Fees come first for FirstPort: leaseholders billed at least £39,000 for applications to the Building Safety Fund … And so it begins

By Liam Spender

Article by Liam Spender, LKP Trustee and a leaseholder at the St. David’s Square estate referred to in the article.

Leaseholders at 173 buildings managed by FirstPort in England are being charged fees for applications to the taxpayer-financed Building Safety Fund (BSF) and for other fire safety inspections.

FirstPort has not responded to questions about how much leaseholders have been charged in total. LKP calculates that it is at least £39,444, assuming each of the 173 buildings has only been charged the lowest possible fee. Some buildings may have been charged multiple fees by FirstPort. The actual figure may be much higher.

The revelation of the previously secret fees comes in spite of FirstPort’s written Building Safety Fund Promise to leaseholders.

The Promise, which FirstPort displays prominently on its website, says that leaseholders “have our word that we won’t make a single penny keeping you safe, as we’ll only ever recover our costs when remediating unsafe non-ACM cladding systems on your development.”

Under a complicated and previously undisclosed fee structure operated by FirstPort, some buildings may have been charged multiple different fees as their fire safety inspections and BSF applications have progressed.

The fees include a charge of £190 plus VAT (£228) for FirstPort’s surveyors to measure a building.

The charges appear to continue once a building is registered with the BSF. FirstPort says it collects a fee of up to £210 plus VAT (£252) for every building registered.

FirstPort also bills leaseholders for arranging EWS1 inspections. The charge is £125 plus VAT (£150) if a building does not require an intrusive survey and £437 plus VAT (£524.40) if it does. FirstPort then passes on the costs of the fire engineer who actually does the inspection work, although it points out it does not add any mark-up to these costs.

Further charges may yet be made as applications proceed through the BSF bureaucracy. FirstPort’s briefing to LKP says “this phase is still ongoing and, as a new process, the full costs will not be clear until we have completed all the work for this stage and therefore will be confirmed in due course.”

FirstPort was twice asked to comment on how it decides which costs are passed on to leaseholders or taxpayers. FirstPort was also twice asked to explain how much of the total cost of its Building Safety team it is billing to leaseholders. FirstPort did not reply to these questions.

Invoices from the FirstPort managed St David’s Square, a development on the Isle of Dogs in east London, with nine buildings and more than 400 flats, show FirstPort billing its £228 building surveying fee.

At the St David’s Square estate charges for applications made in respect of eight buildings total £1,824.

Commenting on the fees, FirstPort Chief Operating Officer David Young said the charges range “between £2.85 and £3.86 per leaseholder.”

The site’s 2020 service charge accounts do not support FirstPort’s statement. The BSF costs were actually charged to all leaseholders in the sum of £3.93. They were paid via a service charge schedule billed to all flats and freehold houses on the site. The freeholders have derived no benefit from the BSF applications.

Residents also feel the charges are unfair given the money already flowing to FirstPort. In 2020, FirstPort billed one St David’s Square leaseholder a management fee of £475.88. Typical management fees regarded as reasonable by the First-tier Tribunal, the specialist court hearing service charge disputes, range between £250 and £300 per flat per year.

The invoices show that the BSF application fees were billed by subsidiary FirstPort Property Services Limited. The same company bills approximately £170,000 a year to St David’s Square residents split between management fees, accounting fees and recruitment fees. FirstPort Insurance Services Limited also bills leaseholders for separate insurance commissions.

The 2019 accounts for FirstPort Property Services report profits of just over £3.2 million and a margin of 20% on revenues of £16.3 million, both stated on the Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) profitability measure favoured by many large businesses.

The St David’s Square leaseholders are stunned to learn that FirstPort has billed them for registering four buildings that are not tall enough to qualify for the BSF. The four buildings in question stand under 17.7 metres tall. The BSF has always applied that 17.7 metre height measurement threshold.

Officials reading the documents provided by FirstPort as part of the BSF applications challenged FirstPort to confirm the buildings’ heights. FirstPort then billed leaseholders £4,596 for a surveyor firm called Podium Surveying LLP to measure the buildings.

According to leaseholders, Podium’s surveyor spent no more than four hours at the site in November 2020 taking measurements of five buildings, being one eligible building and all four of the ineligible buildings.

Leaseholders who have seen the surveyor’s report claim the surveying work consisted of basic trigonometry, conducted with the aid of a theodolite. FirstPort did not respond to a question on what Podium’s charges covered.

Even allowing another four hours for travel and report writing, the charge of £4,596 equates to an hourly rate for the surveyor of £575, matching or exceeding that of some of Big Four accountants and City solicitors. The rate is far in excess of advertised day rates for surveyors engaged on construction sites.

FirstPort did not respond to questions as to why the ineligible buildings were ever entered into the BSF at all. Or why FirstPort failed to spot what officials did from the same documents, that the buildings were not 17.7 metres tall.

FirstPort’s answer is that the registrations were made “as a precautionary measure prior to a definitive measured survey.”

After approaching FirstPort for comment, FirstPort sent a leseholder a copy of the information supporting the BSF application made in respect of one of the four ineligible buildings.  The report, said to have been prepared by a surveyor, has unaccountable errors. 

The report includes pictures of the wrong building.  It also states that the building in question has eight storeys when it actually only has five.  The document says that the building’s height was estimated by counting the number of bricks per storey, then multiplying each brick by its height to give an estimated height of 19.42 metres.  The method used did not comply with the May 2020 BSF application guidance. The building is actually only 14.2 metres tall, well under the 17.7 metre eligibility threshold.

Leaseholders are at a loss as to how such basic errors could have been made.  It appears the surveyor in question did not actually visit the site, or ask the two full-time on-site management employees to answer basic factual questions.

FirstPort is ultimately owned and controlled by Equistone, a London based private equity fund. Equistone owns FirstPort through a company called DriveTopCo. Senior FirstPort managers, including chief executive Nigel Howell and chief financial officer Ouda Saleh, are also shareholders in DriveTopCo. 

Drive TopCo’s board of directors is chaired by Paul Lester, who is also a shareholder. Mr Lester is also chairman of retirement property developer McCarthy & Stone, which was bought late last year by the American private equity fund Lone Star.

Drive TopCo’s accounts report a gross profit for FirstPort and its sister companies of just under £64 million for 2020 on revenues of just under £67 million. Profit on the EBITDA measure for the year was just under £13.5 million, a margin of around 20%. EBITDA was up 5% on 2019. 

FirstPort’s approach to BSF applications at St David’s Square follows press speculation last month that the taxpayer and leaseholders were looking at paying tens of millions – if not hundreds of millions – in fees to managing agents for overseeing BSF works.

FirstPort’s registration of eight buildings, four of which are actually too short to qualify, also goes some way to explaining that to date around 37% of all BSF applications have been rejected or withdrawn.

Aside from the application charges made without the leaseholders’ knowledge and which took three months to discover, another issue troubling St David’s Square residents is that all the buildings in question have B1 ratings following EWS1 assessment. That rating means a fire engineer has certified that works to remove the cladding are not necessary.

The government is aware of the risk of taxpayer money being used to make improvements to B1 rated buildings at public expense.

By letter dated 17 December 2020, Neil O’Connor, a senior MHCLG official, wrote to managing agents, including FirstPort, stating:

“We are aware that building owners have submitted some buildings to the fund where their own professional team’s advice suggests that the materials can be left safely in situ. For the avoidance of doubt, where no cladding remediation work is required to make a building safe, such buildings should be withdrawn from the fund. (emphasis added)”

The same letter also said: “In some instances where we have seen this, the building has an EWS1 form with a B1 rating.”

Full text of letter available here:

https://www.housing.org.uk/globalassets/files/building-safety/20201217-letter-from-mhclg—extended-bsf-deadline.pdf

According to FirstPort letters to leaseholders at St David’s Square, officials administering the BSF appear to be giving taxpayer money in the form of pre-tender support grants to four buildings at the site standing over 17.7 metres.

BSF pre-tender support grants are up to 10% of the total grant funding awarded to any building. The money is intended to cover the costs of tendering for cladding replacement works and submitting a fully costed application to the fund. FirstPort does not rule out billing leaseholders for costs not covered by any BSF grant.

The pre-tender support grants appear to have been given even after the government’s 17 December 2020 letter and the B1 rating indicating no works are necessary.

Leaseholders in the four ineligible lower-rise buildings at the site are also being exposed to the risk of their property values being impaired by having to take one of the government’s mooted forced loans for cladding remediation.

FirstPort insists that it only entered the eight St David’s Square buildings for the BSF because that was the government guidance at the time.In October 2020, FirstPort’s Building Safety team wrote to several leaseholders at the site referring to the need to see if public money is available to “improve to an A outcome on your EWS1”.

FirstPort also notes that B1-rated buildings may have difficulty in obtaining insurance at competitive rates.

To date, the B1 rating has posed no material difficulty in obtaining either mortgages or buildings insurance at St David’s Square, although recorded sale prices are falling. There appears to be no clear need for expensive and intrusive works at all.

Indeed, in possibly the only example of the presence of an institutional freeholder being good for leaseholders, 2021 buildings insurance at the site increased by less than 2020, albeit by a still hefty 8% compared to the 10% rise between 2019 and 2020.

The institutional freeholder of St David’s Square is the ARC Time Freehold Income Fund, which places a block buildings and terrorism insurance policy covering tens of thousands of leasehold flats in its portfolio.

Documents seen by the LKP show that the 2020 building insurance includes around £40,000 in commission for the freeholder. That commission is split at least 85/15 between ARC Time and its property manager, Freehold Managers PLC, according to ARC Time’s latest investor prospectus. 

The charges did not stop there. According to invoices and letters from Freehold Managers PLC seen by the LKP, broker Arthur J. Gallagher, underwriter of the buildings’ insurance, received around £18,000 in commission, together with an additional £225 in policy administration fees. 

Total commissions between Arthur J. Gallagher, ARC Time and Freehold Managers PLC represent around 20% of the 2020 before tax and before commission cost of the site’s insurance.

Time and again the leasehold sector has proven it cannot be trusted to do anything other than put its own interests ahead of the leaseholders paying the bills.

The charges at St David’s Square show the dangers of the BSF opening billions of pounds of public money to the likes of FirstPort and other managing agents without first getting a firm grip on fees.

As the invoices in this case show, costs can be conjured from anything. It is often difficult to see these costs being passed on to leaseholders. It took more than three months of correspondence, including with FirstPort’s chief executive, for leaseholders at St David’s Square to discover that leaseholders had been charged for BSF applications.

The Australian approach shows there is a better way of dealing with cladding remediation.

In New South Wales the state government is meeting the project management costs of cladding replacement works.

The state government is also organising approved panels of service providers to further standardise costs. That approach is sparing New South Wales taxpayers and flat owners the expense of the likes of FirstPort’s “sector leading health and safety expertise.”

Scotland and Wales have already adopted the Australian model of the government taking the lead on cladding inspections. Why can England not do the same on both inspections and managing the works?

A storm is now gathering for FirstPort at St David’s Square. Residents at the site say they are sick of paying FirstPort champagne prices for lemonade. Challenging the BSF application fees is at the top of a long list. 65 leaseholders are banding together to make a service charge challenge.

Is your building managed by FirstPort – or any of the other leading, landlord-friendly managing agents for that matter? Is your managing agent also making charges? Please get in touch and let the LKP know your experience: cladding@leaseholdknowledge.com

FirstPort’s statement for publication in full:

We fully understand the significant impact the cladding crisis is having on homeowners and residents living in these buildings and are doing all we can to support our customers through this.

We are committed to only recovering our costs for coordinating work to remove non-ACM cladding on our managed buildings in the Building Safety Fund and have pledged not to make any profit from this unprecedented situation.In response to the increased requirements of changing building safety standards, we have created a ring-fenced building safety team.

This team is coordinating applications to the Building Safety Fund and also helping our customers obtain EWS1 forms needed to remortgage or sell their homes.

Application costs to the Building Safety Fund are not covered by the Government, and we are only charging for the building safety team’s relevant costs for works undertaken, as well as for any third-party costs incurred. These are charged without any markup.

At the time this article went to press, FirstPort had not responded to follow-up questions posed in response to the statement above. However, these responses have now been received:

Friday 13 August

1/ Please can you confirm the total amount of Building Safety team charges billed to leaseholders and included in the Drive TopCo financial statements for the year ending 31 December 2020?

In 2020 the Government’s advice was consolidated into a single document: Advice for Building Owners of Multi-storey, Multi-occupied Residential Buildings. There was a significant amount of work needed in response to this guidance to set up the business to deal with this new and comprehensive workstream and best support our affected customers. As this was a set-up year, we did not bill any costs, despite costs being incurred. These were therefore accrued for in our group’s 2020 accounts as is standard accounting practice.

2/ Please can you explain how FirstPort determines the “relevant costs” of the Building Safety team which are to be passed on to leaseholders? Roughly what percentage of the total team costs in 2020 were shared with leaseholders?

Relevant costs are the directly attributable colleagues working specifically on progressing the buildings needing EWS1 ratings and applications to the Building Safety Fund (BSF). We have ring-fenced staff working on this and their previous, ongoing roles have been back-filled so that we can continue to support our customers in other ‘business as usual’ areas.

We are only charging for the building safety team’s relevant costs for works undertaken, as well as for any third-party costs incurred, such as the charges for instructing specialist third-party fire engineers. For the avoidance of doubt these are charged without any markup or overheads. This costing has been calculated conservatively to ensure no profit is made, to the point that there was a trading loss for FirstPort for our work on the Building Safety Fund in 2020.

Many senior managers from FirstPort continue to spend considerable time engaging with all stakeholders involved in the cladding crisis and Building Safety Fund, including resident groups at impacted buildings, ministers, officials, trade bodies and MPs.

Our operational site-based teams are also regularly required to support with BSF issues. These costs are not and will not be recovered.

3/ Specifically, in relation to the charges made by Podium, how is the £4,596 fee calculated? What did it cover?

This work included height measurements for six buildings, and a written report which we were required to provide to the BSF. For buildings that were identical to those already measured, we did not undertake measurements. This work helped secure the funding for four of the buildings at Lockes Wharf.

As previously advised, due to the complexities of measuring tall buildings for the BSF, it was necessary for us to engage an independent third-party expert to ensure our approach was consistent and accurate and met the BSF guidelines.

There have been limited suitable contractors available to carry out this work due to unprecedented demand for this specialist service across the country, driven by the changing building safety guidance. We understand the cost for this work undertaken to be in line with the expertise required from a geotechnical measurement company to satisfy the BSF requirements.