Industry comment, updates and news from the Websters team.
The recent Court of Appeal case of Campbell v Daejan Properties Limited [2012] EWCA Civ 1503 has served as an important reminder to landlords that there is not a presumption that they should receive full recovery of their maintenance and repair costs from a tenant through the service charge.
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A recent article by Sophie Wilkinson and Nathan Rees of Shoosmiths reports on The Green Deal, which is a government-backed funding mechanism for making energy efficiency improvements to property. For finance under the scheme to be available, energy efficiency improvements need to pay for themselves through resulting savings on gas and electricity bills. Both landlords and tenants can take out Green Deal finance. Landlords may benefit from improved value and marketability (from the perception that the property is more energy efficient), whilst tenants should benefit from lower bills. However, there are a number of issues which landlords/investors, in particular, will need to consider.
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It was reported in Inside Housing that rules relating to service charges were rewritten ahead of the publication of universal credit regulations this week, over fears that tenants and landlords would be unable to claim benefit for up to 13 charges. Draft regulations for the new universal credit, which replaces a host of income-related benefits from next October, were published in the summer listing just three categories of eligible charges. The new draft includes four categories of payments, including payments for the up-keep of communal areas, to maintain a good standard of accommodation, for communal services and for ‘accommodation-specific charges’. The DWP will publish guidance in the next few weeks setting out exactly what charges will be eligible.
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A question was raised in The Landlord Law Newsletter about the effect of a section 21 notice, where the tenants vacates prior to the termination date. Are the tenants required to inform the landlord that they are leaving the property? Strictly speaking tenants ought to give notice regarding the date they intend to vacate, but if the landlord actually wants them to leave, bearing in mind that the tenants are entitled to make a landlord pay to get a court order for eviction (which could take up to six months during which period tenants often stop paying rent), the landlord just ought to be grateful that they have gone. However, the landlord may be entitled to claim rent in lieu of notice, but it may be more trouble than it is worth to do this.
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In a report by Property Week, the Service Charge Operating Report (SCOR) for Retail 2012,based on the service charge cost data from 100 shopping centres with a total lettable area of circa 50m sq ft and yearly expenditure of just under £300m, shows that only 4% of shopping centre landlords show evidence of how service charge accounts are prepared, despite this being a key recommendation of the RICS code of practice. The report also revealed that only 54% of landlords are having annual reconciliation statements signed off by an accountant or surveyor. Finally, the report showed that shopping centre retail tenants are, on average, paying between £4.34 and £6.68 per square foot of space they rent but the reason for this wide cost gap remains unexplained.
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Landlords and tenants need to be aware of the many legal provisions that govern residential service charges, since mistakes can prove costly. Although we have highlighted many of these pitfalls in the past, this article by Natasha Rees of Forsters LLP gives a very useful summary.
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Ralph Bullivant of Hill Dickinson notes another instance where landlords will need to be even more vigilant than normal on the quarter day with a view to taking prompt enforcement action against those tenants who have failed to pay their rent, especially if there is a suggestion that they may be in financial difficulties and possibly heading for administration. In The High Court decision, Leisure (Norwich) II Ltd -v- Luminar Lava Ignite Ltd, it was held that, when rent is payable in advance and falls due for payment prior to the commencement of the administration, it is not payable as an expense of the administration and the landlord must stand in line with all the other creditors.
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In Ragge & Co’s Property Update, it is pointed out that, if the parties to a protected lease cannot agree the terms of the renewal, they will be decided by the court and the burden of persuading the court to change the terms of the existing tenancy rests on the party proposing the change. In addition, the High Court has held that a lease with an all-inclusive rent should be renewed on terms which provide for a separate variable service charge.
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In an article by Hip-Consultants one particular problem that can occur when the freehold of the block is owned by a management company (particularly one which is not owned by the tenants) is reviewed. If a significant number of tenants default on their service charge payments this can leave the management company unable to settle its debt and force it into administration or liquidation. This can be a major issue for other tenants in the block as it means that the building and grounds are unmanaged and worse, potentially uninsured. This can render all of the flats in the block unsaleable or at best less valuable.
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