The month in brief
Welcome to the October issue of the Technical Update. Regional seminar season is now in full swing and the IRPM management team hopes to get the chance to talk to as many members around the country as possible. Your feedback is always welcome – and helps inform the decisions we take about the way we run the organisation going forward.
In this issue we round up the latest industry news, taking a closer look at the continuing issues around cladding remediation, the latest thinking on sprinklers in high-rise blocks and new ideas for social and affordable housing.
This month’s Talking Points reflect on the implications of our changing business environment for property managers and look in detail at the concept of appointing an 'accountable person' for blocks of flats, as proposed by Dame Judith Hackitt. Our Topic of the Month this time round is asset management technology and in our Defects Database we unpick the complexities of block electrics.
As always, you can contact us with your news, views or queries by emailing the Editor at lesley@davisaylingmedia.co.uk
IRPM News
CEO’s Column: Fees, salaries and Section 21
Block management/leasehold
Private cladding fund causes problems for leaseholders
PRS and B2R
Right to buy for renters plan condemned by industry | Could brownfield sites and B2R help solve the housing crisis? | NHBC: new affordable homes fail to offset private sector decline | Green light for Edinburgh’s £80 million Skyliner development | Professionalisation of the PRS drives up quality
Social Housing
Southwark to build modular homes on rooftops | Manchester builds on affordable homes pipeline | Labour commits to massive council housebuilding programme
Scotland and Wales
Welsh government will not help re-clad private blocks | Supply of new Scottish housing increases | Making Scottish social homes safer | Making homes more energy efficient | Welsh guidance on tenant fee ban is wrong, claims solicitor
What’s new in HR?
CIPD calls on Chancellor Javid to tackle under-investment in training
Fire safety
Up to 5,000 housing developments identified with timber cladding | Fire brigade drops ‘stay put’ advice after latest homes blaze | Proposals for sprinklers in new flats six storeys or higher
Health and safety
Working at height is still a killer
Legislation
Consultation: Sprinklers and other fire safety measures in new high-rise blocks of flats
Legal update
Mark Loveday looks at this month’s key cases
Talking points
RMCs and Hackitt’s 'accountable person’ - could external directors be the answer? | What can property managers learn from Thomas Cook?
Topic of the month
Five reasons for adopting new technologies in property management
Defects database
Electrics for property managers
IRPM events
What is happening, when and where?
CEO's column: Fees, salaries and s21
Andrew Bulmer takes a look at some of the key issues facing our industry
Having fun at our Regional Seminars around the country, especially the 'Thorny problems workshop', where we skewer our members on the horns of a thoroughly evil hypothetical dilemma.
A big shout out to our brilliant Bristol members, who really got their teeth into the ethics of the thing on 17 September and showed incredible professionalism in their responses. We all went home that night super-proud of our members. Thank you!
Fellows Day
Just back in from the IRPM annual Fellows Day and AGM. It’s good to hear the views of our senior members and I always learn new things. Big discussions on the viability of block management businesses, the cost of regulation, rising salaries for property managers, firms reliant on (sometimes hidden) commissions to make ends meet and keep headline fees low, and an inability to put up their fees to their customers. As the former owner of a block business, I remember finessing every penny to generate enough income while keeping the fees as low as possible, until I grew confident enough to start increasing fees to sensible levels.
Don’t be too worried about upcoming regulation. On the contrary. It should stop your business being undercut by incompetent chancers. In a fully regulated world, the cowboys should be driven from the market. However, that assumes the cowboys will be effectively policed and removed. Our wise Fellows made a good point; government’s record on enforcement is not good and any new regulator must have and use sharp teeth to clear out the rogues.
Rising salaries for block managers is the consequence of supply and demand. There aren’t enough of them. There is a war for talent going on out there, with every profession and industry seeking smart capable people who can deliver great service. For example, there are more than 100,000 vacancies in the hospitality sector. Our Fellows were clear; property managers should be paid more for the job they do. Not easy in a mean margin business, though. There was a discussion on modern technology and improving processes to cut costs, but then back to those low fees.
The answer is easy: put your price up. Reflect the good work you do. Actually doing that is a whole other thing, however. The market is highly competitive. Also, customers ask price because they can measure that and compare. What customers actually want is a decent, trustworthy manager so they can get on with their lives and they will pay a fair price for that. But how can customers value your worth when they don’t know what you do? Who will tell them, asked the room? Government won’t, and no professional or trade body could ever afford the multi-million pound campaign, year after year, required to even nudge public awareness.
The best answer by far is IRPM’s huge sales team. We have 5,000 sales representatives across the UK who have direct access to all your clients and customers. This is targeted marketing at its very best and, even better, those sales reps are also professionally qualified in the services they are selling. Nobody else can sell property management services like they can and, to cap it all, we won’t charge you a penny.
They are you. Be transparent on pricing, of course. But move the discussion to what actually matters to customers. Sell your service and safety. Give confidence and trust through your ethics and skills, your IRPM professional qualification and membership. Sell you. IRPM mostly gets complaints about behaviours and service, not fees. If the profession and our professionals talk more about service, safety and trust and less about price, more sensible fees will follow. You are a professional. Walk tall, speak softly, do a fantastic job and charge accordingly.
No-fault evictions
Over in the build-to-rent world, the Government is consulting on the removal of the s21 Notice Requiring Possession, which gives an absolute right to possession for a landlord of an Assured Shorthold Tenancy. Some build-to-rent operators are fairly relaxed about the proposal; others are not. At minimum, it will increase the complexity and cost of removing bad tenants. Those tenants will have been removed through a court process that will likely leave them with a CCJ, making it more difficult for them to access private sector housing, thereby worsening the over-demand on HA and local authority stock.
What most are agreed on though, is that some of the small buy-to-let landlords will exit. Some argue good riddance, although I disagree. Any reduction in supply will increase price and rents are already rising in response to the raft of recent PRS measures coupled with current market conditions. Should they continue to rise, an easy win for politicians would be rent control, which could harm institutional investment in build-to-rent. Returns are low and viability is stretched. Wiping 10% – 15% off the income stream would see a corresponding drop in capital values and pressure for this important source of new housing stock.
Sadly, most politicians, lobbyists and quite a lot of the property sector itself are too young to remember the devastating effect the 1977 Rent Act had on PRS supply. I started in this industry in 1984 and didn’t let a single property until 1989 when the Assured Shorthold Tenancy was invented; every time a rented property came empty, the property was sold with vacant possession while the owner had the chance to realise full value. Let us not go there again. The government consultation on s21 is open for another week or so – whatever your views, respond and have your say here.
Andrew Bulmer is CEO of the IPRM
Block management/leasehold
Private cladding fund causes problems for leaseholders
Leaseholders in private blocks with Grenfell-style cladding said last month that the government’s £200m cladding fund is “starting to feel like a PR stunt”, due to the complexity of the application process (Source: Inside Housing). See also IRPM CEO Andrew Bulmer’s comment from May 2019 on the “small print” of this fund.
The fund, which started taking applications on 12 September, was established to speed up the slow pace of remediation work on high-rise towers with aluminium composite material (ACM) cladding.
But in order to apply for funding, every leaseholder in the building has been asked to complete a five-page ‘state aid’ form. For blocks with a large number of absent leaseholders – some of whom may be based outside the UK - this is proving difficult.
One leaseholder from City Gate in Manchester explained that there are 329 leaseholders in his block and every single one has to fill out the form. With 99 flat owners not living in the building and 28 of the properties rented out, he has no idea how to track them down or how long it will take.
However, since the issue was reported in September, a spokesperson for MHCLG contacted Inside Housing to confirm that applicants would not need to wait until all the forms were completed before making an application. MHCLG added that it is in touch with a "named individual" for each building, and stressed that payment in arrears is "normal industry practice" - with support available for applicants who have "little financial capital".
The government has set a deadline of June 2020 for all private sector blocks with ACM-cladding to be remediated. Of 145 private sector blocks with the material, just 13 have completed remediation work, while another 21 have started.
PRS and B2R
Right to buy for renters plan condemned by industry
If it wins the next general election the Labour Party has pledged to give private tenants the right to buy the homes they live in, whether or not landlords are considering selling their property. Shadow Chancellor John McDonnell framed the proposal, outlined in the Financial Times on 2 September, as a response to the problem of “overcrowding” and landlords “who don’t maintain their properties”.
The announcement produced an immediate response from landlords and their member organisations as well as from others in the industry. The plan was roundly condemned as ill-thought out and guaranteed to throw the PRS into disarray, negatively impacting the supply of homes to rent.
Tory MPs led the attack on the proposal, with Andrew Bridgen and the Michael Fabricant both commenting that the proposals would decimate the private rental market. David Smith, policy director at the Residential Landlord’s Association agreed, saying the policy would effectively kill off a large part of the private rented sector. “If there was to be any chance of this becoming law, there would be a mass sell-off of properties in advance”, he added. Smith thinks Labour’s plans are effectively a kind of compulsory purchase that is ultimately unworkable, reducing the availability of homes to rent and destroying the viability of the PRS.
Ringley & PlanetRent Group CEO Mary-Anne Bowring, blogging about Labour’s plans, commented: “It is also doubtful, if the aim is to allow tenants to buy their rented home for below market value, whether or not lenders would be willing to provide mortgages on that basis. The housing market is predicated on market value, not on arbitrary sums set by the government.” And David Alexander, joint managing director of property management firm Apropos, told Letting Agent Today that Labour’s plan amounted to a “cash grab” which would prompt a rental market collapse.
However, leading PropTech specialist Neil Cobbold - COO of lettings payment automation provider PayProp - said he didn’t think the plans should be automatically dismissed. “Private landlords have been hit with a range of tax changes in recent years, including additional stamp duty and the removal of buy to let mortgage interest tax relief,” he said. “If landlords were offered some sort of exemption from these measures in exchange for selling their properties to tenants, this could create a scenario that is fair for both sides of the transaction and benefits the overall health of the UK property market.”
Could brownfield sites and B2R help solve the housing crisis?
New research from B2R builder and operator PLATFORM_, claims that brownfield land could address 71% of housing need in regional British cities, and that it can be built-out faster if the land is used for build to rent. A lot of the previous brownfield research has only been for England, but this study includes new data for Scotland and Wales.
PLATFORM_ calculates that brownfield land could accommodate 367,711 homes across 6,131 sites in 24 of the largest urban areas in England, Scotland and Wales. It then cross referenced those figures with 10-year local housing need for each city and found that, on average, brownfield land could accommodate 70.7% of that demand. The sites identified are all vacant or have been earmarked for housing delivery. If they were all built for sale they could take decades to deliver. However the B2R operator says if the land were prioritised for rental apartments it could be built-out 3.5 times faster, due to the far faster absorption rates of rental schemes.
Previous research from the Investment Property Forum shows while the rates of sale for housing developments average 1-2 a week, letting rates are far higher, averaging 7 a week.
However, as Jean-Marc Vandevivere, chief executive at PLATFORM_, says: “Clearly not all this housing is going to be built-out at the same time, or even all for rent. But what we want to show is the sheer quantity of brownfield land there still is available, and how much more quickly we could start building that out if we targeted it at renters”.
NHBC: new affordable homes fail to offset private sector decline
The number of new homes to be built for those in the affordable and rental sector in the UK continues to rise significantly but these gains have failed to offset the decline in private sector registrations, according to the latest figures from the National House Building Council (NHBC).
In total, 3,875 new homes were registered in the affordable and rental sector in August - a 17% increase year-on-year (3,252 in 2018) - while home registrations in the private sector fell 20% to 8,420 (10,460 in 2018). Overall, the number of new homes registered to be built by builders and developers across the UK was down 10% compared to August 2018 (12,295 in 2019; 13,712 in 2018). Between June and August, 40,213 new homes were registered compared to 42,329 in 2018 – a decrease of 5%. Within this, there was an 8% fall in the private sector, partially offset by 4% growth in the affordable and rental sector.
Commenting on the figures, NHBC Chief Executive Steve Wood said: “The slowdown in overall registrations in August seems to be partly due to prevailing uncertainties in this pre-Brexit period. Nonetheless, it is encouraging to see growth coming through in the affordable and rental sector.”
Green light for Edinburgh’s £80 million Skyliner development
The 338-apartment build-to-rent Skyliner scheme in Leith was given the go-ahead in September.
The brownfield site at Ocean Drive on the edge of Albert Dock will now be redeveloped to comprise four blocks of 10-14 storeys with 25% ‘tenure blind’ affordable housing.
The Skyliner development is well located for transportation links around Edinburgh, including the anticipated phase II tram line. Provision for 71 on-site car parking spaces has also been made, including 6 accessible spaces, 12 electric charge points and 2 city car club spaces. Cycle parking provision has been increased to 708 spaces.
S1 Developments, an Edinburgh family-owned developer who owns the site, will deliver the development - the first BTR scheme for Legal & General in Edinburgh and its second in Scotland.
Professionalisation of the PRS drives up quality
The quality of accommodation in the private rental sector has drastically improved in the past decade according to a survey by a specialist buy-to-let lender.
InterBay Commercial (source: Letting Agent Today) says the proportion of homes in the private rental sector in England deemed non-decent by the Office for National Statistics has fallen for 10 consecutive years, decreasing to 24.5% in 2018 - the latest data available - from 44% in 2008. This is in spite of the rental sector growing by 45% over the period, adding 1.5m homes. As a result, the latest English Housing Survey shows that the vast majority (84%) of private renters were satisfied with their current accommodation.
InterBay claims that landlords’ commitment to refurbishing to improve properties has been a key factor in this improvement. The lender’s survey of more than 700 property investors shows that 70% of landlords who recently undertook a refurbishment did so to improve the property, either in terms of presentation or the quality of the accommodation for tenants.
InterBay’s analysis shows that landlords typically spend £12,000 per refurbishment while average spending on what it calls ‘heavy refurbishment’ was as much as £40,000. Even after accounting for those who did not see the value of their property rise, the typical refurbishment added £13,000 to a property’s value.
Social housing
Southwark to build modular homes on rooftops
Southwark Council agreed in September to bring forward a building programme to develop modular upward extensions on existing blocks of flats (source: Inside Housing).
In order to minimise opposition from people living in affected blocks, the authority has put together a set of “rooftop development principles”, including the fact that top floor residents will be able to remain in their homes.
Southwark plans to crane-in factory-built homes to keep the development process as short as possible and give first refusal on the new units to tenants living directly below them. And it has promised to carry out improvements to the existing blocks, without charging leaseholders for new roofing, lifts or landscaping. Leaseholders will also be offered the chance to purchase a share of one of the new homes above them, with no rent paid on the part they do not own.
Officers are set to start exploring which of the council’s blocks could be suitable for upward extension, while the council is also developing a rooftop design guide.
Southwark Council will attempt to apply the principles to its existing rooftop schemes – with 44 new homes under construction at the Chilton Grove development using traditional building methods. Work is also due to start shortly on another 28 rooftop homes in the borough.
Manchester builds on affordable homes pipeline
Manchester City Council has committed to delivering at least 6,400 affordable new homes in the city by 2025, increasing its previous target by 1,400 homes (source: Inside Housing).
The increase is designed to fulfil the council’s ambition that 20% of all new homes in the city are affordable. The new homes will be equally split between social housing, affordable housing and shared ownership properties.
Labour commits to massive council housebuilding programme
Shadow Housing Minister John Healey, has pledged “the largest council house-building programme in a generation”. In a speech at September’s Labour Party Conference, he also promised the full devolution of housing finance to local government; loans to kickstart work on 22,000 homes stalled by the recession; powers for councils to license private landlords; and a mortgage rescue scheme.
The insecurity of many tenancies and the increased number of families moved out of their local areas, away from family and support networks, because of housing shortages and welfare cuts, was pinpointed as a key problem.
Also speaking at the conference, Jeremy Corbyn made clear that Labour would not rely on private housebuilding to ease the housing crisis but would instead focus on state provision, pointing out it was fiscally responsible, as income would be ploughed back into the local economy and the housing benefit bill reduced.
Scotland and Wales
Welsh government will not help re-clad private blocks
The Welsh Government will not follow England’s lead in helping fix private blocks with Grenfell-style cladding. Housing and local government minister Julie James has said taxpayers should not have to fund construction “failures” involving privately owned property.
The minister admitted in September (Source: Inside Housing) that she is aware of “a number of high-rise residential buildings with significant building defects” where there appeared to be a “disregard” for building regulations. She also acknowledged that leaseholders could face thousands of pounds of costs as disputes with landlords over liability rumble on. However, in a written statement, she confirmed that the devolved administration will not make money available to the private sector.
Supply of new Scottish housing increases
Scottish Housing Minister Kevin Stewart has welcomed a 15% increase in Scotland’s supply of new housing.
However, he also warned in September that a no deal Brexit could have a damaging effect on future growth in the country.
More than 22,000 homes have become available in the past year - nearly 3,000 more than during the previous year. This is the sixth consecutive annual increase in the total housing supply, the highest annual figure since 2008-09, and for the first time since 1980, local authority housing stock has also increased.
Making Scottish social homes safer
A new loan scheme worth £13 million, to help social landlords meet improved housing safety standards is already making a difference, said the Scottish Government in September.
Registered Social Landlords such as housing associations can apply for an interest free loan to help with the costs of meeting the new standards in their properties.
There have been 23 applications to the Fire and Carbon Monoxide Detector Loan Scheme since it launched in June and the loans are expected to bring more than 19,000 homes up to the new standard. Orkney Housing Association was the first to apply and work has already started on their 545 homes.
The Scottish Government recently extended standards that currently apply to private rented property and new-builds. It means smoke alarms fitted in the living room or lounge, as well as circulation spaces such as hallways and landings must be fitted in every home in Scotland. The improved standards also mean kitchens must have a heat alarm and a carbon monoxide installed where there are appliances such as boilers.
Making homes more energy efficient
Funding of £450,000 to support local authorities decarbonise heat and improve energy efficiency has been made available by the Scottish Government. Local authorities can apply for funding to pilot Local Heat and Energy Efficiency Strategies which aim to identify local solutions to reduce emissions from buildings and tackle fuel poverty. The funding is available to the nine local authorities who have not yet piloted strategies.
Welsh guidance on tenant fee ban is wrong, claims solicitor
The Welsh Government’s own guidance on the tenancy fee ban, which came into force at the weekend, is incorrect. Robin Stewart, a solicitor at Anthony Gold, says it contains “serious errors”. He said that the guidance describes itself as “non-statutory” and that, providing Welsh local authorities have considered it, they do not have to stick to it.
Stewart has issues with a number of points in the guidance, including the issue of statutory period tenancies arising at the end of a fixed term after the ban came into force, and whether they come within its scope. To read more on this click here.
What’s new in HR?
CIPD calls on Chancellor to tackle under-investment in training
The CIPD has joined a coalition representing employers, business owners and professionals to urge Chancellor Javid to broaden the apprenticeship levy and allow employers to spend their levy funds more flexibly.
Introduced in 2017, the apprenticeship levy was designed to address declining employer investment in training.
However, as a recent report from the CIPD Addressing employer under-investment in training highlighted, the levy has failed to slow the long-term decline in the volume of, and investment in, work-based training in the UK. Less than a third of levy-paying employers report that it boosted their overall training investment levels.
The survey also found that over a fifth of levy-paying organisations stated that they had used the funding on training that would have taken place anyway and 14% reported that it had directed funds away from other, more appropriate forms of training.
To ensure that the policy really does drive up investment levels, the letter sets out the need for a levy that allows businesses greater flexibility to fund training that is effective for both workers and employers. This would help to fill skills shortages, enable higher pay for workers and allow millions more workers to benefit from quality training and career progression opportunities.
During his campaign for leadership of the Conservative Party, Sajid Javid pledged to ‘‘broaden the apprenticeship levy into a wider skills levy, giving employers the flexibility they need to train their workforce while ensuring they continue to back apprenticeships’’.
The organisation believes a more flexible approach will help employers to fill skill gaps, enable higher pay for workers and allow millions more employees to benefit from training and progression opportunities.
As well as the CIPD, the coalition also includes the Recruitment & Employment Confederation (REC), Chartered Institute of Personnel and Development (CIPD), Freight Transport Association (FTA), The Chartered Institute of Management Accountants (CIMA), Association of Accounting Technicians (AAT), the Association of Independent Professionals and the Self-Employed (IPSE) and ScreenSkills.
Fire safety
Up to 5,000 housing developments identified with timber cladding
Almost 5,000 housing developments – either completed or on site – are currently using timber cladding despite warnings about its dangers from fire experts, according to a report in Inside Housing.
Data provided by the Glenigan construction database shows 4,031 private housing developments and 859 social housing projects around the country using timber cladding. Of the private developments, 179 were buildings of six storeys or more, while of the social housing projects, 50 fell into this category. Out of all the developments, 2,162 were scheduled to start after the Grenfell Tower fire. Some of these still have yet to begin.
Industry sources also estimated that between 200,000 and 250,000 square metres of timber are sold for cladding every year, which would put it alongside high-pressure laminate cladding – another combustible material – in terms of market share.
The news comes in the wake of another fire spreading via timber cladding on the outside of a building – the six-storey Limehouse Lodge in Clapton.
James Murray, London’s deputy mayor for housing, said: “The government must urgently reconsider the scope of the ban on combustible materials, including timber, so that it applies to all buildings regardless of height or use. “It should also proactively urge building owners to review the safety of all buildings – not just high-rise properties.”
Fire brigade drops ‘stay put’ advice after latest homes blaze
Residents living in Worcester Park, on the same housing development as the building in south London which was destroyed by fire at the beginning of last month, have been told to evacuate their homes in the event of a blaze, rather than follow a 'stay put' policy.
The building was built by St James, a division of Berkeley Group, and is owned by Metropolitan Thames Valley housing association. Now St James has written to residents of neighbouring buildings, warning them to be immediately prepared to leave their homes if fire breaks out in their property and saying: “On the advice of the LFB the previous stay-put policy has been suspended and we are now operating an evacuation policy for all blocks.”
A spate of recent fires is prompting concern about whether the purpose of building regulations, currently designed to save lives but not buildings, needs to be looked at again.
Jim Glockling, technical director of the Fire Protection Association, said: “We have to consider if… this is what people expect the regulations to be doing. The regs are essentially about evacuation before collapse; not stopping a fire but slowing it down.”
Proposals for sprinklers in new flats six storeys or higher
New blocks of flats of six storeys or higher could require sprinkler systems under new Government plans in the wake of the Grenfell Tower fire. Housing Secretary Robert Jenrick has outlined plans to improve safety regulations after the fire in the high-rise block in June 2017, which resulted in the deaths of 72 people.
Under current guidelines, sprinkler systems are required for buildings of 30 metres (98ft) - approximately 10 floors - or higher, but ministers will decide whether to decrease this to 18 metres (59ft) - approximately six floors. Following a call for evidence earlier this year, the government has now published a consultation to look at the issue of sprinklers. Scroll down to Legislation for more on this.
Firefighters are also calling for a change in the law which would see sprinklers fitted in more new-build developments. The London Fire Brigade (LFB) wants all purpose-built residential blocks to have sprinklers installed, irrespective of height.
Health and safety
Working at height is still a killer
Working at height is still one of the biggest causes of death and major injury in the property industry according to the HSE. In order to help tackle the problem, anyone employing contractors or working at height themselves can access the step-by-step guide on how to assess the risks and prevent falls.
The site has a range of useful information, guidance and resources for employers, including Working at Height: A brief guide.
Legislation
Consultation: Sprinklers and other fire safety measures in new high-rise blocks of flats
Developers building a new block of flats that is more than 30m high must ensure the scheme includes a sprinkler system. However, in light of recent block fires, the government is proposing to extend the requirement to all new blocks above 18m.
A new consultation paper published by MHCLG also sets out proposals to introduce new requirements in respect of signage in stairways (e.g. identifying the floor number) so as to aid firefighters.
Views are also being sought on whether blocks of flats should be required to have an emergency evacuation alarm system which could be triggered by firefighters in order to initiate an evacuation. To read and download the full consultation paper. Anyone who wishes to respond, must do so by 28 November 2019.
Legal update
Gift or disposal – what’s the difference?
Mark Loveday takes a closer look at the recent case of York House (Chelsea) Ltd v Thompson
A husband and wife owned the freehold of a block of flats in Chelsea. The leaseholders were planning to claim the freehold. The freeholders granted some 14 leases of various parts of the block to one or other of themselves. The areas included parts of the courtyard, subsoil, airspace and internal corridors. No premium was paid for the leases, and the rent was a peppercorn.
Under s.1(1) of the Landlord and Tenant Act 1987, a landlord may not make a relevant disposal affecting any premises to which Pt.1 of the Act applies, unless a s.5 notice has previously been served on the tenants giving them a right of first refusal. The freeholders did not serve s.5 notices. The leaseholders gave notice to claim the freehold and nominated the claimant to receive the transfer on their behalf. The claimant sought an order that the defendants make good their default by transferring the leases to it.
The leaseholders sought an order that the freeholders transfer the leases to them at no premium under s.19 of the Act. The main issue was whether the creation of the leases could be described as a “gift” of those interests to a family member which was an exempt disposal under ss.4(2)(e) of the Act. The leaseholders argued a “gift” did not include the creation of something new.
What was the court’s decision?
The definition of “disposal” in s.4(3) as “the creation or the transfer of an estate” provided a strong indication that “gift” was intended to encompass both a transaction by way of creation of an estate and a transfer of an estate. Accordingly, the wording and purpose of s.4(2)(e) indicated it was broad enough to include the grant of a lease.
There was no policy reason for distinguishing between a transfer of an existing interest for no value and the grant of a long lease for no value.
Although the ordinary meaning of “gift” was “a voluntary transfer of property made without consideration” this was not decisive. The grant of a lease did involve entering into mutual covenants, but it also resulted in the carving out, and vesting in the leaseholder of a new estate in land. It was therefore conceptually possible to describe the grant of a tenancy as the making of a gift. The motive for entering into the transaction was not relevant.
It followed the grant of each lease was a “gift” and the leaseholders had no right to acquire them under s.19
Why is this case helpful?
There are always risks that disposals of land may trigger the right of first refusal under Part 1 of the Landlord and Tenant Act 1987.
This case emphasises that first, the carving out of a new lease may require service of a s.5 and second, that a new lease for no premium may still be exempt from these requirements under the “gift” exception in s.4.
Other must-read cases
Plantation Wharf Management Ltd v Fairman [2019] UKUT 0236 (LC), HHJ Bridge, 25 June 2019.
A Tribunal has no power to make an order under the Landlord and Tenant Act 1985 s.20C in favour of tenants, where they have not given their express consent or authority to make the application.
Mark Loveday is a leading Barrister with Tanfield Chambers specialising in leasehold management and enfranchisement work
Go to the Resource Hub for more. Case law is updated on a regular basis.
Talking points
RMCs and Hackitt’s “accountable person” - could external directors be the answer?
Andrew Bulmer takes a closer look at the concept of an 'accountable person' for blocks of flats
One of those gritty “coal-face” property management issues we wrestle with is getting leaseholders to stand as directors of RMCs. And, with the likely abolition of ground rents and other income sources available to freeholders, encouraging builders to invest the freehold interest into the RMC, this is a problem that is likely to become more common in the future.
Now roll forward to when the Hackitt reforms are implemented. For tall buildings (six stories/18 m and upwards) Dame Judith wants there to be one person who is ultimately responsible for the safety of the building and that person generally should be the owner/freeholder.
It is difficult to argue with the perfectly sensible proposition that responsibilities should be crystallised and the person responsible for the safety of a building should be clearly identified, as much for their own assurance as for everybody else’s. But it will certainly add an extra frisson of excitement come that first meeting with the leaseholders when the property manager asks for volunteers to stand forward as directors of the RMC.
Usually, some civic-minded souls are happy to put a little bit of effort back into their community, but not always. One of the push backs is that being the director of an RMC brings with it the same liabilities that any company director would have. So imagine the reaction of those generous volunteers when you explain to them that one person must stand forward as the 'accountable person', and then you explain the new liabilities that they will assume under Hackitt.
That one named individual will be responsible for the registration of the building with the regulator. They will also be responsible for the residents’ engagement plan and ultimately responsible for the work of the building safety manager. Get it wrong and - in the worst case - they will go to jail.
How many well-intentioned leaseholders will sign up to that responsibility, especially given that the role is unpaid? Doubtless, some brave souls will do so but inevitably there will be some estates where nobody will stand forward. Developers will have great difficulty handing over estates and until they do so, someone in that firm will carry the responsibility of being the accountable person. I have already heard of a developer questioning their continued construction of tall buildings given the liabilities that may accrue to them years down the line for remediation if the rules change. Compelling developers to continue to hold freehold, which will generate no meaningful income but will carry significant liability, is surely not going to work.
What if every director stands down and/or no directors are willing to stand? Ultimately, the company could be struck off at Companies House. If that happens, the freehold interest could revert to the Crown. The Crown, although holding the freehold, would be exempt from any management responsibilities or liabilities. No service charge would be collected or management services delivered. Chaos would soon ensue. The Crown, of course, would want to sell the interest. If it had a ground rent, it could be sold to an investor. If it did not generate income, it would not attract one. This is not to create an argument for or against ground rents but to observe that, in that circumstance, the only likely purchaser will be the residents themselves, desperate to reintroduce some form of management to the building. So they could set up a company, buy back their own freehold (the Crown would charge an amount of money even if the freehold value was zero) and, then what? They would need to appoint a director and an accountable person. Back to square one.
To avoid going all around the houses, and indeed a journey through the Crown estate, one possible solution might be for primary legislation to be drafted, permitting the appointment of an external director to an RMC, irrespective of the terms of the Memorandum and Articles, and for that director to become the accountable person. Clearly, no external person is going to do that for free and the charge for their services could be very handsome indeed. That cost will ultimately be met by the leaseholders which they are unlikely to be very happy about, but if none of them are prepared to stand forward and take on the responsibility of the role of the accountable person then their way out is to pay somebody who will. The legislation will therefore need to be drafted to allow for the recovery of the costs of a paid external director through the service charge irrespective of the terms of the lease.
The legislation will also need to give the external director the necessary authorities to fully manage the building and discharge their responsibilities. It follows that a mechanism must be provided for leaseholders to reign in the actions of a rogue external director and, in extremis, remove them entirely. Provisions would also need to be made to prevent conflicts of interest between that director and the managing agent and also to protect developments from an adversarial takeover by an acquisitive director and RMC.
Is this a possible answer? Discuss. It would certainly add to the cost of the service charge but it might also place the duties of the accountable person into the hands of somebody with the necessary competence and capacity to deliver on their responsibilities, taking on risk for a commercial reward.
Have your say. IRPM would like to hear from you, the industry experts. Tell us whether you think this would work or whether you have a better idea by email to info@irpm.org.uk.
- A sixth of all PropTech solutions are currently focussing on property or facilities management.
- How are you, as a property manager, able to consider your own job let alone consider innovations in the sector when your day to day job is all legacy orientated and tasks are largely manual?
- Solutions can have a global impact, not just a local one compounding those points - innovations can essentially come from anywhere.
- Trust is key to the way we property managers do business. But how can you trust solutions you have never heard of before, using technologies you have no experience of?
- It is vital to first know what problem you are trying to solve and then look to procurement solutions that can help you. But do we trust ourselves to pick a solution; should we employ a prop Tech specialist to identify one for us?
- Fear of failure - in this world of innovation the industry is frightened of failure and this could be causing an inertia that isn’t going to shift. This is endemic in a sector that has such small margins. There is an unwillingness to invest in solutions to anything other than an OpEx perspective.
Topic of the month
Five reasons for adopting new technologies in property management
Increasingly, technology is transforming how buildings are occupied, managed, and bought. In this article, Hannu Rantanen takes a closer look at the ways property asset management tools can support this change.
Property asset management software now has the ability to support the processes that managing agents use day-in, day-out, from beginning to end. Here are five of the most important reasons why adopting these tools has huge potential to improve the effectiveness of managing agents and can help them differentiate the service they offer their clients and other property stakeholders.
Build better communication
Communication is easy if you have the tools to support the process. Property asset management is all about people. It heavily relies on the use of property, market, and tenant information. When you have all the important information in one property asset management tool, you can react to changes faster and strategically plan your next moves. More important, you can ensure that everybody in your team has access to all the data and understands the big data swiftly.
Get a clear strategy and a committed team
Choosing a property asset management solution to enhance your business requires a more strategic approach than just buying an IT system to automate manual processes. In order to realise all the benefits for your organisation, you need to get your employees and stakeholders to use the solution in their daily life. And in order to buy in to this, they need to feel that it helps make their work better and easier.
Strategies are sometimes seen as hard to implement, but they are potentially the backbone of your business. A well thought out strategy is often why investors pick a certain asset management company to add value to their property holdings. A purpose-built property asset management tool offers you an effective way to communicate and implement that strategy. All the information your team and your stakeholders need is in your hands – anywhere and anytime.
An effective software solution also helps you to collect the needed information to build and update your business strategy. All your team members can work together on that property strategy or business plan and share it instantly with your investors.
Make the right decisions with good data
Almost everyone today is an information worker, but we also suffer from information overload. In many businesses, quantities of data are stacked without a clear understanding as to what their purpose is, and the quality of data is overlooked.
To succeed in business, it is important to differentiate yourself from others. Demonstrating your potential through your knowledge management abilities gives you a competitive edge in the industry.
Good data provides accuracy and efficiency to make great decisions. Using the tools consistently helps to streamline processes, improve the quality of data, and ensure the compatibility of the information across your organisation.
Engage with your stakeholders
A property’s best assets are the tenants - and you won’t have any assets to manage without the owners. Building trust and a reputation for good relations with your tenants, building owners and/or investors are essential for any property manager. To engage your stakeholders, you need to keep them informed and aware of your activities and performance.
Your clients want to make sure that together, you develop a shared understanding of where to take their assets and by what means. Tenants and leaseholders want to ensure their voices are heard. But analysts and the media also play a key role in the property sector. Market insights and location promotion is key to helping your clients get and retain the best tenants and to attracting long-term leaseholders.
Spend less time on rows and columns
Property managers are used to dealing with spreadsheets full of numerical data. In the digital world where we all live now, we have more than enough data, but does it help us in daily decision-making? Not necessarily.
The reason for this is that data is fragmented across multiple systems and documents. These data sources are not necessarily compatible or comparable with each other. So property managers are forced to do a lot of manual work, often in spreadsheets, in order to sort them out. And even after all that, the data is still just numbers in rows and columns!
Switching to data-driven tools helps improve the quality of the data and enables fast decision-making when needed. Credibility as a competitive player in the market comes through standardising routine, ad hoc information flows and adding value through better information. Web applications create the means to share information and at the same time provide your customers with a great user experience.
In today’s fast-paced business environment, communication is the key to success. Utilising the latest technology is the only way to stay on the same line with your competitors or even better – a bit ahead.
Hannu Rantanen is Co-Founder of Assetti.
Defects database
Electrics for Property Managers
James Paul and Lawrence Harkess unravel the complexities of Electrical Installation Condition Reports.
An electrical installation condition report is a test document that measures the ‘health’ of an electrical installation, a bit like an MOT for a car. They are increasingly needed by property managers and landlords to demonstrate to other parties that electrics are safe.
Most of the test report concerns resistance readings which are a crude measure of how old the wiring is. Over time through normal expansion and contraction due to thermal changes, the tightness of electrical connections loosens up, a bit like the springs in your mattress wearing out after a while. This lowers the overall conductivity of the circuits, increasing their resistance, until the point at which your EICR comes up as ‘unsatisfactory’ and your electrician tells you that you should consider having your property re-wired. A really old electrical circuit can have ‘hotspots’ where the resistance through a particular area is very high at times of high loading. You can actually feel these as, in the worst cases, the cables get hot to the touch. The greater the current running through one of these areas, the higher the risk of a fire.
The present day recommendation in the industry is testing of electrical circuits every 5 years and rewiring every 20-25 years. An EICR is normally valid for 5 years, but any changes to the circuits in that period (including something as simple as changing a light fitting) must be accompanied by a supplementary electrical installation certificate, or the original EICR instantly becomes null and void.
An EICR also includes a visual inspection of the installation, and test on a proportion of the circuits identifiable, and groups faults and recommendations into several categories:
- Code 1 – for risk to life situations that must be rectified immediately by the electrician, if necessary by disconnecting that particular circuit before leaving the building .E.g. a smashed plug socket fascia with exposed live cabling visible
- Code 2 – for slightly less risk situations pose a risk of injury or harm, and must be rectified in strict timeframes, or moved into Code 3 status through simple improvements. E.g. a cracked plug socket fascia that is not exposing the cabling
- Code 3 – for faults that do not pose a risk to people but are departures from recommended practice. E.g. A plug socket that is not installed at the recommended distance from the floor
- LIM – ‘Limitation’ – a suspected fault or problem, that could not be determined due to some reason outside the electrician’s control, e.g. stored items in a closet that could not be moved hiding the location of what is thought to be an additional plug socket.
- ‘Advisory’ – sometimes called ‘Code 4’ – for identifying installations that were likely correct at the time of their install but would now have be done a different way due to changes in legislation. E.g. a plastic consumer unit which would have been absolutely fine until a few years ago.
This is an extract from a longer article on electrical installations and EICRs. To read more, go to the Resource Hub.
James Paul is a director with Earl Kendrick and Lawrence Harkess is a NICEIC registered electrician with more than 30 years’ experience working for property managers.
IRPM events
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10 October 2019 - Regional Seminar - Southampton
15 October 2019 - Member Exam in London & Manchester
22 October 2019 - Regional Seminar - Birmingham
29 October 2019 - Regional Seminar - London
21 May 2020 - Annual Seminar 2020
