Industry comment, updates and news from the Websters team.
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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Ruth Lythe reports in This Is Money that soaring service charges could leave thousands of families seduced by government-backed property schemes at risk of losing their homes. A Money Mail investigation has uncovered how buyers of new-build homes are at the mercy of ruthless property management firms that hike service charges for the upkeep of shared areas at blocks of flats. This can leave buyers struggling to cope with monthly bills and hinder them from saving up to buy a bigger stake in their property.
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It can be problematical for a property manager when it comes to seeking legal advice. Solicitors can be an expensive commodity, and there is often neither the means nor the willingness to pay high legal fees. Equally, there will be no appetite to increase service charge levels to cover legal fees.
In a blog from Brady Solicitors, six cost-effective and innovative ways are suggested to secure the desired result without significant costs.
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Final definative guidance has been issued on accounting and reporting in relation to service charge accounts for residential properties. This guidance was prepared by a joint working group comprising representatives of the Association of Chartered Certified Accountants, ICAEW, the Institute of Chartered Accountants of Scotland, the Association of Residential Managing Agents and the Royal Institution of Chartered Surveyors.
Obtain a full copy of the guidance here
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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Alex Wellman of Inside Housing has reported that a problem has arisen over the service charge claimed by a housing association for the maintenance of an estate where some of the properties are privately owned. Two Rivers Housing lost an appeal recently against a previous judgement so that non-tenants of the association did not have to pay for a proportion of the cost of the cutting of grass on the estate.
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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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An article on the Rentman website notes that the largest ever leaseholder tribunal case between managing agent Peverel – owned by the family trust of property tycoon Vincent Tchenguiz – and London’s St George Wharf Residents’ Association has been settled out of court for an undisclosed seven-figure sum.
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