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.

Heat networks: have your say

Do you manage a building with a communal heat network, or own a flat or a building that uses one? If so, you’re certainly not alone. Did you know there are at least 14,000 heat networks in the UK – we didn’t! These include both district heat networks which supply multiple sites and the communal heating systems that supply a number of units within a single building, with which many property managers will be familiar.

The UK is committed to achieving net-zero emissions by 2050 and heat decarbonisation is one of the biggest challenges.  The Government thinks heat networks are crucial to meeting this target because they are uniquely placed to unlock otherwise inaccessible sources of larger-scale renewable and recovered heat sources such as waste and heat from rivers and mines. In the right circumstances, heat networks can reduce bills, support local regeneration and are a cost-effective way of reducing carbon emissions from heating. 

The Government is now consulting on proposed amendments to the Heat Network (Metering and Billing) Regulations 2014 to make them more effective for suppliers and users. The current regulations set out rules around installation of heat meters and billing for customers. The meters enable suppliers to produce fair and transparent bills based on actual consumption  – and like domestic Smart Meters, they can drive energy efficiency savings and cost reductions.

In some cases, the requirement to install heat meters and heat cost allocators is subject to a ‘cost-effectiveness’ test set out in the regulations.  The consultation explains how cost-effectiveness is measured. It includes proposals to update the way it is assessed and describes how the cost-effectiveness tool for heat suppliers will be amended. The changes will affect those suppliers with buildings where a cost-effectiveness assessment is required but where, to-date, the tool has not been available.

The government also proposes to extend the provisions set out in the regulations covering meter accuracy, maintenance, and billing based on consumption to all existing metering devices. These requirements would extend the regulations to some heat suppliers who, at present, don’t have to comply.

The thinking here is that metering accuracy and maintenance, as well as billing based on consumption where cost-effective, are vital to delivery and help maximise the benefits of metering. They should therefore apply to all installed metering devices. 

Finally, the consultation contains several proposals clarifying areas where the current regulations are unclear and it includes a provision to support the enforcement of meter accuracy and maintenance.

The changes are expected to increase the number of customers with heat meters installed and the government is keen to hear from industry and from customer representatives.  If you have a view on heat networks and/or metering, you still have time to respond. The closing date has been extended from 12 December to 9 January 2020 because of the general election, so if you haven’t had the chance, take a closer look at the changes here.

HPL cladding: more questions than answers

Ringley CEO Mary-Anne Bowring will be talking about fire safety in Manchester this week

Footage from this weekend’s devastating fire at a student block in Bolton must have given the property industry a collective sense of deja vu. Thankfully, everyone was safely evacuated, but once again we watched flames rapidly spreading up the outside of a block, while its cladding melted in the heat. This time though, the cladding was HPL – not the ACM used on Grenfell Tower – and another can of worms was well and truly opened.

In the wake of the 2017 tragedy, experts warned that “the next Grenfell” would involve HPL cladding. Building owners were told to remove all cladding systems, including HPL, that didn’t conform to building safety standards. However, the government’s ban on combustible cladding only applies to blocks over 18m. That lets an awful lot of buildings – including the one that went up in flames in Bolton – off the hook.

Inside Housing today quotes Matt Wrack, general secretary of the Fire Brigades Union, who says “This terrible fire highlights the complete failure of the UK’s fire safety system”. We have to agree with him. Even the reforms proposed by the Hackitt Review only apply to buildings of ten storeys and above, referred to as HRRBs or high-risk residential buildings. It has to be hoped that once in place and seen to be working, these changes will be applied to all buildings, not just high rises.

So what happens now? We expect to see calls for HPL cladding to be tested and removed if it is found not to have been treated with fire retardants,  which gives it a fire safety rating of Class 0 or Euroclass B. However, it is estimated that cheaper versions graded a much lower ‘Class D’ may account for more than 80% of the market.

The continuing nightmare of residents in ACM-clad blocks are well documented. All the same issues around the rights and responsibilities of leaseholders are now likely to be extended to a new group of people. And as if that wasn’t enough, lenders have tightened up their rules since the government issued Advice note 14  last December. This leaves an increasing number of leaseholders stuck with flats that are unsellable because not only are mortgage applicants being assessed but so too are the buildings they want to live in. The Times estimates that up to 50,000 flats around the country are affected. What a mess.

So two important points for the immediate future.

  • If you manage a building with HPL cladding, talk to residents about the implications and commission a fire risk assessment if necessary. Make sure the block has an evacuation policy. If there isn’t one, make it a priority to put one in place.
  • If you own or rent a flat in a building with external cladding, contact your building manager or landlord to find out what measures they are putting in place to ensure resident safety.

So watch this space – this story is going to run and run. And one thing is crystal clear. The issues raised in the last two years around fire safety will not be resolved quickly or easily.

Mary-Anne Bowring, CEO of The Ringley Group, is speaking on this subject for the RICS in Manchester this Wednesday 20th November.


Good news for broadband providers – and you!

Removing the barriers to better broadband

Would you like better broadband speeds in your block? If so, here’s something for you. The government has announced new measures to make it easier to install faster internet connections in blocks of flats where landlords repeatedly ignore requests for access from broadband firms. Digital Secretary Nicky Morgan estimates that an extra 3,000 residential buildings a year will be connected as a result.

Under the law as it stands, to install gigabit-capable broadband in the UK’s estimated 480,000 blocks of flats or apartments, broadband providers need permission from landlords to enter the property and undertake the necessary works. One of the biggest obstacles preventing operators from installing new networks in residential blocks is the building owner’s failure  – in as many as 40% of cases – to respond to requests for access. And while broadband providers can already push for access via the courts, this takes time – and money.

So to solve the problem, the Government is now promising a cheaper and faster process for telecoms companies to get access rights. This will apply when a landlord has repeatedly failed to respond to requests for access to install a connection that a tenant within the building has asked for. And it will give operators a cheaper and more streamlined route via the existing Upper Tribunal (Lands Chamber) to connect the property. The aim is to lower the timescale for entering a property from six months to a matter of weeks and at a drastically reduced cost.

Good news all round we think.

Fire! Should you stay put or evacuate?

Is there an evacuation plan for your block? If you don’t know – find out.

Would you stay put if a fire broke out in your block? As the first phase report of the Grenfell Tower Inquiry is published, the “flawed” stay put policy used on the night of the devastating fire is now under intense scrutiny.

‘Stay put’ is the standard advice given to residents in blocks of flats who are not directly affected when a fire breaks out. They are told to stay in their homes with the windows and doors shut. The expectation is that the construction of the building and fire doors leading onto communal areas will protect people from the spread of fire long enough for the fire service to attend if necessary and put out the fire. At Grenfell Tower, this policy proved utterly inadequate. It is now judged to have led to unnecessary loss of life. As a result, the government is working on a “full and detailed examination” of the stay put/evacuation strategy for fire in high-rise blocks.

Housing Secretary Robert Jenrick told the Housing, Communities and Local Government Select Committee yesterday that, while expert consensus is that stay put is “valid” for most tall blocks, the government is now reviewing the advice.

As a layperson it is hard to understand the thinking behind stay put: surely it makes more sense to get out of the building as quickly as possible? So here’s the explanation. The thinking behind it is twofold:

  • First, the fire service needs unfettered access to hallways and stairs to get up and down to evacuate the building in priority order. This would be hampered by everyone trying to evacuate at the same time – particularly in buildings with only one stairway.
  • Second, opening and closing doors increases air circulation which not only accelerates combustion and the spread of smoke but panicking residents rarely stop to close their door behind them. This leaves other parts of the building exposed to the fire.

A stay put policy is intended to protect residents (who can be safely rescued some other way) from smoke inhalation, as smoke kills long before the heat from a fire.  But the Grenfell Inquiry judge is now calling for evacuation plans to be developed for all high-rise buildings. Ringley Group managing director Maryanne Bowring agrees. She does not believe stay put is the right policy for all high-rise blocks.

Her view is this. “If there is no misting system or sprinklers in your building and you are above the height of a ladder (normally assumed to be six storeys) or if the fire is below your home in a tower, or if the facade of a building is burning, or if the building was not constructed in the last 10 or so years, I would say you must get out.

She adds: “You can have as many fire risk assessments as you like, you can have as much fire detection equipment as you like, but there should now be an acceptance that any fire policy is made up of component parts, one of which can fail, even if serviced or checked yesterday – so visual and common sense judgements must be made”.

We all feel for those in the fire and call centres that night who were under orders to keep telling residents to stay put, when they could watch the fire at Grenfell Tower on mobile phones or in person and see that the building was engulfed by flames.

Dame Judith Hackitt, who carried out a review of fire safety and building regulations for the government post-Grenfell, will now advise ministers on the format of a new building safety regulator. The aim is for a fundamental shift in the design, construction and management of tall buildings with the focus firmly on safety. This is badly needed for the long-term wellbeing of residents and we await the outcome with interest.

Solar panels on flats – what you need to know

Could solar panels work for you?

Following on from last week’s tips for greener homes, today we’re taking a closer look at fitting solar panels on blocks of flats.

At first glance, there are plenty of plus points. You get cheap electricity; you can sell any energy you don’t need back to the grid and of course, there’s that nice warm feeling you get when you know you’re doing your bit. In some cases, government subsidies may even be available to help with the set-up costs. But as we pointed out in our earlier blog, installation may not be straightforward. Here’s why.

If you manage a block that is interested in installing solar panels, there are some issues to be thought through first. Obviously, the roof needs to be suitable. Which way does it face? Is it large enough to house the panels? And of course, you will need planning permission.

Then there are the all-important legal aspects to think about. As ever with flats, the starting point is the lease. Who is legally responsible for the roof and who pays for the installation? The view from property lawyers is that solar panels are likely to be considered “improvements” rather than “repairs” under the lease. While repairs can normally be recovered via the service charge, there is no guarantee that improvements will be treated in the same way. So unless the lease includes specific wording to this effect, the service charge can’t pick up the bill.

Lee Hurle from Ringley Law says that if this turns out to be the case, the cost will have to be funded outside of the service charge mechanism. Flat owners will have to volunteer to pay their share as they are not legally obliged to pay it and not everyone may agree to do this. So blocks would probably have to structure the cost as a loan to the company.

 Other issues that will need some thought are:

  • Panel maintenance – again, who is responsible and who pays?
  • Panel infrastructure – does the lease allow for running cables through the block/s?

At last, you’ve overcome all these hurdles. The panels are fitted and they are producing surplus electricity and a financial return for the block. But what happens to the money? Don’t automatically assume that this can simply be put into the reserve fund – if one exists. The lease may or may not allow for a reserve fund and even if it does, it may not be possible to use it for the proceeds of the solar installation. Back to Lee. He thinks the block may have to hold any funds received on behalf of the company as company funds instead.

So if you live in a flat, opting for solar may not be plain sailing although the potential benefits mean it is worth consideration. Why not raise the idea with your fellow residents? But before you go ahead and choose a supplier, remember that solar companies are unlikely to have a detailed knowledge of any lease restrictions that could apply to your block. So if you need help getting to grips with your lease, talk to our legal experts at RingleyLaw. They have years of experience and will be able to offer you the advice you need.

Landlords – enter at your own risk!

As a landlord, do you know when you have the right to enter a leaseholder’s flat? Most residential leases include a clause that allows a landlord access to a flat, if it is for a specified reason listed in the lease. Simple enough you might think. Well, not necessarily as the recent case of New Crane Wharf Freehold Limited v Dovener shows. The question raised here is whether or not a leaseholder who does not give prior permission for the landlord to enter their flat for a legitimate reason, is in breach of their lease.

Access denied – or is it?

The lease in question allowed the landlord access for a number of reasons as long as the flat owner had at least 48 hours’ notice. But when the landlord gave a time and date to inspect the leaseholder’s flat, he heard nothing – apart from an email from the leaseholder stating that he wasn’t happy about the landlord entering his property. A second letter was sent, including a new date for entry to the property. Again, no reply.

The landlord took the case to the First Tier Tribunal, arguing that the leaseholder’s failure to respond to his letters was a breach of covenant. However, the FTT ruled against the landlord, saying that the lease did not specify that access was only possible after hearing that the time and date given was acceptable.

The landlord appealed but lost. Again, there was no evidence that the leaseholder refused entry at the date and time specified by the landlord and so the leaseholder was not found to be in breach of the lease. This is a technical point but an important one for landlords.

There are two lessons to learn here. First, when landlords want to access a property, they must think hard about the way they word the notice to the leaseholder. And second, this ruling suggests that landlords should go ahead and try to gain entry on the time and date specified in any notice,  whether or not the leaseholder has replied. This could be both time consuming and costly –  but any other approach may end up being even more so, as this landlord found out.

If you are unsure about serving notices on leaseholders, or have a query about any other legal aspect of residential leasehold, contact our property law specialists at Ringley Law. Our experienced team can help.

Luxury amenities – what gets your vote?

Today we thought we’d have a bit of fun. What added extras would persuade you to sign on the dotted line if you were buying or renting a new flat?

Developers are busy trying to attract buyers and renters to their blocks by offering a whole range of residential amenities. But some of them are frankly a bit dull, especially if you live in the middle of a town or city. Who needs a gym or a coffee shop when there are plenty to choose from just around the corner? And how many of us will use those treadmills anyway?  When you have the whole of London, Manchester, Brighton or Bradford to eat, drink and be merry in, your block operator is going to have to work a bit harder.

So what gives one block a genuine edge over another? A recent survey by CBRE put concierge services at the top of the list. Practical help with everyday tasks such as laundry, car hire and parcel pick-up and drop off is always popular. So are health-based amenities such as an on-site spa – with health treatments and nutritional advice ramping up more points than just providing a few rowing machines.

Some developers really are going the extra mile, so we did a bit of research to see if we could find some genuinely innovative amenities that would make any residential block really stand out from the rest.

It turns out the Americans really know how to live! Green space and healthy living are on offer at Staten Island Urby in New York via social spaces that encourage residents to get to know each other. The development features an urban farm, a communal gourmet kitchen and a rooftop apiary. The chef-in-residence (yes you heard that right) even hosts gourmet cooking classes and cocktail tastings.

If you prefer animals to people, another New York development features doggy daycare, a grooming spa, cat sitting and a visiting vet for poorly pets.

And in Miami Beach, a sharing room at the Ritz-Carlton Residences gives flat owners the chance to offload their pre-loved good quality items such as handbags, golf clubs and bicycles and ‘shop’ the room, taking what they want in exchange. Great for them, even better for the environment.

Sky Gardens at Wardian, London

Other innovative ideas we came across included an on-site aquarium; providing recording studios and other music-based amenities to allow residents to share their creative ideas; the ‘sky gardens’ and in-house gardening specialists on offer at Wardian in London’s Docklands look spectacular; and we even heard of one block featuring an adult treehouse. That’s certainly not for everyone.

The lesson here, is for block operators to use their imagination and deliver purposeful amenities that enhance living spaces and create community  – not just the same tired old gym.

Fees ban – the unintended consequences

The Tenant Fees Act came into effect in England on Saturday and there are already big question marks hanging over the new legislation. Both the government and the lettings industry want to make renting fair for tenants but agents are not convinced the new Act will work in the way that was intended.

What’s the impact?

Glynis Frew, the CEO of letting agent Hunters, said this week that good intentions could easily result in unintended consequences. We agree that a small number of rogue agents and landlords have charged what she describes as “mind-boggling” fees, but this isn’t representative of the industry as a whole. Instead of government opting to cap fees, they have been scrapped altogether. The likely results are rent increases, landlords leaving the sector in even greater numbers than they are already and letting agents shutting up shop – which as well as reducing consumer choice, also has a negative impact on our beleaguered high streets.

Our view is that the Act will mean agents looking closely at their all-inclusive management fees and having to pass on disbursements such as deposit registration costs to landlords. The industry will be looking to push extra products such as insurances, on which agents can take commissions to cover the shortfall in income. 

New fines for ‘prohibited’ payments

Local authorities, charged with enforcing the legislation, can fine landlords and agents up to £5,000 for levying a payment that is now prohibited (see yesterday’s blog at https://blog.planetrent.co.uk/tenant-fees-act-now-in-force/ for a list of allowable fees) and they can prosecute or impose a fine of up to £30,000 if an ‘offence’ under the Act has been committed. This is where a landlord or agent has been fined or convicted for a breach within the last five years and commits a further different breach.

Being a landlord has never been more precarious.  Reducing deposits from 6 weeks to 5 is no real protection against tenants not paying their last month’s rent and the Deposit Alternative products that are now springing up may offer landlords more protection but are of course optional, and cannot be forced on tenants.   Flexibility as to how tenants make payments is also diminishing as many landlords refuse to take rent or deposit payments by credit card as, understandably, they don’t want to pay the fees.

Future challenge

The challenge for agents will be to ensure they are providing an added-value service to landlords by having effective tenant referencing, contractual and deposit systems in place as well as ensuring compliance with the new Act.