Leaseholders hit again by cost increases

Going up… the increase in the National Living Wage will hit leaseholders in 2020

Many services such as cleaning and gardening contracts provided to blocks of flats rely on minimum wage labour.  With the National Living Wage rising in April this year from £8.21 to £8.72 for workers over the age of 25 –  an increase of some 6.2% – once again leaseholders are going to feel the pain.

Leaseholders who are unable to recover VAT on the service charges they pay, continue to suffer from VAT increasing from the previous long term norm of 17.5% to 20% in 2011.  Flat owners, via their service charge, have also suffered continual rises in insurance premiums due to both five years of IPT (insurance premium tax) increases from 6% to 12% since 2015; the abolition of the 3.4% national insurance rebate on porters wages; and a rise from 2% – 3% in employers auto-enrolment pension contributions.

Added to this, the rise in the minimum wage may be small but it is yet another expense to hit leaseholders, already living with the spectre of big bills for safety improvements on their blocks (see our 9 January blog for more on this).

At Ringley all our Relationship Managers are now letting clients know in advance of their March/April budgets that, to be prudent, provisions must be made for these cost increases.

How leasehold reforms will benefit flat owners

The Law Commission’s proposed reforms could save leaseholders money and help keep them out of the FTT

Last Thursday the Law Commission published its report into leasehold reforms. The Commission puts forward three schemes for determining the premium to be paid by flat owners wanting to extend their lease.  Each of them will make enfranchisement cheaper, saving leaseholders money. Each scheme uses a different method to determine the price of enfranchisement and allow further reforms to make the process simpler and to reduce uncertainty.
 
The report also examines the way in which the value of the landlord’s interest is calculated, to identify reforms that could lower premiums without breaching the UK’s human rights legislation that protects landlords’ property interests.

Alongside the three schemes, the Law Commission has put forward a range of other options for reform. These include:

  • Prescribing the rates used in calculating the price, to remove a key source of disputes, and make the process simpler, more certain and predictable.
  • Helping leaseholders with onerous ground rents, by capping the level of ground rent used to calculate the premium.
  • Developing an online calculator for determining the premium, making it easier to find out the cost of enfranchisement, and make the process more transparent.
  • Enabling leaseholders who are collectively enfranchising a block of flats to avoid paying “development value” to the landlord unless and until they actually undertake further development.

What is being proposed are ‘cash and carry’ lease extensions, which would lead to fewer referrals to the over-worked first-tier tribunal. While the legislative change is not retrospective, it would have the retroactive effect of devaluing existing landlords’ interests that arise from the lease.  All freehold reversionary properties are valued by chartered surveyors on the basis of the lease length and terms and, as the RICS definition of ‘market value’ includes hope value, in effect the valuation today includes the probability of some lease extension income. If this is to be curtailed in law, then the effect is a reduction in the value of the landlord’s asset.

So while this proposed change does not alter the lease contract itself, it has two impacts: devaluation of the reversionary freehold interest and reduction in the premium payable to the landlord for each specific lease extension. 

Ultimately, any proposals that make leasehold extensions cheaper can devalue the asset. This will be very unpopular with landlords  And while these reforms would save leaseholders money, the erosion of the benefits of being a freeholder would likely see an increase in non-professionally managed blocks, absentee freeholders and other court processes. 

However, there may be additional upsides for leaseholders by removing the ability of unscrupulous freeholders or their agents to put pressure on leaseholders by refusing to negotiate until the 11th hour in order to extract more money than would be reasonably expected.

To read the full Law Commission report go to: https://www.lawcom.gov.uk/project/leasehold-enfranchisement/


More red tape for besieged agents

New money laundering legislation comes into force today. Regardless of Brexit, property agents must abide by the Fifth EU Money Laundering Directive, ensuring they risk-assess their business processes and carry out thorough ID checks on customers.

Agents will need to carefully consider how they might find themselves exposed to money laundering and to the risk of financing terrorism and ensure they have measures in place to manage and eliminate any risks.

Letting Agent Today explains that agents must carry out customer due diligence on landlords and tenants where renting is “for a period of a month or more, and at a rent which during at least part of that period is, or is equivalent to, a monthly rent of 10,000 euros or more”.

 If a third party is acting on behalf of another person in a particular transaction, that person is described in the legislation as the ‘beneficial owner’, ie the person on whose behalf a transaction is carried out. Beneficial owners must in future be identified and any potential risks they pose be assessed. It will also be important to assess the risk of money laundering that could result from:

  • Sending money to customers to or through high-risk third countries which don’t have effective systems in place to prevent money laundering or terrorist financing;
  • Company services or transactions;
  • The financing methods used to support the business; and
  • Other transaction-based activities such as non-face-to-face services.

All customers and beneficial owners are now subject to identity checks via an official identification document such as a passport or driving licence. Photo ID, as well as verification of the current address, will be needed for both new customers and existing clients if their circumstances change.  Due diligence also applies should agents have any doubts about the authenticity of an existing customer’s ID information or suspect that money laundering or financing terrorism may be taking place.

Under the new rules, risk assessments must be recorded, kept on file and regularly reviewed. Any changes to a business, it’s financing or the environment in which it operates will trigger an updated assessment, which must be made available to HMRC on request.

Of course the property sector should not provide an easy route for money laundering. But at a time when the industry is steeling itself for yet more reforms, this new legislation is yet another hoop for agents to jump through. And this is being piled on top of the 125-plus other rules and regulations that agents are faced with on a daily basis. That said, it is hard to argue against legislation that should go some way at least to safeguarding the sector from criminal activity.

Who pays for safer blocks?

Our homes should be safe as houses – but who pays?

 It may be the start of a new year, but the same old arguments are being fought over building safety – and who should foot the bill.

Last week Wandsworth Council’s bid to force leaseholders in high rise blocks to pay for retrofitting sprinklers was rejected by a tribunal. If the ruling had gone Wandsworth’s way, the council could have entered flats regardless of leaseholders’ wishes and allowed the local authority to recoup some of the costs via the service charge. Inside Housing estimates the cost to residents at £3,000 – £4,000 over four years.

 Similarly, London housing association Network Homes has warned their 4,000 leaseholders face having to pay a share of £200M of improvement works to bring their homes up to a safe standard, unless the government brings forward funding to meet the costs. The HA has already spent around £2M in investigations and interim measures to keep residents safe but told The Times yesterday that it can’t take “blanket responsibility” for costs that are legally payable by the leaseholders.

An article published in December by the Institute of Residential Property Management (IRPM) points to the possibility, for residents in new build blocks, of claiming for remedial works via the Building Warranty, which commonly runs for 10 years after completion. However, those living in older blocks don’t have that option to fall back on and may find themselves obliged to stump up the money for improvement works, whether they can afford it or not if the building owner either cannot be identified or made to pay. In fact, even for newer blocks the warranty is often subject to an excess of £850 – £1000 per unit, which means tens of thousands of pounds would fall to the owner under this route anyway.

This situation is untenable. The complexities of leasehold mean that it is often difficult to lay the responsibility for upgrading buildings at the original owner’s door. While the government is keen to demonstrate its commitment to ‘left behind’ communities in deprived areas of the country, it would do well to consider the 5M plus households living in leasehold homes who constitute a community in their own right. They do not deserve to be ignored.

Don’t panic! Ringley can help!

Download our booklet today – it could save you and your residents a lot of time and money!

Everyone faces a problem in their flat from time to time. Generally, these issues are minor and easily dealt with. But what about emergencies like water pouring through the ceiling from the flat upstairs, the central heating breaking down in the middle of winter, or a sudden infestation of flies or mice? Would your residents know what to do?

To make sure building managers can give leaseholders all the information they need – and hopefully avoid having to get out of bed at 2.00am to find a stopcock – Ringley has produced an easy-to-read guide that can be downloaded here. It’s designed to give you peace of mind that you have all the bases covered – and so do your residents.

Our Emergency Booklet is really comprehensive. It tackles everything from gas and roof leaks to finding someone sleeping the hallway. It explains clearly which emergencies can be dealt with by Ringley and which issues must be dealt with by residents themselves. It details when to call Ringley’s 24-hour emergency line (and includes the telephone number) and explains when to call the plumber, the local authority or the police instead. Gas and electricity problems – probably the most common issues we deal with – are discussed in detail and contact numbers provided.

Individual situations are clearly explained and the booklet lists what is and what isn’t an emergency. A blown light bulb is rarely life-threatening. It is important that residents realise this and don’t waste time and money on problems that can easily wait a few hours.

Our booklet also sets out clearly another important point that is often misunderstood. The service charges that residents pay are not for spending on work inside theirs or other people’s properties. Leases require the owner to maintain and repair what’s inside their property.  That includes contents, carpets, fixtures and fittings, pipes and wires.  These cannot be repaired/replaced/maintained using service charges.

We recommend that you download the booklet today and make sure all your residents have a copy. It could save a lot of time, reduce costly call-outs – and give managers fewer sleepless nights!

New year, brand new services!

Welcome back to the Ringley Blog after what, we hope, was a happy and relaxing Christmas break. We now have a new year and a new decade to look forward to and we will continue to share thought leadership and new developments at Ringley with you in the months ahead.

First, we’d like to blow our own trumpet and let you know about a few changes we’ve made in response to our customers’ requests.

Top of our customers’ wish list in 2019 was the ability to e-sign on budgets and cover letters so that you can incorporate things you might want to add. This is now standard practice and your feedback shows it’s proving popular. You’re now telling us that this is leading to more interaction around budgets as directors nudge each other to sign them off. In fact, every customer budget that was e-signed in time has now gone out

You also told us that to make direct debits easier to understand, customers want to see the ACTUAL CALCULATION that we use to decide what needs to be collected in charges each month.  So we created a secure page and put customers in control by opening this all up for you to see.

We’ve also been working with clients on a number of sites to help stop AirBNB style lettings.  So if you are troubled by problem short-term lettings on your estate, simply email support-team@ringleylaw.co.uk  and we will do our best to help.

While our job is to manage your buildings, what really matters most is the people who live in them.  We realise that for many of our customers we are almost the fourth emergency service. Our role often includes signposting on issues that may be outside our control, but we can often direct you to the right person to solve the problem.  So in one of our internal workshops our people supported re-orienting what we call ourselves to “Relationship Managers” and “Relationship Assistants”. We hope this will really help underline that all our staff at Ringley are always here to help you in any way we can.

Here’s some more good news to start the year. We are delighted to report that in 2019 we achieved a new record low in service charge arrears. This means we have plenty of funds to pay contractors, ensuring they are happy to attend to your next emergency. 

And finally, on the subject of emergencies, in tomorrow’s blog we will be sharing a new booklet with you that we’ve just produced for residents. This means that should the worst happen, they will always know exactly what to do and who to contact across a whole range of nasty situations from water leaks to mice!



All I want for Christmas is… a bigger home


Space is what we all crave according to a new survey of UK homeowners

Forget ‘location, location, location’, new research published by bridging loan lender Market Financial Solutions reveals that size really does matter for British homebuyers. According to a survey of more than 1000 homeowners, the size of a property is the single most important consideration, with 90% of people polled saying it was ‘important’ or ‘very important’ to them when they bought their current home.

Homeowners were asked what mattered to them most when they were looking for a new house or flat. At the top of buyers’ wishlists were size, outdoor space and quality of finish. Location came fourth, with 87% of us caring most about the distance of our home to the nearest town or city.

Other key factors were:

  • Garage or off-street parking (86%)
  • How ‘built-up’ is the local area  (83%)
  • Transport links (83%)
  • Broadband and mobile connectivity (82%)
  • Whether the property is detached, semi-detached or terraced (81%)
  • Local shops, cafés, bars and restaurants (81%)
  • Proximity of public spaces and parks (79%)
  • Proximity to good schools (77%)
  • Age of the property (74%)
  • Potential for extensions and conversions (71%)
  • Culture of the community and proximity of cultural sites (67%)

Despite only coming in fourth in the survey’s rankings, location is still a key factor but the quality of broadband and mobile connectivity is deemed marginally more important than easy access to local amenities or the proximity of parks or good schools.

It comes as a surprise then – with homebuyers putting size as their first priority – that the potential to extend a property came so far down the list. The price of an extension is often considerably less than  the cost of moving and it can add considerable value if done to a high standard and with careful planning.

Extending a home is inevitably harder for leasehold flat owners than for freeholders but it may still be a possibility. So if size matters to you, it’s well worth talking to a chartered surveyor before you put your home on the market. Of course, permissions will be needed. These could include planning consent as well as (probably) a licence to alter and a lease alteration but it may turn out to be a viable – and potentially less costly – alternative to moving.

How the new cladding form could get the flat sales market moving again

Grenfell ‘Tower continues to cast its long shadow over the flat sales market – but a new form may help

Yesterday, a new form (EWS 1) was launched, designed to record what testing has been carried out on the external wall construction of HRRBs – buildings more than 18m high. This is good news for leaseholders – and building owners and managers.

Since the Ministry of Housing, Communities and Local Government (MHCLG) Advice Note 14 was adopted by lenders, many flat owners have had problems getting mortgages, or even remortgages, on HRRBs (high risk residential buildings). 

Developers are often willing to provide a statement of what was specified (but as we know – that might not be what was installed) but lenders won’t necessarily accept them for lending purposes.  Flat owners who bought their homes before the Advice Note came into force, are left unable to remortgage – and may even be facing higher interest rates on their mortgage as a penalty for something that is entirely beyond their control. 

AN14 called for surveyors to provide proof that buildings don’t have dangerous cladding and has stalled mortgage offers while assessments are done, trapping leaseholders in flats that have become unsellable. In many cases, valuers have erred on the side of caution and set the value of some properties at zero. ARMA CEO Nigel Glen reports that one of his members has at least 500 stalled sales as a result. That firm is not alone.

So what’s the difference between AN14 and the new EWS 1? One big change is that there is now a line telling lenders and buyers that they cannot rely on the form – only the building owner/manager can. At first glance this doesn’t sound helpful but the authors have worked hard to ensure it will unlock the current snarl-up in the flat sales market.

This is how it is hoped it will work:

To-date, fire risk assessors have provided their opinion on the safety or otherwise of blocks to the building owner and so could end up answerable to any third party who relies on the report. That assessor is potentially liable to multiple lenders and buyers. Assessors’ indemnity insurance premiums have gone through the roof – and some can’t get insurance at all. This means buildings can’t be assessed and the whole process grinds to a halt.

The new form allows assessors to disclaim liability to everyone but the person who commissioned the report. Mortgage lenders can decide for themselves whether or the information can be relied on. The general feeling is that at least some will.

There are also two distinct alternatives listed in EWS 1 for assessors to choose:

Option A – external wall materials are unlikely to support combustion; or

Option B – combustible materials are present in the external wall.

It is likely that an invasive inspection will be almost always be required – desktop exercises are out. Good.  And any investigation must include evidence of the fire performance of the actual materials installed. This means safe buildings can be recorded in a way that will – hopefully – get the market moving.

We are pleased that there is now an approved form and ‘declaration’ to give much-needed help to leaseholders. However, the challenge is that ultimately this cladding problem is still costing the homeowner. Invasive testing is now pretty much a requirement on HRRBs, often at more than £5,000 a time.

Remediating the many buildings that are failing inspections has to be a priority for 2020. And it’s one the government should not leave to chance.

Property managers take centre stage on safety

Dame Judith Hackitt’s recommendations are now being firmed up, so watch this space.

Ringley CEO Mary-Anne Bowring was joined by Life by Ringley MD Sam Hay at an RICS event in Manchester in November to talk about the future of building safety.

Last month, we blogged about the ‘golden thread’ of data that Dame Judith Hackitt’s building safety review is recommending should be established for every high-risk residential building (ie, one that is 10 storeys or higher) in the country. The review also sets out the framework for a new ‘Joint Competent Authority’ to ensure that safety is placed firmly at the heart of the property industry.

The Hackitt review proposes the new JCA should have an overarching role, bringing together local authority building standards, fire and rescue authorities and the HSE. The report recognises the role that the CDM regulations have had in improving accountability and responsibility for safety and sees a future where these bodies all work together to maximize the focus on building safety within HRRBs across the entire building lifecycle. The recommendation is this: the best way to get genuinely effective safety management is to establish a new body that ensures feed in from other bodies is made an absolute requirement.

As we explained in our previous blog, one of the key responsibilities of the proposed JCA will be to create and maintain a database of all HRRBs and key duty holders for those buildings – whether under construction or already occupied. It will also ensure duty holders focus on mitigating building safety risks during the design and construction phase.

A new role of building safety manager will also be created – above and beyond the role of the property manager. The increased focus on reducing ongoing safety risks in HRRBs is not the property manager’s job – and is certainly not achievable within the same base management fee per unit.

The responsibilities that will fall to the building safety manager are likely to include:

  • periodic safety case reviews to demonstrate that building safety is being maintained and that residents are properly engaged (this may also be triggered if a significant refurbishment is planned); and
  • dutyholders required to make building improvements where necessary, to reduce building risks so far as is reasonably practicable.


The JCA is a new independent body and will be expected to assess and deal with immediate ad-hoc building safety concerns on HRRBs including:

  • the mandatory reporting of safety concerns by dutyholders;
  • referrals made by Environmental Health Officers (EHOs);
  • escalated referrals made by residents of HRRBs.

The JCA can also expect to:

  • request testing of construction products that are critical to HRRB building safety on a reactive basis when concerns arise, including information exchanges with all HRRB dutyholders in exceptional circumstances.
  • request annual reports from product testing houses providing summary details of the types of tests carried out and the numbers of passes and fails reported; and
  • help the proposed new government body to validate and assure the guidance produced by industry to meet the outcomes-based goals of the Building Regulations.

So a whole new raft of responsibilities then. Enhanced levels of training will be required as the industry gets to grip with the new regime – and there may be a need for higher levels of PI insurance for block managers as they take on these obligations. At present these are only recommendations but watch this space – our industry is changing and there will be more to come.

Fire brigade takes on block owners over cladding

Frustrated by “lack of action” West Yorkshire Fire and Rescue Service is taking matters into its own hands

Wow. The problem of combustible cladding on residential blocks just went up a level. Following the continued failure of building owners to replace unsafe cladding on 10 blocks in Leeds, Bradford and Huddersfield, West Yorkshire Fire and Rescue Service is threatening “prohibition of the entire building, or parts of it” if the owners can’t reassure them that they are taking action.

All the buildings were found to have dangerous cladding shortly after the Grenfell Tower fire in June 2017, with WYFRS pointing to a “lack of action” from some of those legally responsible for the blocks.

Property magazine Inside Housing contacted the owners of all the buildings involved and did receive assurances that they are working to tackle the problem. However, the latest government figures show that 318 of 436 buildings with Grenfell-style cladding have yet to complete remediation work.

An unknown number of other high and medium-rise buildings have been found with dangerous cladding of other kinds – a figure which it is thought could run into the tens of thousands.

In a move which – depending on your political viewpoint – could either be considered as unashamedly wooing leaseholders or simply doing the right thing, the Labour Party yesterday published a last-minute housing manifesto promising tough action on cladding removal.

The 20-page document updates Labour’s previous position on fire safety and pledges to:

  • Name and shame building owners who have yet to remove dangerous cladding and set a deadline for them to put a remediation plan in place.
  • Pass emergency legislation placing responsibility on owners to do the work, with powers put in place for councils to impose fines, followed by the “takeover” by the state of blocks that don’t have a plan.
  • An immediate widening of the government-sponsored testing regime to cover other forms of dangerous cladding
  • Set up a national task force, with the involvement of residents, to inspect buildings and prioritise fire safety work
  • Find additional funding to help pay for this work

It is unclear exactly how the state might “take over” blocks that don’t comply with a set removal deadline. This prospect would certainly be enough to put some voters off.

In fact, these dangerous materials could have been banned years ago by Labour following incidents in Germany and USA, who simply banned these ACM cladding products. The government at that time should have had its eyes and ears open and done the same!