Industry comment, updates and news from the Websters team.
Michael Wear of Bond Pearce writes that the RICS intends to tighten up on the proceedures relating to service charges, when there is a change of agent. Often the final reconciliation of the service charge accounts at the date of hand over is not fully completed because the property is no longer the responsibility of the transferring agent and there may be fears about receiving payment for this work.
Read the full article here
Another legal decision has been published in an article by Shoosmiths about the ‘fair’ apportionment of service charges between tenants in a new build development of residential flats.
The article concludes:
It is important that landlords and managing agents consult before setting service charge levels because in this case, the service charges amounted to more than 100% of the landlords costs. This encouraged the tenants to seek a legal decision to vary their leases in order to adjust the apportionment between the leaseholders to a more “fair” share.
This decision should not be seen as a get out of jail card for landlords in getting the service charge percentages wrong, provided they all add up to 100%. Rather, it highlights the difficulties in calculating fair service charge proportions especially when dealing with premises of different sizes and in larger estates where different parts get the benefit of different services.
It is in no one’s interests that tenants should feel aggrieved by what they perceive as an unfair service charge, and in new developments in particular it should be possible to avoid this. An essential element of doing so is a robust analysis of the service charge as early as possible in the scheme.
Read the full article here.
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An article by John Levy of Lewis Silkin solicitors
The Landlord and Tenant Act 1985 (as amended) imposes stringent procedural requirements on landlords who wish to carry out repairs to residential premises and recover the costs from the tenants. The Leasehold Valuation Tribunal (“LVT”) has power to dispense with those requirements if it is reasonable to do so.
In the case of Daejan Investments v. Benson and others, Daejan sought to recover approximately £270,000 from five leaseholders. The leaseholders complained that Daejan had not complied with a number of provisions of the Act. The LVT upheld that complaint.
The Lands Tribunal of the Upper Chamber examined each of the breaches and found, with one exception, that the breaches had not prejudiced the tenants to any significant extent. However, it agreed that the curtailment of the period within which the tenants could examine the estimates was capable of being a serious breach. The final words of the judgment are interesting: “we are unable to say that LVT has erred in principle, or that its decision was clearly wrong. The financial consequence may be thought disproportionately damaging to the landlord, and disproportionately advantageous to the lessees, but, as we have said, that is the effect of the legislation.”
It could be inferred that the Upper Chamber felt that the decision was wrong, but not ‘clearly wrong’, and on that technicality Daejan was only able to recover £250 from the five leaseholders, rather than £270,000.
So, a rather expensive mistake. And a salutary lesson that, if there is a clear set of rules, stick to ‘em!
Field Fisher Waterhouse also wrote about the same case
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Steven Wood of Coffin Mew solicitors has written an article about a recent court case regarding Landlord, Managing Agent and Tenant rights surrounding the Deposit Protection Services (DPS) and access to monies deposited with it.
He concludes,
Most landlords are now aware of the legal requirement to protect deposits taken in connection with shorthold tenancies. To date there has been little reported litigation under the provisions of Chapter 4 of the 2004 Act and this case is a useful benchmark of the courts’ attitude and interpretation of the Act. Crucially, it serves as a reminder that until such time as a deposit is properly protected the landlord is precluded from utilising the accelerated possession procedure set out in s.21 of the Housing Act 1988 and which is one of the main reasons why landlords choose to use shorthold tenancies. Perhaps less obvious though is the hidden cost for the landlord if it gets it wrong – the deposit in this case was relatively high at £2,700 but, even so, the cost of the legal proceedings will have far outstripped the amount of money at stake. The moral of this case is simple: ignore the deposit protection provisions at your peril.
Read the full article.
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A law report summarised by Charlotte Wicks of Cambridge solictiors, Mills & Reeve discusses the implications for UK service charge VAT treatments in the light of a recent European Court of Justice case. She writes
A recent decision of the European Court of Justice has cast doubt on HMRC’s long held view that service charges relating to common areas follow the VAT treatment of the services supplies under a lease.
If service charges are treated as a separate supply then an additional charge to VAT would arise on both commercial and residential properties where the landlord has not opted to tax.
Landlords of commercial property which is VAT opted are not affected by this issue. However, if HMRC practice does change, landlords of residential property or un-opted commercial property will need to start to charge VAT on service charges. This may require landlords to register for VAT (if they are not registered already). Landlords should now seek to amend old leases and agree new leases to ensure that VAT can be charged on service charges pertaining to common areas. Action should not be required on old leases which are silent as to VAT because with these leases it ought to be possible to add VAT to the service charge if a change in HMRC practice starts to apply the standard rate.
Tenants who can recover VAT but do not currently pay VAT on such service charges may see this as an opportunity. They could ask their landlords for a VAT invoice on these service charges in order to recover the input VAT incurred.
In all likelihood given the uncertainty over the case, this is an issue which will be litigated in the UK courts. Watch this space!
RLRE Tellmer Property sro v Financní reditelství v Ústí nad Labem (2009) STC 2006
Shopping Centre magazine hosted a round table discussion on Facilities management and “Total Facilities Management” or TFM during March.
Link to our scan of the article below.
100301-shopping-centre-tfm-article
Or link to Shopping Centre Magazine website.
Residential tenants are reminded by the COI (Central Office of Information) that they have a right to challenge service charges.
The Leasehold Advisory Service is a free service run by the government giving free legal advice for Landlords and Tenant leaseholders.
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The local council in Derby is trying to increase council housing rents to align with other social housing landlords.
Vice-chairman of the panel John Newbold said: “We know as tenants we can’t change it, but we want to discuss it in view of the financial insecurity a lot of tenants are facing. In my view, the rise of 2.5% to 3% is looking good but there are other things we need to discuss, such as service charges.”
The Government wants local authorities and housing organisations to work towards similar rents to those of social landlords, which are traditionally higher than local authority charges.
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The Nearly Legal blog has a nice year end post about the volume and type of work undertaken by the Residential Property Services Tribunal or LVT
It compares firstly Service Charge s.27A applications with Enfranchisement applications and for the first time since 2006 there are more service charge applications (nearly 3000) than enfranchisements (just over 2000)
Francis Davey, the author, puts this down to
I would like to think that better publicity of the service charge jurisdiction has pushed s.27A applications higher, but that may also be due to increasing financial straights in which leaseholders find themselves and a concomitant reluctance to pay anything that is not strictly required.
His second chart relates to determinations about Fair Rent and Market Rents and the former vastly outstrips the latter by around two to one each year since 2006.
Nice summary, thanks Francis.
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The Companies Act 2006 made substantial changes to private company management.
1. There is no need to appoint a company secretary unless you want to. If you do he/she will have same responsibilities as now.
2. All companies must have at least one actual person as a director. All directors must be at least 16.
Directors file service addressed on the public record with residential addressed held as protected information at Companies House.
3. Private companies will no longer hold an AGM. 10% of shareholders can demand a meeting (5% in certain circumstances). If private company meetings take place they require a 14 day notice period.
4. Written resolutions will become easier to use, requiring a simple majority (for ordinary resolutions) or 75% (for special resolutions) of eligible votes.
5. Arrangements can be made so that communications can be sent and received in certain ways, especially electronically if shareholders agree emails and websites can be used more than at present. Individual members can still ask for hard copies.
A company’s name, number, registered office and other particulars currently required to be displayed on business letters and other documents must now also be provided on electronic documents as well as the company’s website.
6. Companies formed under the new Act can choose to have new streamlined default model Articles. Existing companies can also choose to take advantage of these new model articles in whole or in part.
7. The Statutory rule that private companies can’t give financial assistance to buy their own shares has been abolished.
8. Private companies must file their annual report within nine (previously ten) months of the year end.
The medium-sized group exemption form preparing consolidated accounts has now been removed.
9. There is now a simpler solvency-based procedure to enable private companies to reduce capital without court approval.
10. The amount companies have to do has been greatly reduced and they can take steps to take advantage of the deregulatory benefits of the Act.
Transitional arrangements will make it as easy as possible for companies to take up these benefits.
Source: BERR
