anyone elks.

2 That the monies are held on trust separate from the landlord or their agent own corporate money, and therefore any expenses are deducted from this for the block/estate whether its cleaners or the landlords costs or agents fee.

This is the only money they have to drawn upon and non-payment only leads to further diminution in services.

Most modern lease are service subject to payment of service charge and while in simple terms this is not entirely true or enforceable, it means that in practice the LL or agent will reduce service quality and frequency to  a level  not expected by anyone  and ensure there is enough to pay utilities and insurance.

In such cases if services are reduced then the actual costs is compared to the amount estimated and distributed as earlier stated.

Owners can discuss or formally challenge whether 1 above is fair and reasonable at the Tribunal, but must remember that it is an estimate and that they are unlikely to have the detailed understanding of  complex services.

The most common source of dispute is what s actually being done for that estimate and costs and what an owner thinks is  or should be done.

It is key to establishing that and gaining an understanding of complex services and in some cases that may need professional advice.

At the end of the year landlords, should they choose not to do so, should be compelled to certify the costs as the lease requires or  under Section 21 and 22 landlord and tenant Act 1985.

Now  note many companies are set up for residents to run and in some cases the owner are told that under company law as a shareholder or member they have no right to see the bills which form the accounts etc. Now that is correct, however the service charges are demanded and under the control of the leases and under the control of the above act and therefore the right does exist as a leaseholder if the rights under the Act are exercised.

Now key to dealing with disputes during the year and at year end is, bearing in mind what has been said, to keep a detailed record of issues and evidence  while trying to effect changes in service or ultimately asking the tribunal to reduce the amount.

It is important that it is recorded and presented in such a way that an independent person can quickly assimilate the information and see the issues as they will be unfamiliar with the block.

All this is counter intuitive and seen as a rip off. What is not understood is that if landlords and agents did operate on all risks basis the fees which form part of the service charge would vastly increase as in general the rate of return on block management fees is around 4% to 6%. That’s why some try and take the money elsewhere and doing the least they can.

But its also a huge opportunity- a sensible residents group that takes a mature approach to work with an agent can vastly increase the performance of the blocks services and the home environment and therefore make it better for both the agent and the owner residents and owner investors.

Where situations do deteriorate, an agent may in fact be quite open to an approach to turn to it all around.

You should agree  to

- a list of priorities

- stage payments to fund those

- encourage non payers that the standard to be set and delivered is being monitored by your group

This will build confidence  and resolves most situations.

Typical roadblocks are

-          agents or LL’s refusing to budge “until its all paid up”, so try and agree to this process  rather than resorting to litigation and right to manage or similar. nb  staff often don’t have that authority and you may need senior level approval especially where automatic processes are in place to pay insurance old bills or fees first

-          - owners wanting to extract revenge or compensation, bit while some cases do merit a good kicking, the immediate well being of your home and investment is far more important

-          Legacy issues  where it is important to agree to settle these separately under mediation arbitration or tribunal determination, as the later is now often expensive, don’t overlook arbitration as a cheaper alternative

-          Major project and a lack of trust which may require owners paying into an independent solicitors client account ( held on trust) and paid on certification by the projects contract administrator

These steps might avert a long and expensive battle if both sides take a realistic view and the issues are not insurmountable- nor need formal determination or the removal of the landlords role as a manager.

Opinion-Landlord bashing

LANDLORD BASHING

This is a popular support and  while it has focused on one group in particular its nothing  new to long established landlords in London.

A key issues is that residents complaints and withholding payment  is seen as and end in itself  on the misplaced belief that  it costs the LL money and profit  they wont pay their subcontractors  and he will have to sort it .

Thats wrong, yes it is- its an area full of misunderstanding.

1 Service charges are not the LL’s or Agents Money from which they

- take a profit and

- pay subcontractors

- and accept the costs and risks of non payment

The SC money is held on trust separate to the landlords money and payments made out of it  are to the various trades and services inc the Agents Fees or landlords costs .

2 Leases state in most cases that the provision of services are conditional on  payment on account by the leaseholder. Not as some would like “ I don’t pay for the meal until I have eaten it”

3 Non payment is not simply the LL/Agents fault or problem as bad debt are apart of every companies cash flow. Its important to understand that skulduggery aside  there is no profit or contingency element in SC or Fees to do so because the of the limitation on those costs  both contractually and under section 19 “fair and reasonable”.

While the landlord does still have  the responsibility to provide services where there is non payment then the standard and frequency of services is adjusted often far short of what is expected.

Funds are used to pay for insurance and utilities and gardening and cleaning less frequent and repairs on Health and Safety basis only..

The inevitable effect of a stand off is that the cycle of falling standards and trust arises to the detriment of all, as it is usually resolved with punitive legal costs visited on those that haven’t paid and DCA contact with your mortgagee.

Having understood this it is vital to understand that both owner and LL have a role to play in dealing with the cycle.

Owners should avoid wallowing in the problems and feasting on outrage, diverting that instead to identifying and  resolving the issues. In the main agents and LL’s are realistic  about such matters and where the wheels have fallen off its important to look at whether nuclear options are need or a problems negotiated.

Negotiated settlements can include

- listing and prioritising matters to be done

-understanding how much is outstanding

-stage payments to allow funding for chasing the non payers and dealing with the list

Mediators are very useful in achieving this

Consider -separating some issues that need to be resolved and not creating road blocks at the cost of  immediate progress allowing those to be determined later or by mediation or Tribunal hearing.

Where this cannot work anger and frustration is better channelled into the nuclear options of independent managers RTM RTE or Compulsory Acquisition

Advice- Leasehold Logic

Much time is wasted in undoing owners opinions derived from

• a mish mash of common sense & logic
• applying irrelevant and inapplicable experience or  comparisons, often from entirely different business models,
• after hours of searching for opinions that match theirs and therefore must be right
• and finally choosing one of the above and asserting with complete confidence that the sun must therefore rise in the east.

It is therefore vital to understand that leasehold and residential property law has its own law logic and quirks, and you need to learn them and moreover be willing to accept them, like it or not, instead of substituting your own.

I am fine - I will just charge you the time to do so, but it will be quicker and cheaper not to.

Advice -Permission to Let or Alter-Why!?

The extent to which permission is required varies lease to lease, some are silent, some are generalised and some prescriptive.

In all cases of letting, there is the basic need for the landlord to know who you are and where you are, to communicate and of course get your money in, and to ensure that the occupant is familiar with and even bound by the rules and regulations in the leases.

Bog standard AST agreements are unlikely to mirror sufficiently the relevant terms of leases leaving the tenant and flat owner is a difficult position.

In the case of alterations. The broad argument is that the  property is to be handed back at the end of the lease in a comparable condition and standard, or of the owner stays on , they are a renting tenant and the landlord will become responsible for many items which formally the owners.

Converting a 3 bed 2 bath flat into a open plan studio will decrease the value significantly in most markets.

The compelling argument is that layout changes particularly those affecting the structure  need to be approved  as the landlord has a broader obligation to all the owners to ensure that, in simple terms your open plan studio roof, which is someone’s floor, doesn’t collapse, and in any event any and all  works are carried out with  due regard to other building users.

Its tempting to say “ what owner would do dangerous works in their home” well quite few, not least those who aren’t keeping on the medication. In general though  owners are very often unaware of ( and much less care about)   the scope and complexity of building work and can be duped by a inexperienced or conniving  contractor. They, not the contractor, bear the principal liability.

Even where consent is not required, the layout plan and description may need amending so that the lease shows what has been granted for the purposes of a future sale or loan.

A common mistake is altering that which is not yours eg removing a chimney breast or converting a window to a balcony door when the wall below is not yours.

And finally a word about timing. Consent is not available overnight or by return nor should the landlord be regarded as it being his problem.

In most cases 2 clear weeks will be needed for simple works and for more complicated issues at least 4 weeks.

Pressing ahead can be very expensive – the architect who rocked at 4.50 pm on Maundy Thursday to say here are several plans and an inch thick spec, we start on Tuesday was told to leave. He threatened to go ahead and in turn his client got instead a hand delivered letter from Solicitors that day threatening any work starts and we injunct with costs.

Advice- All our costs are in the Service charge, right?

WE BOUGHT THE FREEHOLD EXERCISED RIGHT TO MANAGE ALL OUR EXPENSES ARE COVERED BY SERVICE CHARGE, RIGHT?

Ignoring the recovery of service charges costs I am focusing on the operating expenses of these companies form the annual return fee to legal expenses or directors insurance. In most cases the leases were to drafted to anticipate this arrangement to the freeholder, or RTM must ensure that their agreement or articles  allow for those expenses to be met by the participants, until such day as all leases are amended to do so.

In may cases of complex ownership eg commercial units or freehold houses , they may never be amended.

When buying the freehold the default advice is to “ extend the leases to 999 years and a peppercorn rent” but spare a  thought about ground rents. They are a good source of income to meet these expenses and to build up a reserve in addition to or instead of a sinking fund.

In the long term they add value to the freehold, so at some future point if disaster strikes and funds are needed the freehold can be sold. In the meantime a group can resolve year to year not to collect the rents .

Take for example a roof replacement  of £40k, meaning say £10k each. Selling a freehold with leases at £250 GR per annum  could raise half that money, at the cost of future payments of ground rent of £250.

advice- YOU HAVE A LEAK- BUT MY FLOOR ISNT WET

Hardly a week goes by without one flat leaking into another, with the reply “ my floor isn’t wet, it’s not me”

While the source can come from common supplies or higher properties or externally via common ducting, the flat above is the first place to start. In most cases it’s a seal or joint to a bath, shower, or floor/wall joint on tiles as many bathrooms/kitchens aren’t tanked wet rooms, or otherwise as low leak from a pipe.

Most building instances cover trace and access and it is the primary responsibility of the flat owner above to take a look, as the most likely cause is items which they are responsible for,

 though higher service level agents may assist. The flat owner should agree with the freeholder or agent about costs should the problem be from another source.

These leaks cause considerable disruption and can lead to significant increases in the insurance premium and excess on water damage. 

As all these claims do carry an excess, who pays this is determined by the cause, the scope of the policy and the wording of the lease and whether there is actual fault by the owner, that can be proven.

Flat owners are therefore advised to

-maintain a comprehensive contents policy for water damage as building insurance rarely covers this

-ensure that they know where the shut off valve for the flat is and that it works

-ensure a landlord or agent has an emergency contact for you

-when refurbishing consider a waterproof membrane or treatment to prevent leaks and fitting inexpensive alarms under baths and kitchen units

-check washing machine or dishwasher connections which work loose over time

Opinion-LEGAL COSTS AND INSURANCE

Like it or not and despite the ink split over evil freeholders it is fact that like driving a car or going on holiday, problems arise in home ownership, and it is prudent to take out insurance. Legal expenses cover is available as part of many policies , and in the case of landlords, especially residents groups, can be invaluable. 

In a case of an employee’s conduct leading to them threatening legal action,  the LEI on a buildings policies paid for it all. And yes the person was sacked.

While most landlords and agents would get a “C- could do better” abuses and issues crop up.

 It is ridiculous to expect that it should not be required when dealing with the most expensive asset  most will own, and the roof over your head, while on the other hand accept that holiday insurance or car insurance is a must. 

At the same time there are considerable protections and rights which owners, like finding about laws in the country you visit or the Highway Code, should become familiar with and exercise them.

After all who said “ Life should be fair” ?  Well yes ok Jesus did, and we nailed him to a tree L