Industry comment, updates and news from the Websters team.
4-Traders has reported that British Land has scored extremely highly in this year’s independent Property Managers Association (PMA) retail centre management and accounting standards audit review. The PMA introduced the quality assurance programme in 2009 to monitor landlord and managing agent compliance with the RICS Service Charge Code.
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Jon Dickins in his blog ‘Digging the Dirt’ reports that the Office of Fair Trading has launched a consultation on draft guidance to estate agents and property developers, which aims to help businesses handling sales of property and land in the UK to comply with the law on misleading marketing and unfair business practices.
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Siobhan O’Dwyer of the Independent.ie notes that owner Managed Companies (OMCs) are increasingly facing a funding timebomb caused by service charge “won’t payers” who are deliberately avoiding their legal obligation, making a mockery of the legal system and causing great hardship for their neighbours. A sortfall of 15pc-25pc each year can, over a number of years, adds up to a solvency crisis, which threatens the OMCs.
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DWF reports that the decision in the case of Jean-Paul v L.B Southwark [2011] the Upper Tribunal (Lands Chamber) is a reminder to landlords to make sure that they continue to comply with the detailed service charge consultation requirements, as non-compliance can result in a drastic reduction in the amount that the landlord can recover from the tenants.
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This Is Money reports that confidence appears to be returning to the property market with an increasing number of home movers expecting house prices to be higher in 12 months’ time, according to findings in a survey. Eight of ten of those surveyed believed house prices would either be higher or at the same level a year from now.
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Maria Connolly of TLT Solicitors points emphasises that any failure to comply with the absolute terms of a break clause can disentitle a tenant from breaking the lease. This inevitably leads to landlords and tenants arguing over whether they have been properly operated. This lack of certainty benefits neither party, particularly given the time and cost that it takes to settle the issue in court.
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Winckworth Sherwood LLP newsletter notes that landlords with leases granted before the introduction of the layers of statutory protection for flat owners regarding service charge could be set to benefit from a recent legal ruling. The case of St Leonard-on-Sea v John Oram and Mohammed Ghoorun centred on whether the landlord could recover the costs of the extra steps that had to be taken to enforce payment which were not thought of when the lease was granted.
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Andrew Salmon comments that, normally, all service charge expenditure for a property is amalgamated annually and firstly apportioned to the individual units in the agreed percentages. Next, the appropriate proportion of this annual expenditure for any unit with a void period is then apportioned to the landlord. However, in the case of a new building, where there is only a gradual take-up of the available units, this traditional method may be unfairly prejudicing the landlord. This is because, in the early part of the year, the expenditure on such costs as security and common electricity may be quite low. With the increase in occupancy, these charges may rise dramatically but the landlord has to pick up the void percentage of the whole year’s expenditure, rather than a proportion of the lower cost when the various units were actually void.
A fairer split could be to separate the individual expenditure items into those incurred when the property was filling up and those incurred when the building was fully let. The landlord would then only pick up his proportion of the costs in the first period and not a proportion of the annual total.
Obviously, the apportionment could be split over even shorter periods and there are other questions of fairness to be considered, such as the temptation to hold back payment until the later (non-void) period. However, overall, this revised method may be a fairer way of apportioning the first year’s service charge to the landlord of a new property.
A recent article by Shoesmiths considers the balance required between landlords’ desire to maximise income and tenants’ wish for improved terms of acceptance. Inevitably this often comes to a head over service charges.
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In FM World it was reported that 80 per cent of respondents to the latest FM 100 Poll believe facilities managers should be involved in negotiating service charges paid by their organisation to the landlord. Many FMs have said they are not involved, but would like to be.
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