The final paper presented last week at the LKP round table on commonhold came from Nigel Glen, the CEO of ARMA.
Mr Glen confined himself to emphasising the need for leaseholders, or commonhold owners, who run their own blocks to be aware of the law and obligations of communal living.
Mr Glen told the round table audience that when he bought a leasehold flat as his first home he had no idea of what leasehold actually meant.
“I never read the lease and left everything to my solicitor,” he says.
In this, he is probably like 95% of the rest of the population who buy leasehold property.
This is why there is some truth in saying that leaseholders need educating before they commit to buying flats.
This is the mantra – even the cure-all – for professionals in the leasehold sector when dealing with those who consider themselves home owners while they are, in fact, merely long term tenants in law. Or leaseholders.
What is not widely appreciated by those urging leasehold education, is that this is a situation unique to England and Wales.
An Italian, an American or an Australian will KNOW what they are buying when they purchase a flat.
For a start, they know that they are a home owner, albeit one living in a communal site with obligations and some restrictions on what they can and cannot do to their property because it will impact on others.
Those with direct experience of owning flats in commonhold structures know that it can work perfectly well.
Obviously, people being people there are going to be idiotic disputes and there will be chancers who believe their neighbours can pay the service charges rather than them.
What they don’t have, however, is a game playing freeholder (quite often based in a tax haven) playing the system, helped by opportunist lawyer / debt collectors who ensure that the even errors in paying promptly come at an eye-watering price.
Mr Glen’s presentation emphasised the importance of residents who take on the burden of managing their blocks have some knowledge of the obligations that they have assumed.
He said that he had personal experience of a block of 28 flats administering itself.
At LKP we generally suggest the employment of a professional managing agent to run even small blocks to avoid crossing the law or falling out with neighbours.
By Nigel Glen
How leasehold owning residents effectively manage residential properties, and what they need to know in order to run their blocks effectively:
I will be looking at leasehold as the basic principles are the same as for Commonhold ie management of common areas.
I will be talking about general management principles ie regardless of whether a Managing Agent is involved or not and I will come on to MA’s at the end.
What do Leaseholders have to know to manage their buildings effectively?
1. First and foremost is always the Law
a. Directors have usually signed up informally and do not understand the responsibilities and obligations that they have entered into as a) the director of a UK company and b) as a director of an RTM/RMC.
b. Case law – conservatory maintenance; S20 re £250 over the whole year; landlord steps
c. Section 20
d. Section 20B/18 month rule
2. The lease – this is fundamental to the whole management
a. Who owns what eg window panes
b. What can be charged against the service charge and where eg schedules
c. How is that charge allocated between the flats eg Lifts and ground floor flats
3. Skill sets required – It is always useful to have a set of professional skills on the board
i. Budget calculations to raise service charges in advance
ii. Reserve fund cyclical calculation
iii. Maintenance vs upgrade – 217 long lane
iv. Debt recovery
b. Project management
iii. Interaction between contractors
i. Explain where money is going to go – budget
ii. Explain where money has gone – balancing charge
iii. Project work
v. Disruption – scaffolding; skips; works
vi. Response to leaseholder enquiries – often underestimated. One per flat per week.
4. If a Managing agent is appointed – how to work with them and what are the advantages?
a. Knowledge – circulars, conferences, networking
b. Cross-pollination – having a view over a number of developments gives a fell for what is right eg utility costs
c. Inherit a range of contractors from properties – choose the best
d. 24/7 – few Directors wish to be involved full time
e. Provides a buffer between the Directors and the leaseholders – not everyone agrees with decisions eg red vs green door
f. Debt collection
g. Use the MA’s experience to guide change – NCW re S20; lease %age
h. Dispute avoidance/resolution including LTTP
iii. Invoice payment
j. Training – ARMA Directors portal
5. Other points re Managing Agents
a. Most managing agents are small and local – 84% of ARMA Members manage a portfolio <4,000 units.
b. Not very profitable – Usually charge pence per day per flat. Owed £148 re NG
c. Leaseholders must work with the MA not against them. From my own experience the default setting seems unfortunately to be one of distrust – lift preventative maintenance vs later call out charges. Leads to reactive rather than proactive maintenance.
d. Recognise that it is a thankless task – people only complain and sometimes unfairly
ARMA has 251 members and 75 affiliates and 19 Associates. Between them, members look after around half of all leasehold flats in England and Wales.
The leasehold management sector is unregulated; anybody can set up as a managing agent and start trading. ARMA was founded in 1991 to bring together professionals involved in private residential leasehold block management. We:
• Promote professionalism and customer care in residential block management
• Require our members to meet high professional standards
• Provide technical advice and guidance to our members- over 100 guidance notes
• Produce information and advice notes for leaseholders
• Run training courses on the leasehold system – 56 training curses
• Campaign for improvements in relevant legislation and policy.
ARMA also represents its members and promotes leasehold issues with policy makers and opinion formers.
ARMA members are regulated by an independent Regulatory Panel chaired by former housing minister the Rt Hon Keith Hill. Each Panel member has an active knowledge of the leasehold sector and relevant professional expertise. Significantly, leaseholders are represented. To preserve its independence, no one on the Panel is connected with ARMA or its members.