Freeholders or long leaseholders of blocks of flats or houses are faced with a barrage of Legislative Rules and Regulations which can make the process of efficiently, effectively and economically running the management and service charge regime a minefield. From Section 20 Consultation requirements, to dealing with hostile Residents Associations, there is a potential pitfall around every corner.
Leaseholders download a Guide to your rights here
There are three skills to superb Block Management:
• The hands-on control and monitoring of the maintenance and repair of the structure and fabric of the buildings to ensure that both your investment and those of the leaseholders are protected, avoiding unnecessary expenditure and complying with all Regulations relating to safety;
• The accounting, ensuring that all the lease covenants which deal with the recovery of costs are properly reflected in the service charge accounts to avoid challenges and to ensure efficient collection of the monthly or quarterly charges. This causes particular issues when the service charge accounts run out of funds due to non-payment; an overdrawn service charge account is strictly forbidden by the Royal Institution of Chartered Surveyors Guidance which reputable agents will abide by. Unfortunately, when contributions are not made due to challenges and disputes, the repairs and maintenance contracts must be suspended which of course carries its own risks. Consultation and credit control to ensure the availablity of funds are critiical. Please note that if legal action is required due to non-payment of service charges the case will be passed to your solicitors for further action.
• Dealing with the leaseholders and the occupiers, some of whom will be Assured Shorthold Tenants, anticipating problems and smoothing the relationship with clarity of information and an active, co-operative attitude.
In short, Block Management is not something for the faint hearted, not is it straightforward to do well from a distance. We have extensive experience ranging from small residential conversions of six flats to major new developments with hundreds of flats and houses and multiple service charge schedules; and because we only operate in the North Cotswolds, we are always on hand and know we can out-perform the “long distance” agents.
Whether you are an Investor, or a Leaseholder looking to exercise your Right to Manage due to a disappointing experience with your managing agents, please get in touch. We would love to talk through your requirements and see if we can assist.
Our Block Management Standard Fee Rates are set out below, however please bear in mind that the rates are negotiable depending on your particular situation, location, number of units and complexity of service charges.
Levels of Service offered
• Review of all leases and report to client on covenants affecting repairs and maintenance, setting out the responsibilities of both Investor and Leaseholder
• Setting up of service charge schedules to accurately reflect the lease covenants
• Inspection of all common parts, report to client on condition and works required in three categories: essential/immediate, advisable but not urgent, longer term initiatives
• Report on all Statutory requirements, Fire Safety, Gas Safety etc.
• Consult with the leaseholders to find out what problems they are having and advice to the client re whether there are particular actions which should be taken
• Draw up a budget of expenditure for client approval
• Present budget to Leaseholders will full rationale for expenditure
• Where required, Section 20 Consultation on major works and longer-term contracts
• Once the service charge is agreed and set up, issue demands and collect contributions from leaseholders
• Operate the service charge account under RICS Rules to ensure strict financial accuracy and accountability
• During the ongoing management, we will conduct regular inspections and report to the client on condition, recommended repairs and maintenance and performance of contractors
• Instruction of contractors with checks on workmanship before payment is made
• Preparation of year end accounts for the accountant
• Discussions and agreement on the following year’s service charge and works to be undertaken, so that the budget can be issued promptly to the Leaseholders, avoiding last minute disputes
• When the accountant and the client have approved the final accounts, issue the final service charge summaries to the Leaseholders and collect any under payments, or arrange credits
Full management service as outlined above: 10% of the total service charge budget per annum, paid quarterly out of the service charge account. Minimum fee £2,000 per annum. Please note that if legal action is required due to non-payments of service charges the case will be passed to your solicitors for further action.
All fees are net of VAT.
We also offer a part management service, where the client operates and runs the service charge account and issues invoices, collects payments and arranges payment to contractors, dealing with the reconciliation of the year end and accounting themselves. We deal with everything else, including advice on budgets and Section 20 Consultations:
8% of the total service charge budget per annum, paid quarterly out of the service charge account. Minimum fee £1,750 per annum.
All fees are net of VAT.
As appointed introducers for several insurance companies we are able to offer a range of insurance policies for landlords, including the following -
- Buildings Insurance
- Contents Insurance
- Rent guarantee
- Legal Expenses
Plase ask for further details.
Guide for Freeholders
We have set out below what we hope you will find to be useful information, not only about your Statutory responsibilities as a freeholder, but also elements of the RICS Code of Conduct which is the Rule Book for Service Charge management. Agents in the UK should be following this Code, even if they are not members of or regulated by the RICS, as failure to do so leaves them and you at risk, Following the Code ensures that should any dispute escalate to Court, it can be clearly demonstrated that best practice has been followed to the letter. Some of the more important terms:
Managing agents have legal responsibilities governed by Legislation and Civil Law. More importantly, they have ethical responsibilities to conduct themselves in an honest, fair and transparent manner and to carry out their work with due skill, care and diligence which includes not only ensuring that they are members of a redress scheme but also carry sufficient Professional Indemnity Insurance and that they comply with the RICS Rules of Conduct. This is a critical aspect to confirm of your managing agent before signing a contract with them.
Ensure that the length of the contract is clearly stated, together with processes for renewal, review of fees and termination. Beware of Section 20 Consultation requirements, any long-term contract which would be recharged to any one of the leaseholders at more than £100 per year MUST go through the Consultation procedures, or you will only be able to recover £100 and not the actual cost.
A very hot topic. Your managing agent will keep the personal data of not only you as the freeholder but also the leaseholders and contractors. Ask questions about GDPR as you may share responsibility for failures unless you do.
The agent must have clear procedures in place for dealing with disputes and complaints; they must belong to one of the redress schemes approved by the Government, who act as mediator if an issue is escalated. At all times, the managing agent must comply with the terms of the leases and in this regard they are effectively impartial and should not actively promote the interest of the freeholder against the leaseholders, or vice versa.
It is best practice to keep all client monies in a ring-fenced account, clearly designated as such, whether Ground Rents and other charges, or service charge funds. It is vital that client monies are clearly not in the ownership or assets of the agent.
Service charge funds are subject to additional Statutory requirements under Section 42 of the Landlord and Tenant Act 1987. They must be identifiable and either placed in a separate bank account or they can be held in a single client account where the accounting records of the managing agent can easily identify the service charge funds attributable to each property.
Leases typically provide for the landlord to be responsible for insuring, maintaining and repairing the structure and common parts of a development and for providing services to ensure compliance with Statutory requirements and to protect the value and amenity.
There is extensive Statutory protection for leaseholders paying variable service charges and it is critical that your managing agent is experienced in the interpretation of lease covenants to ensure that you do not fail to recover all costs.
Reserve Funds intended to spread the cost of major heads of expenditure can be collected only when allowed in the leases. Many older leases have no such provision; however an experienced managing agent should be able to negotiate with the leaseholders to achieve a Reserve Fund which is in the interest of both parties. If a Reserve Fund can be established, it can only be used to meet the expenses for which the funds have been specifically collected. It is important to note that Reserve Funds are held in Trust and expenditure from the Reserve cannot be committed unless the funds are available to cover the costs in full. They cannot be distributed to the leaseholders when leases are assigned or terminated, subject of course to any express terms of the lease. Trustees are under an obligation to invest funds not required to meet day to day expenditure, so placing them in an interest bearing account as a minimum is essential.
All service charge demands, whether for regular on account contributions to cover ongoing expenses, or for Reserve Funds, must be clear, easily understandable, relate to available budget estimates or actual accounts and critically, they must be served in accordance with the terms of the lease. This is where many agents fall down; issuing on account demands which do not relate to a clearly set out budget, based on previous expenditure which amendments for projected works and cost inflation. Such demands can be challenged and may leave the service charge funds dangerously short of money to pay ongoing liabilities.
An annual Statement must be issued to each leaseholder as soon as possible after closure of the accounting year, with a clear summary of the costs and expenditure incurred and a statement of any balance due to any party of the lease. All accounts must be transparent and reflect actual expenditure in respect of the accounting period.
There are Statutory Requirements for a host of issues which directly impact the effective management, including ensuring that Health and Safety risks are properly managed and that all Statutory Requirements are covered. These include amongst others Fire Risk Assessments, Asbestos Management Plans, Workplace (Health Safety and Welfare) Regulations, Electrical Equipment (Safety) Regulations. Water Risk Assessments (including Legionalla), Control of Substances Hazardous to Health Regulations, Working at Height Regulations, Manual Handling, Construction (Design and Management) Regulations, Health and Safety (Signs and Signals) Regulations, Environmental Protection and Waste Management, Pressure Systems and Safety Regulations, Lifting Equipment, Personal Protective Equipment.
The terms of the lease will dictate the repairing obligations of the landlord and there may be prescribed time periods for cyclical works, especially for decoration. The landlord owes a duty of care to all persons who might reasonably be affected by any defects to the property, not just the leaseholders, but all and every visitor, even the burglars are covered by this duty under the Defective Premises Act 1972. Therefore, an in-depth review of works required, set out in clear terms of importance and fully costed is an essential first step to protect the landlord and the agent. Good practice includes a Planned Preventative Maintenance Programme (PPM) which can smooth the annual costs by planning high ticket items into different service charge years and setting up a Reserve Fund. Once a full programme of routine and planned maintenance has been set out, Consultation with the leaseholders will no doubt be required for high ticket items. Getting their agreement in principle to the basic premise of the expenditure profile will make the follow-on Consultation significantly more straightforward.
Dealing with contractors is nearly always a fraught exercise. The landlord is the employer under any contract, not the managing agent, however it is of course the agent who instructs and controls the contractor day to day. Contractors should be impartially selected on the basis of their suitability and experience, together with their own internal procedures and policies. Managing agents have a responsibility not only to properly instruct the correct contractor for any project, but also to check on the satisfactory completion of that project before payment is released. This is the step most often missed by most managing agents, usually because the staff are not sufficiently experienced to be able to judge whether the project has been properly delivered to the required standard and that it complies with any particular Regulations.
There is a long list of information which MUST be provided to the leaseholders under the RICS Code, this includes, but not exhaustively:
• The landlord’s name and address for the service of notices, which must be in England or Wales. Any changes of address should also be promptly notified
• A comprehensive Management Policy from the managing agent setting out clearly the relationship with the landlord and any interest, financial or otherwise, between the landlord and agent
• Full details of any new landlord, on sale of the investment
• Change of managing agents
• Demands for service charge or other charges must include information relating to the leaseholder’s rights and obligations. If this is not sent, payment can be withheld. There is a particular wording and there are other requirements for the summary which must be used
Leaseholders may join together to form a Residents Association, which has established Statutory Rights. Although many landlords see this as a retrograde step, it is in fact an opportunity to bring advantages to the management and can ease communication with the leaseholders. A copy of the Constitution should be sought at regular intervals as well as the membership list. A Residents Association is entitled to appoint an RICS Surveyor to advise on service charges. The Surveyor has the right to reasonable access to inspect documents including accounts, receipts and other documents supporting the service charge and to take copies of those documents, in order to investigate whether the landlord’s obligations have been properly executed and whether there are any irregularities in the accounts, the appointment of contractors or the rationale for works undertaken. Residents Associations also have the right to be consulted on the appointment of managing agents and contractors undertaking major works and long-term agreements.
Leaseholders can, if certain conditions are met, exercise the Right to Manage by the establishment of a Right to Manage company (RTM). Once acquired, they can appoint Directors to act on their behalf and then have the power to employ a managing agent of their choice, thus transferring the management functions to the RTM company, the RTM company steps into the shoes of the client and the landlord must step back.
Other Legal Requirements
The following requirements are the responsibility of the Landlord. Where we are managing the property they are also our responsibility. Therefore where we are managing we will ensure compliance with all Statuory Requirements.
The costs of compliance can usually be recovered through the service charge.
Annual safety check: Under the Gas Safety (Installation and Use) Regulations 1998 all gas appliances and flues in common parts must be checked for safety at least every 12 months by a Gas Safe registered engineer. They must be maintained in a safe condition at all times, records kept for at least 2 years, and a copy of the safety certificate given to each new leaseholder.
There are several regulations relating to electrical installations, equipment and appliance safety, and these affect landlords and their agents in that they are 'supplying in the course of business'. They include the Electrical Equipment (Safety) Regulations 1994, the Plugs and Sockets Regulations 1994, the 2005 Building Regulation - 'Part P, and British Standard BS1363 relating to plugs and sockets.
TThe Regulatory Reform (Fire Safety) Order 2005 came into force in October 2006 and replaced over 70 pieces of fire legislation. It applies to all non-domestic premises in England and Wales, including the common parts of blocks of flats and houses in multiple occupation (HMOs). Under this Order, the ‘responsible person’ must ensure that a fire safety risk assessment has been undertaken by a ‘competent person’ and must implement and maintain a fire management plan. This may be included within the generic risk assessment, or undertaken separately by a fire safety specialist. You should ensure that assessments have been undertaken and an up-to-date fire management plan has been implemented for every scheme.
All properties built since June 1992 must have been fitted with mains powered smoke detector alarms from new. There may also be a requirement for a mains powered smoke detector dependent on the number of units in a block and the configuration. Tt is generally accepted therefore that the common law 'duty of care' means that Landlords and their Agents could be liable should a fire cause injury or damage in a property where smoke alarms are not fitted. We therefore strongly recommend that the Landlord fit at least one alarm on each floor in the common areas.
The DDA 2005 addresses the limitations of current legislation by extending disabled people’s rights in respect of premises that are let or to be let, and commonhold premises, which includes leasehold units within a larger block. Landlords and managers of let premises and premises that are to let will be required to make reasonable adjustments for disabled people.
The above is a brief summary of Freeholder's responsibilities and of the laws surrounding lesehold property. We hope that you find it useful. If there are any aspects of which you are unsure, please ask us. We look forward to being of assistance to you in the management of your property.
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