Commercial Property Blog
All posts tagged: Chainbow
Section 20 – Where to now?
February and March have been quite a couple of months in the world of Section 20 consultation and major works (Commonhold and Leasehold Reform Act 2002). First we had the Philips case in the High Court, which created open season for leaseholders and confusion for managers in making all works in a year count as Section 20 works and not just one-off major projects. Then this week we saw the Supreme Court’s decision on Daejan v Benson case, which was cited as rebalance for owners. On 8 March, I had first-hand experience with an LVT case that cited Daejan as defence for non-compliance of the Section 20 process. This could arguably the first LVT hearing to reference the Supreme Court’s decision.
Looking at the Philips case, there are a lot of webinars and conferences seeking to give guidance and training on the greatest unknown in property for a long time. Prior to Philips there was no question that major works are one-off projects which incur costs to a leaseholder in excess of £250. The High Court, in its infinite wisdom, has determined that all items incurred over a service charge year are works for the purpose of the 1985 Act and therefore should be subject to the Section 20 process. This causes confusion and challenges. If a leaseholder has a leaky pipe, does he/ she need to consult? How can agents manage if they are in constant consultation? How can managing agents plan for the maintenance and repairs?
The approach Chainbow is taking is a pragmatic one that will be backed up through our quarterly reports and will endeavour to demonstrate reasonableness and openness in all areas.
Turning to Daejan, the Supreme Court has managed to surprise everybody and go against all other Court bodies before them. The most interesting thing is the reason the Supreme Court made its decision. Over the coming months and years much will be written and said on this subject, but it was an experience to be in what was probably the first LVT case to use Daejan as its defence.
The case was held the day after the decision and partly concerned the failure of a landlord and agent to comply with the Section 20 process. The landlord’s barrister argued that nothing further was needed following the Supreme Court ruling. However, this would appear to be a red herring and it is certainly not open season for landlords and agents to ignore the Section 20 process or fail to comply with it.
In the Daejan case, the landlord offered a £50,000 reduction on the £270,000 bill and the Supreme Court considered sufficient compensation was available to the leaseholders. On that basis they turned over the decisions and allowed the works with the reduction of £50,000. Also, there is a clear statement in the decision that the facts of Daejan make the decision possible. Therefore, anyone thinking they can ignore getting Section 20s correct and rely on Daejan should be extremely careful.
Similarly, leaseholders thinking about a LVT Section 20 claim every year for all repairs and works may get a very short shrift!
Can’t pay? Apparently, there’s no need to!
Can’t pay? Apparently, there’s no need to!
The Supreme Court recently ruled against the Hounslow Council and its attempt to evict a tenant for rent arrears. The court found the council fell foul of the European Convention of Human Rights’ Article 8, which is to respect for someone’s home, and to my mind this has left a barn door open for challenges to the private rented sector and opportunities for miscreant renters.
Sometimes a decision arises that leaves one thinking how and why? How is society funding, presumably through legal aid, for those who don’t want to play their part and abide by basic terms of a contract. If these types of individuals do pay their legal fees, why don’t they just pay the rent arrears, or indeed, the rent on time?
One can look around a lot of areas and think how did these positions arise? Surely nothing is more simple than someone signing up to rent a property and, if they don’t meet the basic term of actually paying the rent, surely the landlord should be able to protect their own investment, property and livelihood. This applies to councils and social landlords as well as private rented sector.
What does it take to restore balance from the quirks of decisions that ride rough shod over the natural justice and what most would see as common sense.
Hopefully, somewhere down the line another case will restore the natural balance and justice but it will take either a lot more legal aid and a council or private landlord incurring huge legal fees to achieve it.
Surely the Government should step in to clear up these anomalies and abuses of what the Human Rights conventions were intended for.
Long Term Agreements
Some things in life are simple and do not need much discussion, such as, does the light go off when the fridge door shuts? Long term agreements should fit into the same category when you look at the legislation governing them but you would be surprised how many people would debate this, especially lawyers who want to change black into white.
The Commonhold and Leasehold Reform Act 2002 made it illegal to establish any agreement longer than a year without consultation with leaseholders and no longer than five years before the first purchase completes. In both cases the agreement value must be greater than £100 per unit per annum.
Simple, you would think, but a lot of developers and homebuilders do not stay up to date with the latest legislation and no one thinks to tell them. Also, renting a door entry system across five years would be a huge cost to homeowners instead of a more modest level over 20 years. The trouble is the 20-year agreement gets very expensive, very quickly.
Some enter into the agreements innocently and genuinely think they are doing the best thing to save leaseholders money. However, the unscrupulous will do it for theirown benefit. In reality, though, even this is too simplistic.
What is a developer to do if costs are running away on a site and they are staring down the barrel of a huge loss and possibly going bust? From their perspective, removing some costs is a sensible option but the impact this has on the building’s service charge is huge and will probably not have been accounted for in draft budget given to purchasers.
Equally there will be items dropped in the hope no one notices but will need to be installed at a later date. For example, a gate to stop pedestrians accessing a secure car park from a central podium even though a fortune has been spent securing the vehicle entrance!
The additional spice comes when someone argues that an agreement is not a long term agreement which is equally challenging when there is a Right to Manage (RTM) company involved. Right to Manage is the process whereby a majority of leaseholders can decide to take control of the running of the building.
On securing a RTM company, all agreements should come to an end and this is difficult when equipment is rented on a 15 or 20 year contract. At the end of that period the equipment will still belong to the leasing company and the RTM company has two dire choices; either negotiate some better terms or face having all the equipment ripped out. The second option would mean the leaseholders would have to become developers to get their systems back!
So whichever way you look at it, it is always easier to do things right and do things once than look for short cuts, stay ignorant of the law or try for the fast buck.
As an aside on this topic, one issue that is painfully obvious is how our legislators and successive Governments just do not understand property and development. The long term agreements had nothing to do with unfairness in maintenance and everything to do with developers avoiding cost on some equipment or machinery. If a developer can save money on security system, door entry or TV aerial by arranging a rental agreement that lessees will pay for, why wouldn’t they do it? The worst I have ever come across was apartment block lifts rented on a 30-year agreement that would not be owned by leaseholders at the end of the term. This meant the homeowners were actually paying for the lift installation cost and maintenance!
Turbulent times ahead and the impact on graduates
The impact on students will be fascinating because fee hikes will surely dissuade young people away from university degrees and force them to look at apprenticeships as the only viable way to earn and learn.
The current economic turbulence is the most frightening thing for the property industry at present and there are entirely external factors having surprising consequences on all property professionals. The fundamentals are pretty dire.
Unsustainable national debt leaves politicians stuck between a rock and a hard place because they can’t raise taxes or cut jobs without a negative impact. Interest rates are now blunt instrument and cannot be increased without severe consequences on both the public and businesses.
Civil unrest is simmering and has already boiled over once but will probably be back. The finger pointing of politicians and police at each other will not solve anything and only add an interesting sideshow.
The world economy adds to fears when the USA has been downgraded to an AA+ rating, creating new concerns that other sovereign risk profiles could follow - possibly triggering the implosion of the Euro. A number of European countries could find themselves in “administration” without any other country, or group of countries, being able to shore them up due to their own problems. Like asking for directions from Donegal to Dublin, the answer is I wouldn’t start from here!
But here we are and the sentiment and nervousness is making the stock markets behave as fiercely as the Titanic hitting the iceberg as one fear or problem flows into the chamber of the next fear or problem. The bottom line question is ‘will we see the economy crack and crash?’
The impact on students will be fascinating because, if all these fears play out in the next 12 months, fee hikes will surely dissuade young people away from university degrees and force them to look at apprenticeships as the only viable way to earn and learn. The property industry, whilst comprising a good chunk of the UK Plc balance sheet, is in reality only a factor of production.
From a personal perspective I hope that the industry embraces apprenticeships as a norm and valid alternative to full-time degree students. The market is not getting any easier and there seems to be a fight to the brightest from GCSE onwards which is not necessarily the imperative.
The profession needs a blend of cerebral and practicality and this can only be achieved with a balance of the widest ethnicity, sexuality and ability. The days of 100 students on a surveying degree are long gone but certainly the need will not subside.
Although, rather strangely, firms seem to not predict needs and demands very well and find themselves in a position whereby they lunge from boom to boom or recession to recession and it takes a while to match manpower to demand. We can all live in hope that this ceases and the generational lottery erodes so we have a steady supply of jobs and recruits. The ability for someone who happens to hit the right year finds themselves in hot demand because of shortage of supply.
The challenge for the universities is the opposite side of same coin, getting the flow and numbers right at any point in time. The necessity for lifelong learning, however, should give an aptitude for alternative educational demand being generated.
In summary, if the stock markets and financial gurus don’t steady the ship the property industry will only be pawns. A double-dip recession is a real possibility but I have been a forecaster of that from 2008 and the prospects could mean a depression from the rebound and dire hopes for today’s graduates.
RICS could be the Residential way forward!
I welcomed, with open arms, the new AssocRICS for Residential Managers and even more so the common sense solution that Members of the Institute of Residential Property Management (MIRPM) can transfer their qualification across.
Going forward, however, it will be the Betamax / VHS debate on which will prevail. Can the world of residential management accommodate both? Personally I am sceptical both would coexist.
At Chainbow, for example, a couple of our staff members will move over to AssocRICS and we will wait to see which organisation will prevail. In reality, this will be a short exercise because, being a long standing RICS Fellow, my natural home lies there and I would want my staff in the same fold.
Why would a firm pay two subscriptions and why wouldn’t the market want to see standardisation? Of course in dealing with the general public, the amount of media coverage, awareness and standing of the RICS does make the debate an easier win.
However, for the RICS to gain that stranglehold and take on board the mantle of residential property professionalism it needs a desire to be in that position. When I was involved with the RICS (mind you, over 20 years ago) there was always a reluctance to step into the residential arena for fear members would be thought of as estate agents. The bit that made no sense to me was that even then the public perception of a chartered Surveyor was an estate agent or a person with a theodolite!
Not a lot has changed in the intervening two decades (apart from hair loss and a couple of divorces)! The RICS has taken enormous strides in broadening awareness of chartered surveyors but despite its best efforts the public still think surveyors are estate agents!
My conclusion is that we should band together for the greater good and get behind the RICS to make a class of professionalism and standing hitherto unseen in residential management. Fingers-crossed the RICS do want to lead.
Unchartered Economic Waters
This year could well be another bumpy ride and rising inflation brings the prospect of interest rates on an upward trend. Apparently banks are removing fixed and tracker rate mortgages so a sure sign something is on the cards.
Personally, I had been sure December would see a rise in interest rates at the latest because of inflationary pressures in the economy but the fragility of the markets and personal finances put this off. However, with CPI running at 3.7% and RPI around 5% this cannot be ignored for long.
Of course the fragility has not disappeared and the consequences could take us into a whole new chapter of problems and the prospect of the double dip recession.
I always struggled with economics at University, the basis of arguing black is white and up is down and whatever you say there is no answer and you really cannot be wrong. When you are wrong then it is a something else that caused a change that made it wrong.
So while the professional economists will argue and debate on which way is up and the right and wrong solution; it is evident that we are in unchartered waters. Staying alert is the only option and mapping where we have been to avoid the perils again.
My real fear is that we won’t learn from what has happened and the same mistakes will be repeated.
As Ricky Tomlinson in The Royle Family might say “end to boom and bust, my …!”
Misinformation through the Grapevine doubles our workload
As 2011 gets under way and we lurch through the first third of the first month, we have seen some extraordinary things on the property front.
We had a water pump room flooded, which wiped out the water supply for 270 flats. We managed to get water back within 24 hours and permanently fixed inside of four days. What was interesting, though, was the reaction of the porters and how they were (and still are) giving misinformation to leaseholders and occupiers.
I come from the ‘Thunderbird school’ of just dealing with emergencies and solving problems rather than trying to blow them out of proportion. Unfortunately, we occasionally come across some who do not subscribe to this theory and these porters were more like The Hood than the Tracy’s. (If the Thunderbirds elements make no sense then your education needs updating and you need to You Tube Thunderbirds – homework)!
Anyway, these guys have been very unhelpfully advising all that the water would not be back for seven days and works were going to cost more than £100,000! Unsurprisingly, we found ourselves not only dealing with the problem but fielding heaps of calls from those wanting to know why it would take so long and cost so much!
In one strange way it has helped us because we have way exceeded the false expectations, however, if all worked together it would be a lot easier! So we will keep doing what we do and pick up the pieces along the way.
Happy 2011 … now bring on 2012!
As we leap into 2011 we are already contending with the VAT increase and what appears to be ever increasing fuel prices. This could make it a fairly tricky and interesting year.
One of the strange things about the 2.5% VAT increase is how it is being played down as only a marginal cost increase. It was only two years ago when we were told that the VAT reduction of 2.5% to 15% was going to be a major boost to the economy and get people spending – and the Government (admittedly of a different hue) claimed it was a success at the end of the 12 months.
However, for flat dwellers and owners the increase means service charges will hike without anything else happening. In Chainbow’s experience, most forget the Government imposed changes when looking through a budget.
It is also impossible to see prices driven down or we will see a whole heap of financial woe for suppliers and contractors.
Undoubtedly, it has been a very rough couple of years and we are not finished yet. There will be more strife and anguish waiting as we lurch through the start of the next decade.
So predictions? Another tough year with more social unrest; broadly static residential prices with some pockets rising and some areas seeing falls; no great change in the mortgage market as the banks and financial institutions continue to tidy their books; and a bumpy political ride for the Coalition as it clings to stay joined and together.
So happy New Year and let’s hope 2012 looks brighter!
Lying Lawyers
‘The law is an ass!’ is not a phrase you hear as often as you should. Generally, I find the Leasehold Valuation Tribunal (LVT) a very good source to resolve issues and problems and I guess my problem is not actually the Tribunal but the lawyers and individuals on the other side who will squirm, weasel and contort their story to suit their own purpose or ends.
Obviously I would not be naïve enough to think that the other sides are thinking the same of me. However, it never ceases to amaze me that a lie ends up being so contorted that it trips them and the inconsistency grows. I recently had a case where a freeholder turned up claiming he had not had any papers and only found out about the case on the Thursday before.
On being challenged if the demands had a wrong address (which would make them all invalid), this changed into ‘of course not’ it was just not his office and yes he had the papers he just did not bring them with him!!!!
Now, far be it from me to insinuate anything at all, but really I thought we left these kinds of homework excuses back in kindergarten. ‘My dog ate my Tribunal papers’ may be next!
Of course from fairness in justice perspective, everything has to be taken seriously but sometimes you just want the world you are in to turn into a comedy sketch.
I almost envisaged Rowan Atkinson bursting in!
The Blizzard of Blame Culture
This week’s snowy weather always brings out the best and worst in human nature. From those that take such adversity in their stride to the people for whom every challenge is the most arduous ordeal.
Obviously the growth of instant communication makes commenting on all means of situations a full scale reality. However, I will never cease to be amazed how the blamers of society will criticise and carp, have fool-proof solutions but never put themselves forward to positions where they could actually influence or control.
The poor Highways Agency get it in the neck because the gritting is not right, done early enough, done enough of, etc. As opposed to the idiots who set out on a journey unprepared, unaware how to adapt driving style for the conditions or the fact that UK does not need winter tyres on its cars.
For the property managers, if we grit or salt paths and roads and someone slips they want to make a claim; if we do not clear the paths in an estate, they moan. The stupidity of ‘blame culture’ is that doing nothing still leaves you open to a claim.
So, as we head full pelt into the “Day After Tomorrow,” I would recommend for each and every one of us to reflect on our needs and those of others. Try and look for the good and celebrate each other.
It is too easy to stand on the side lines criticising rather than being constructive and solving problems. Oh ... and the Vulture Claim Lawyers do not help, either!
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