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Retention of Documents

We often get asked by clients “How long should we retain documents?” Obviously, no one wants the bother of keeping boxes and boxes of obsolete paperwork,  unless it is absolutely necessary.

There is no hard and fast rule as to this. The general recommendation, where there could possibly be tax implications, is that documents should be stored for a minimum period of 6 years. Anything less than this would be subject to criticism as not only can HM Revenue and Customs seek documents going back 6 years but also, any claims in contract or tort have a 6 year Limitation period.

Let’s look, however, at 2 specific areas which fall outside this general rule:

  1. Building Works: Suppose you manage or own a building where extensive works are carried out. Ordinarily, the paperwork relating to such works would be retained 6 years. However, this may not be long enough to protect you and your clients. If a defect arises after the works have been completed, potentially there is a right of action for a period of 3 years AFTER the defect has been discovered. If the defect is discovered , for example, 9 years after the work was carried out, it could be up to 12 years before Action is brought. There is a long stop provision of 15 years from the date of the works. This means that where building works (including new builds) or extensive renovations have taken place, it is prudent to retain all of the documents for at least 15 years. We have encountered several situations where such papers have been disposed of, only to cause serious difficulties when a claim raises its head many years later. Since the owners or management companies are usually the entities who want to bring a claim, it is self-protective to ensure that everything is kept. If storage is an issue, the documents can, of course, be stored electronically.

 

  1. Claims Arising From a Lease: It is, of course, always open to a leaseholder to challenge charges which are made under the terms of a Lease, for example, insurance charges or electricity charges. You may assume that there is no necessity to retain documents relating to such charges (eg: original bills from the suppliers, calculations, meter readings…). This is not the case. Where such charges are payable under the terms of a Deed (and a Lease is a Deed), then any claim in respect of such charges can be backdated for 12 years. We have recently had a matter where electricity charges have been challenged and a client has been ordered to produce all details of the charges since 2005. If such an Order is made and you are not able to produce the documents, the risk is that the charges will automatically be deemed unfair which could have huge implications for the management of a development. We would therefore recommend that all documents relating to charges under a Lease, and this includes all service charge items, should be retained for a minimum period of 12 years. If there is a handover of ownership or management during this period, obviously you can pass on these documents. It is, however, worth keeping an electronic copy in the event of any future litigation.

If you have any questions arising we will be only too happy to answer them. Please contact Charlotte Collins at any time for further advice on 01743 260121.

Managing Agents’ agreements and s.20 consultation

Under Section 20 ZA(2) of the Landlord & Tenant Act 1985 and The Service Charges (Consultation Requirements) (England) Regulations 2003 landlords must consult leaseholders before entering into contracts for more than 12 months under which relevant costs incurred in respect of any accounting period (in principle one year) exceed an amount which results in the relevant contribution of any tenant being more than £100 in respect of that period.

Examples of qualifying long-term agreements (QLTAs) can include managing agents’ agreements.

While the principal purpose of the consultation process is to seek the leaseholders’ views on the landlord’s proposals, the effect of the provisions is to limit the landlord’s ability to recover if he does not comply. If the landlord fails to carry out the full consultation procedures in the correct manner, he is not able to collect or recover service charges above the level of the statutory minimum amounts – £100 per leaseholder per year in respect of a long-term contract.

A recent case has addressed the issue of when a management agreement will satisfy the requirements for a qualifying long term agreement. In Corvan (Properties) Ltd v Maha Ahmed Abdel-Mahmoud [2017] UKUT 228(LC) the dispute concerned the interpretation of the length of term of a management agreement and whether this was a long term qualifying agreement.

The appellant was the freehold owner of a residential building, containing 154 flats. The respondent was the leaseholder of one of the flats, which was held on a long lease. The lease contained standard service charge provisions, requiring the leaseholder to contribute towards expenses incurred by the freeholder in providing services including repair and maintenance, together with other heads of expenditure. The building was managed by a set of managing agents.

The initial dispute arose in respect of service charges totalling £24,420.83, claimed by the freeholder. This included sums in respect of a contribution towards the fees of two firms of managing agents, the current one having taken over from a previous firm.

The First-tier tribunal (Property Chamber) (FTT) disallowed part of the fees of both sets of managing agents on the grounds that the agreement between the freeholder and the first set of agents (and which also governed the services of the second set of agents) was a long term qualifying agreement and the consultation requirements had not been complied with.

It was common ground between the parties that the consultation requirements had not been complied with. In the management agreement made between the freeholder and the first set of managing agents, the ‘Term’ was defined as being: ‘for a period of one year from the date of signature hereof and will continue thereafter until terminated upon three months’ notice by either party’.

The FTT placed particular importance on the words ‘and will continue thereafter’, which it considered meant that the agreement could not be terminated before 15 months. On appeal, the Upper Tribunal found that the agreement was intended to continue until after the end of the initial period of one year. The continuation was not conditional on the absence of a notice, but was a continuation ‘until terminated’. As the agreement was for a term of more than twelve months, it was therefore a qualifying long term agreement and the fees remained disallowed.

Each case depends on its facts but the case provides a useful summary of some of the previous decisions regarding the interpretation of length of term. It also serves as a reminder of the need for clear drafting, to ensure that the length of term of an agreement accurately reflects the parties’ intentions. It has become increasingly common for managing agents to enter into management agreements for no more than 12 months, typically with an annual renewal. Such contracts; for no more than 12 months, renewed annually are clearly not qualifying long term agreements and avoid the consultation requirements.

If you need any assistance with Regulations or S.20 Consultation, contact a member of our team on 0333 0 300 200 or email info@slcsolicitors.com with your query.

Block Management and the Grenfell Tower Tragedy – Communication and Consultation

SLC Solicitors wishes to convey its deepest sympathies to all those who have been affected by the recent tragedy in West London.

Clearly the awful and tragic events of last week’s fire, and the years leading up to the tragedy, have raised numerous concerns and questions about the structure, design and renovation of Grenfell Tower and many, many more blocks in the UK which are of similar design, age and will have been the subject of major renovations or upgrades. This will affect local authority housing stock as well as such stock sold off under mixed private and public ownership and now solely private ownership. Those involved in the management of such blocks will have been looking at their portfolios to ascertain whether any of the issues that appear to have affected the safety of Grenfell Tower will potentially affect those blocks under private management.

Major works consultation is a necessity within landlord and tenant law and whilst there is a distinction under legislation between public and private landlords in relation to the consultation process it is hugely important to ensure that leaseholders are consulted with and concerns legitimately, carefully and sensitively dealt with. Whilst the remit of the public enquiry will be wide-ranging and include concerns of leaseholders to works carried out perhaps one of the outcomes of all the questions that are now being asked is whether leaseholder consultation before, during and after major works will be more exhaustive.

Managing agents around the country will be reviewing major works carried out on buildings that have similarities to Grenfell Tower and will require support from a range of public and private bodies, as well as a variety of professional services including engineers, surveyors, health and safety advisors, solicitors and more to understand how best to protect tenants and observe absolute best practice.

Agents will also look to see what emergency procedures they can follow and how best they can alert leaseholders and sub-tenants, subject to the obligations of their management contract with RMCs and others. Communication between management and leaseholders is key as is being able to respond quickly. Agents and self-managed RMCs will now look closely at how tenants are contacted urgently in the event of an emergency whether minor or major.

SLC Solicitors has a specialist team that advise on the S20 consultation process. We are able to provide assistance on prescribed notices that must be served to tenants in advance of works, advice on how to effectively communicate with leaseholders and can guide you through this complicated and important process. We ensure that the best practice is carried out for both managing the block and also for the safety of your tenants.

SLC are able to support you from start to finish, to discuss the Section 20 process in more detail or for advice on how to approach major works with leaseholders, contact Natalie Tellis-James on 0333 0 300 200 or email ntj@slcsolicitors.com with your query.

 

Block media

BlockMedia, a provider of resident management company websites for individual or portfolios of blocks supplied directly to managing agents or self-managed RMCs, has SMS, email and other facilities that can send alerts to registered leaseholders and sub-tenants who are registered users of their own block’s website of any reported activity that requires urgent notification to residents whether this relates to suspected on-site petty theft activity, anti-social behaviour or more serious causes of immediate concern. It also has facilities to report and log urgent and non-urgent repairs and maintenance issues to agents and directors of RMCs. Such websites are a support to block managers but clearly reviews of how management and tenants communicate in emergencies will be a key feature for many over the coming weeks.

To speak about how BlockMedia can support the management of your sites please call Claire Tellis on 0333 0 306 060.

An Early Warning of Impending Changes to Debt Recovery

On 1st October 2017, the Government will be introducing a Pre-Action Protocol (PAP) for debt recovery claims. We think it is worth warning our clients about the PAP as it is likely to impact on their credit control procedures and our own processes and thought needs to be given to the PAP so that it does not have a negative impact on your cashflow.

The PAP applies to all businesses which are seeking to claim payment of a debt from an individual, including a sole trader. It does not apply to debts due from another business but will apply to claims for unpaid rent and service charge due from leaseholders

The thinking behind this is that introduction of a special protocol may lead to early settlement of matters between the parties without the need to resort to formal court action and to reduce costs.

It will, however, have the effect of potentially making the recovery process longer. Under the PAP the following procedures will apply to all debts:

Failure to comply with the above conditions could have the effect that any subsequent  Claim being stayed to allow time for compliance of the PAP. Alternatively, the Court may impose sanctions on the party bringing the claim, such as depriving them from recovering costs or greatly reducing the costs awarded.

Whilst this is still a few months away, it may be worth bearing this in mind now and starting to consider your internal processes for chasing unpaid demands and the stage at which debts are referred to solicitors so that the extra time afforded to the debtor after issuing a letter of claim and before a claim can be issued does not result in a large increase in debtor days and impact upon the cashflow available to a management company or landlord.

It may be that you want to put in place your own PAP compliant letter of claim at an early stage or you may prefer to refer debts for collection at an earlier stage. Obviously, each management company and Landlord will have a slightly different requirement and view as to the way in which this new protocol will need to be integrated.

We shall be working hard with all of our clients to give training and advice as to this protocol and to ensure that the steps put in place meet your requirements whilst also meeting the PAP criteria. If you have any queries relating to the new PAP, or how this may affect you, contact a member of our team today on info@slcsolicitors.com or call 0333 0300 200.

Insolvency and its effect on the landlord of residential property

What happens when the tenant of a long residential lease becomes insolvent? There are two possible insolvency procedures; an individual voluntary arrangement (IVA) and bankruptcy.

The purpose of an IVA is to allow a settlement between the insolvent and its creditors on agreed terms and this avoids the bankruptcy of the individual. The debtor applies for an interim order which lasts for 14 days unless extended. Once an application is made the court can stay an action, execution or other legal process and once the order is made the landlord needs court permission to take court action or peaceably re-enter. Court hearings and creditors’ meetings follow and in due course the IVA is entered into. There is an alternative process in which an IVA is proposed without an application for an interim order but the moratorium of creditors taking proceedings referred to above does not apply although an interim order can be applied for later on. The property of the insolvent remains vested in the insolvent.

The IVA will bind a landlord creditor even if it did not have notice of the relevant creditors’ meetings and there is no power for the lease to be disclaimed in connection with an IVA. An IVA can cover future payments, whether it does so depends on the terms of the IVA entered into. Whether it releases former tenants or guarantors of the tenant depends on the terms and in the case of a guarantor, on the terms of the guarantee. An IVA is contractual and third parties such as former tenants and guarantors would prima facie not be bound by it though.

There is at present conflicting authority as to whether if relief from forfeiture is sought by a tenant under an IVA it would be granted on payment of the reduced arrears liable under the IVA if the landlord is bound by it or the full amount that the tenant is liable to pay.

Bankruptcy orders can now be made by a court on hearing a petition or by an online application to an Adjudicator within the Insolvency Service. Once an order is made the individual is made bankrupt. A trustee in bankruptcy is appointed after the order is made and the property of the bankrupt vests in the trustee on the appointment taking effect save for certain personal effects,  property held on trust by the bankrupt and certain Rent Act and Housing Act tenancies.

Whilst a petition or online application is pending the court can stay any action, execution or other legal process against the property or person of the debtor. The landlord can sue for the rent and forfeit by court action without leave of the court but the action can be stayed. The landlord can forfeit by peaceable re-entry without leave of the court and it is thought that the process cannot be stayed, but this point is not wholly without doubt as there is no direct authority for it.

Once the order is made the landlord creditor has no remedy against the person or property of the bankrupt in respect of any debt provable in the bankruptcy and needs leave of the court to begin any action or other legal proceedings against the bankrupt however the landlord of an undischarged bankrupt does not need permission of the court to forfeit a lease either by peaceable re-entry or by way of court order.

The trustee in bankruptcy has power to disclaim a tenant’s liability under a lease and if so the effect is that the rights and liabilities of the bankrupt property are determined but those of third parties such as guarantors continue.

Home buying or PRS – The Bank of Mum and Dad

There remains a willingness amongst some young adults to enter the traditional home buying property market. As a consequence parents acting as the bank of mum and dad (BOMAD) in the UK are spending £6.5bn a year to help their children get a foot on the property ladder, up from £5bn last year. This makes BOMAD the equivalent of the 9th biggest mortgage lender in the country and borrowing from family and friends to help fund deposits will help younger homebuyers complete on some 300,000 transactions this year.

The average age of a first-time buyer in the UK is now 30, rising to 34 in London and the average transaction involves a contribution of £17,500, with three quarters of BOMAD purchases being funded by parents. Indeed Over-55s are sitting on £1.5 trillion worth of property equity.

A separate survey carried out by YouGov for JLL indicates handouts from parents to their children to buy property are set to be worth £103bn in London and the southeast. It claims that up to half of home purchases in the region will be part-funded by parents in future. JLL said the scale of the handouts could entrench social inequality by keeping house prices high, despite static wages and rising living costs.

Neil Shearing, Legal Services Consultant of SLC Solicitors, says “there is a case to say that the Bank of Mum and Dad is actually propping up the UK home buying property market for the time being as had parents not invested in their desire to see their offspring leave the family home the market may have been infinitely more stagnated and led to a decline in transactional incomes for managing and estate agents.

But what alternatives do those other young people have who cannot draw from the Bank of Mum and Dad? The answer lies within the private rented sector. The proportion of people living in private rented homes has doubled since 2000 and is set to rapidly increase over the foreseeable future.

Neil says “Unless the current economic uncertainty surrounding, amongst other things, Brexit and the huge levels of personal debt causes another dip into recession then transactional incomes for managing and lettings agents should remain relatively buoyant -thanks to mum and Dad especially.  That said as a parent myself I am not sure how healthy it is if children look on their parents as huge piggy banks while parents suffer by having to play the role of providers forever. The PRS gives flexibility and options for young people and a greater cash flow for parents to enjoy their later years”.

A New Rental Standard for Leeds

A new Rental Standard has been launched in Leeds to offer a new accreditation mark for the Private Rented Sector (PRS) within the City. This follows the combined efforts of The Residential Landlord Association (RLA), National Landlord Association (NLA), Leeds Landlords Accreditation Scheme (LLAS) and Unipol.

As the Northern Powerhouse continues to grow, Leeds and surrounding areas are quickly becoming a hub for PRS landlords. The new initiative will bring unity to the City of Leeds defining the standards expected by the RLA, NLA, LLAS and Unipol within the sector into a single “badge of honour”. Establishing a minimum standard expected for those involved in PRS accommodation.

The scheme which launched on the 2nd May offers Landlords multiple benefits in return for signing up to the “Leeds Rental Standard”. Discounts are available on local licensing schemes, Landlords are able to be self-regulating and have the option to resolve any tenant/customer complaints without involving the local council. They also have access to council housing officers for advice and guidance as needed and have access to the Private Tenant Letting Scheme which will help to find tenants and provide support to maintain tenancies.

Furthermore, Landlords will be able to advertise their properties in “Leeds Homes” and benefit from zero tipping charges at certain civic amenity sites. Business parking permits are also being made available for Landlords who require regular access to residential parking zones.

As with all aspects of the PRS, the scheme has been created with tenants in mind, optimising the customer service on offer to them from their landlords. Tenants will easily be able to identify a good landlord and have confidence that the property they are interested in renting is of a good standard, properly managed and, somewhat more importantly, regulated. The Leeds Rental Standard gives general consumer protection, allowing all members and tenants the right to access the complaints and independent tribunal system if serious disputes cannot be informally resolved.

Leasehold Titles – A Concern for Home Owners?

Following the news  in April that housebuilder Taylor Wimpey have set aside £130 million and apologised to leaseholders after attracting criticism for rising ground rents on leasehold houses sold, SLC Solicitors provide guidance on when you should expect a property to be leasehold, and what to look out for in the lease.

Taylor Wimpey attracted criticism for selling leasehold houses which are usually sold freehold. (Flats, being part of a larger building, are more commonly leasehold). Historically many houses on estates were sold on long leases rather than freeholds.  This is less common today, though as was reported in the press last year, it appears to be on the increase. Despite the press criticism, a leasehold interest in a house is a perfectly valid form of ownership and has a capital value so prospective purchasers should not be deterred completely but should proceed with caution.

Taylor Wimpey have pointed out that the leasehold houses were cheaper at the point of sale than a freehold and that purchaser’s were advised there would be an additional premium if they wanted to purchase the freehold at a later date.

PURPOSE OF LEASEHOLD INTEREST

The formation of a long lease allows restrictions to be placed on the use of the property and to be enforceable against future owners, which would not be possible in freehold ownership. This allows the landlord to control and enforce covenants for repair and maintenance and usually to repair common parts by charging all the owners a service charge.

DISADVANTAGES FOR LEASEHOLDERS

Renewal

The main disadvantage of a leasehold title for a leaseholder is that the lease is for a fixed term (usually 99 or 125 years)  which will eventually expire and the tenant will need to either request a renewal or extension from the landlord, who will charge an additional  premium, or,  purchase the freehold, again for an additional premium.

Some leases of houses are labelled as “virtual freeholds” which is a slightly misleading term, merely meaning that the leases are very long, commonly 999 years, which means they will not have to be renewed for about 900 years.

Ground Rent

The leaseholder will also usually have to pay a ground rent to the landlord over the length of the term. The ground rents complained of in the Taylor Wimpey situation double every 10 years which means they can soon escalate beyond the purchaser’s original expectation to significant sums.  There have been press reports of property purchased for £101,000 that is now valueless as the ground rent has risen dramatically to £8,000 annually.

A high ground rent will in turn make the renewal of the lease more expensive and make the property less attractive to a purchaser.  It is important when considering purchasing a leasehold property (or when extending or varying an existing lease)  that you look closely at the ground rent provisions and ask for advice on whether the level of ground rent would be commonly found in the local area.

Taylor Wimpey have pledged the monies towards reducing the ground rents for those homeowners affected by the doubling ground rents on their sites.

Forfeiture

Leases will reserve to the landlord the right to forfeit the lease in the event of the leaseholder’s breach of covenant or non-payment of the ground rent which is a significant threat as, the lease having been brought to an end, the leaseholder’s interest in the property is cancelled and they lose the value of their interest without compensation.

Disposal

With long leases it is relatively rare to see restrictions on to whom the property can be transferred,  but this should be examined in all leases for certainty on the requirements. It is common for leaseholders to have to notify the landlord on transfer so they can update their records about ownership of the property.

Alterations

It is common in leases for there to be restrictions placed on the leaseholder in respect of work that can be undertaken at the property, particularly if the homeowner wants to extend the property or carry out structural alterations.  The consent of the landlord is often required and the landlord is entitled to pass on to the leaseholder costs he incurs (such as legal and surveyors fees) in  providing consent.

 

As with any property purchase, the purchaser is making a significant investment and it is essential to obtain the correct advice from professional advisors to avoid finding yourself in a situation that you did not anticipate.  Ensure that you read the lease and ask questions about it to fully understand what is being offered as the principle of caveat emptor (let the buyer beware) applies to land and the buyer must find out everything they need to know prior to committing to the purchase.

Should you require any assistance with leasehold property please contact Analise Broomhall, adb@slcsolicitors.com

Accrued Uncommitted Service Charge – Avoiding the pitfalls

The Commonhold and Leasehold Reform Act 2002 provided leaseholders with the legal right to take control of the management of their blocks. The Right to Manage process allows leaseholders to transfer the obligation of the landlords management functions to a company they have collectively set up.

Before Right to Manage

The transfer of management obligations can cause problems when dealing with the responsibility to collect service charge payments. Prior to the acquisition date (the date at which the management company takes over management) the RTM Company is entitled to receive information from the landlord about moneys which are held on account and moneys which are likely to fall due. The RTM may even serve notice on the landlord requesting this information if it is not readily provided.

Following Right to Manage

Once the acquisition date has passed and the Right to Manage status has been acquired, the landlord is obligated to provide information to the RTM to allow a smooth transition of management functions. The landlord will need to provide details of existing management contracts, details of employed contractors and any other services being for the benefit of the block. Importantly, the landlord is also obliged to pay over to the RTM Company any accrued uncommitted service charges.

What are accrued uncommitted service charges?

Section 94 (2)of the Commonhold and Leasehold Reform Act 2002 defines accrued uncommitted service charges as (1) any sums paid by leaseholders by way of service charge and (2) any investments representing these sums or income for the landlord resulting from the investment.

What is there is a dispute?

If a dispute arises between the landlord and the RTM Company over what is deemed to be accrued uncommitted service charges, application can be made by either party to the First Tier Tribunal. The Tribunal can then determine the correct amount of service charge to be paid over to the RTM Company and this will take into account such as:

There have been many cases heard by the Tribunal on this point, but one case to note is that of OM Ltd v New River Head RTM Co Ltd. In this case the Tribunal determined that the landlord is required to pay over to the RTM Company any sums ‘held by’ them on the acquisition date. The terms ‘held by’ is interpreted to mean sums held in bank accounts or in an investment entered into by the landlord which represents the sums paid to the landlord by the leaseholders.

This makes a distinction between what sums the landlord actually holds on the acquisition date and what sums he is entitled to hold at the acquisition date but has not yet received.

Any arrears of payment due to the landlord prior to the acquisition date will remain payable to them, these arrears do not pass to the RTM Company.

Conclusion

It is important to determine what payments the landlord actually holds on the date the RTM Company takes over management. Disagreements over what constitutes accrued uncommitted service charges can result leaseholders not making payment to the correct party if the landlord and RTM Company are both claiming the same sums. Protracted disputes may ultimately have to be settled by determination by the Tribunal and there are of course the cost implications of this.

Only sums actually held by the landlord, either in bank accounts or investments will need to be handed over the RTM Company. Any payments due from leaseholders under the terms of the lease which have not been collected will remain payable to the landlord. An RTM Company has no entitlement to collect arrears outstanding prior to the date they took over management; this right remains with the landlord.

Appointment of a Manager | Recent Case Decision

Impact of (1) Octagon Overseas Limited (2) Canary Riverside Estate Management Limited –v- Alan Coates on Appointment of a Manager:

This is an interesting case which was decided on Appeal on 18th April 2017 by the Chancery Division of the High Court.

The matter concerns circumstances where the First-tier tribunal has been asked to appoint a Manager pursuant to S24 Landlord and Tenant Act 1987. An application to appoint a manager (in place of the existing Manager) can be made in respect of any development where there are 2 or more flats.

The First-tier Tribunal will make an order appointing a manager where there has been a breach of management obligations by the existing manager and it is just and convenient to do so. This means that any such appointment is fault based and, as a result, there is often a certain amount of enmity between the old manager and the newly appointed manager.

In this case, the Tribunal had stated as part of the appointment of the new manager that the old managers had to hand over various papers and documents relating to the management of the development. They failed to do so and the new manager then applied to the County Court for an injunction requiring delivery up of these documents. This is due to the fact that the First-tier Tribunal has no jurisdiction to enforce its own orders. Such application was successful at first instance and the matter then went to Appeal.

It has now been decided, on Appeal that the injunction could not stand. Injunctive relief is dependent upon having an underlying cause of action and, in this matter, there was no such cause of action. The correct process when seeking to enforce a decision of the First-tier Tribunal is to apply back to the Tribunal for Directions and THEN ask the Court to enforce such Directions if the other party does not obey them.

This case lays down a two stage process for enforcement action, first apply to the Tribunal and then to the Court. It will not be sufficient to make application to the Court unless there is an order for it to enforce. This is undoubtedly a principle which will be upheld in respect of other tribunal decisions which need to be enforced by Landlords or Managing agents. Contact Charlotte Collins at cc@slcsolicitors.com or call 0333 0300 200 who will be happy to assist with any queries you may have.

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