Knowledge You Can Trust
In an industry where the goal posts are constantly changing having up to date knowledge and hands on experience is critical to being a successful block manager. Day to day we’re constantly using our knowledge and experience to answer many different questions but we always respond as objectively as possible and with our customers best interests at heart. Although the list below is not exhaustive, these are some of the common questions we get asked when taking over the management of a new block. If you have a more specific question please feel free to call us or send a message on the contact page and we will advise accordingly.
Managing Your Block
A block manager is employed by the board of directors of the residential management company to look after the communal internal and external areas of a building. This typically includes making sure the building is adequately insured, setting the annual service charge budget for the year, managing several annual service contracts (e.g. gardener), instructing contractors to carry out any ongoing repairs and maintenance (e.g. plumber), administering one-off major works (e.g. new roof), ensuring the building is compliant with the latest health and safety legislation (e.g. mains wired fire alarm), liaising with leaseholders about lease related issues (e.g. permission to sub-let), performing company secretary duties (e.g. holding AGM’s) and submitting all necessary filings to Companies House (e.g. company accounts).
Before you employ a block manager you should ask them to list out all the services they offer during the year and differentiate between those services which are included in their management fee and those services which have an additional fee. Many block managers offer a very low starting management fee to win the work, but their overall fees rise when additional services are factored in. It is therefore vital to be aware of what services the block manager is providing upfront before you enter any management contract. This approach will also make it easier for you to compare them with other block managers quoting for the work on a like for like basis. The next step is to list out all the services you definitely require for your block during the year (i.e. based on past experience and knowledge) and make sure the block manager has factored all of these into their quote. These services should then be reviewed at the end of year to make sure you’re always getting what you’ve paid for and consequently value for money.
The exact process and timeline for appointing a new block manager depends on whether you currently self-manage, have an existing block manager in place or are appointing a manager under Right to Manage (RTM). The quickest method of appointment is where you’re self-managing as there is no need to give notice to an existing manager and you can sign up immediately, provided all the director(s) of the block management company agree. The second quickest method of appointment is to give notice to your existing block manager first which can take 1-3 months depending on the exact terms of your contract, before appointing your new block manager. On advantage of this method is that the outgoing and incoming block managers can carry out all the necessary handover work, whereas the self-management handover relies on the existing leaseholder(s). The slowest method of appointment (i.e. typically 6 months) is RTM which gives qualifying leaseholders the statutory right to take over the management of their building or appoint their own block manager.
A typical block should be visually inspected every 6 months, carried out by an independent and competent person (i.e. block manager) to cover the external (i.e. roof, gutters, walls, drains) and internal communal areas (i.e. doors, stairs and hallways). The inspection should be written up on a standardised template and communicated to all leaseholders after every visit. Any minor issues noted on the inspection should be fixed before they become more problematic. Any major issues identified on the inspection (i.e. roof slates missing) might require a more detailed follow up assessment before repair works are undertaken (i.e. scaffolding and roofing contractor). In addition to these bi-annual inspections there should be a clear communication line in place throughout the year so leaseholders can notify issues they identify pro-actively to the block manager. Many block managers also provide a 24-7 call out facility to deal with any emergencies (e.g. burst water pipe).
Financial
The service charge is the total estimated cost of managing your building during the year and typically includes insurance, management fees, repairs and maintenance, accounting and other miscellaneous expenses. The service charge is calculated by looking historically at the annual costs in previous years, understanding the costs over the next 12 months and assessing potential costs over future years. The service charge budget for the year is normally agreed in advance at an AGM where all leaseholders are invited to discuss and vote. The total service charge agreed at the AGM will then be apportioned and invoiced to each individual shareholder, in accordance with the terms of their lease. At the end of each year an account of what has actually been spent versus budget will be distributed to all leaseholders and any balancing figures collected or refunded to leaseholders in accordance with their lease apportionments.
The reserve fund is built up over a short period of time and helps to manage unexpected expenditure the service charge budget could not account for (e.g. budget overspends). Alternatively, the sinking fund is a means of collecting extra funds for specific costs that occur occasionally (e.g. roof replacement). It is best practice for the reserve or sinking funds to be held in separate bank accounts to the service charge monies. The lease will typically state if there is an obligation to setup and maintain a reserve or sinking fund and the method for collecting contributions to this fund, whether it’s part of the service charge collection or not. Having a well-managed reserve or sinking fund in place will likely enhance the value of your apartment and building as prospective buyers will see this as an advantage over other leasehold blocks without a reserve fund. Unless separately agreed with their buyer contributions to the reserve or sinking fund by leaseholders are not repayable when their apartments are sold.
It is a leaseholder’s obligation to pay the service charges promptly by the due dates stated on the invoices provided they’ve been demanded correctly and are reasonable, both in terms of cost and standard of service. If you can’t afford to pay, you’re best notifying the block manager as soon as possible to explain and see if an alternative arrangement can be made, such as paying by monthly instalments. Any service charge arrears you build up will have to be covered by other leaseholders short-term which might not make you very popular and in the event of selling your apartment the buyer would likely deduct any outstanding arrears from the purchase price. In the event leaseholders aren’t willing to fund your arrears, the block manager might not have enough money to carry out their work. After sending you three reminder letters the manager could be forced to start legal action against you to recover all the arrears and extra costs, which in extreme cases may result in the forfeiture of your lease.
All service charge monies paid by the leaseholders of each block should be held in a separate, clearly identifiable and ring-fenced client bank account. The recognised bank should be authorised by the Financial Services and Markets Act 2000 and protected by the UK regulator, the Financial Conduct Authority (FCA) and the Financial Services Compensation Scheme (FSCS). Under section 42 of the Landlord and Tenant Act 1987 the block manager should seek written confirmation from their bank that the following conditions are being met:- i) all money standing to the credit of that account is client money, ii) the bank or building society is not entitled to combine the account with any other account or to exercise any right of set-off or counter-claim against money in that account in respect of any sum owed to it or any other account of yours; and iii) any interest payable in respect of sums credited to the account should be credited to that account.
Building
Following appointment, the new block manager will typically contact all existing service providers to understand the scope of services provided and assess whether their cost and standard is fair and reasonable. If the services provided are in line with the block managers expectations, all the appropriate insurance/ certifications are in place and the leaseholders are happy, there is no need to replace the existing service providers. However, it is still best practice to update the existing service agreement to reflect the new relationship and scope of works agreed, particularly where there is no existing formal service agreement. In terms of contractors employed to carry out general repairs and maintenance work, the block manager will typically use a mixture of existing local contractors and contractors they know offer fair and reasonable cost and service standards. For major works, the choice of contractor is determined through a formal section 20 process where everyone has input into the final decision.
Block managers tend to prefer using contractors who they’ve had first-hand experience of working with, where their cost and standard of service has been proven over a number of different jobs. However, this is not always possible, and the specific type, timing and location of the job might necessitate the employment of a contractor who the block manager doesn’t have a previous working relationship with. In these cases, it is particularly important the block manager asks for independent references, looks at previous jobs the contractor has completed and uses their own pricing knowledge to understand whether the quotes received (i.e. three for major works) are fair and reasonable. After the work has been completed the block manager should review the standard of work performed versus the scope of works agreed and full payment should only be made to the contractor once everyone is happy and any remedial works have been rectified.
General repairs and maintenance tend to be minor communal works costing less than £250 per apartment and range from unblocking a drain, changing a lock, replacing a light to removing a tree. The block manager normally has the power to carry out these works without having to consult every leaseholder in the block. Major works by definition cost more than £250 per apartment and can involve replacing a roof, re-painting the exterior of a building or installing a wired fire alarm and smoke detection system. In order to carry out these qualifying major works on a building the block manager must follow a section 20 consultation process which includes all the leaseholders and is made up of three distinct stages:- i) a notice of intention to carry out the works ii) a notification of estimates for the intended works and ii) a notification of award of contract for the works. The section 20 process typically takes 2-3 months as leaseholders need to be given at least 30 days for stages i and ii. If the process is not followed correctly the maximum cost leaseholders can be made to pay for the major works is limited to £250 per apartment, regardless of the final bill.
Communal is typically defined as the structure, external walls, windows, roof and gutters of the building, including the shared hallways, stairways, balconies, access paths and gardens. The individual leaseholder is normally responsible for everything within the four walls of their apartment including the floorboards, plaster to the walls and ceiling, all of which are not classed as communal. The exact definition of what constitutes communal and individual owner areas for the building should ideally be clearly defined and written in the lease. The service charge can only be utilised for maintaining the communal areas of the building and must not be spent on anything relating to individual owners. Where the lease doesn’t clearly define communal and individual areas (i.e. apartment front doors) and works are required to these areas (i.e. replace with compliant fire doors), a common-sense approach should be taken where the leaseholders collectively agree on the appropriate source of funding.
Compliance
The first step is to put something in writing to your landlord or block manager which unemotionally states which parts of the service charge you aren’t happy with and the reasons for your concerns, ideally with references to law or the lease. If you don’t receive a satisfactory reply the second step is to make a formal complaint using the block manager’s internal complaints procedure. If after completing their complaints procedure the leaseholder remains dissatisfied the final step is to apply to a First Tier Tribunal (FTT). Whilst the initial application fee is low the costs can escalate as leaseholders are unlikely to be able to recover any costs from solicitors hired or surveyor reports commissioned. The landlord or block manager may also be able to recharge their own legal costs back to the leaseholders as service or administrative costs. Alternatively, if there is collective agreement between the leaseholders that the service charge is too high, you can appeal for the Right to Manage.
Block managers play an important role in educating leaseholders on the terms of their lease from the day they purchase their apartment to the day they sell. The lease between a landlord and a leaseholder will typically contain a number of covenant’s (i.e. restrictive or positive) relating to the leaseholders use and occupation of the building. If the leaseholder has breached a lease covenant, the terms of the lease will often specify the available remedies and even if a remedy is not specified, the breach may be sufficient to justify action such as forfeiture of the lease or injunction proceedings. Where a leaseholder is acting against the terms of their lease the block manager should always try and address any issues in the first instance using dialogue but persistent offenders should be dealt with swiftly. It is important to note when subletting leasehold property, the leaseholder will still be responsible for compliance with the lease covenants and thus if their tenant breaches a lease covenant, the leaseholder is likely to be the subject of any enforcement action taken.
In most cases it will be difficult to change the terms of the lease so prospective buyers of leasehold property should always seek specialist advice prior to completion of purchase. Leases in common where all properties contribute towards the same service charge can be varied on a voluntary basis if there is 100% agreement of all parties (i.e. including the freeholder). An appropriately worded Deed of Variation (DOV) is required from a solicitor and if the contents are agreed by all parties it needs to be signed and forwarded to the Land Registry. Costs incurred in relation to lease variations will typically be passed onto leaseholders. If there is a significant majority but not every party agrees, an application can be made to the FTT to vary all of the leases under Sections 35-40 of the LTA 1987. However, even if a significant majority are in favour there are several hurdles that may still prevent a variation being achieved at an FTT. These include whether the variation substantially prejudices any other party to the lease, whether compensation should be paid to any other party of the lease suffering as a result and whether there is any other reason it might be unreasonable to grant the order.
Under the Health and Safety at Work Regulations 1999 it is a legal requirement for all apartment blocks to have a health and safety risk assessment carried out on their communal areas and reviewed annually. Communal areas don’t just mean the internal parts of a building but also include the roof, structure and other external areas. Health and safety typically assesses the following risk factors:- fire safety, working at heights, electrical safety, legionella, asbestos, control of substances hazardous to health and reporting of injuries, diseases and dangerous occurrences. It is important to note that directors of residential management companies will always retain responsibility for the health and safety of their block, whether they delegate to a block manager or not. You may have to spend some money to ensure your block complies with health and safety regulations but there is a much higher cost if things go wrong because you failed to comply (i.e. fined, criminally prosecuted or imprisoned).
Company Secretary
A Residents Management Company (RMC) is essentially a non-profit making company setup to provide a vehicle which enables leaseholders to undertake the management of their own building. The RMC will have a Memorandum and Articles of Association which will dictate the way in which the RMC should be run. Traditionally the directors of the RMC are selected from the leaseholders within the building and the position is voluntary and unpaid. Good directors are essential to the successful running of a RMC and it is vital they make decisions in everyone’s interests and not just their own. The board of directors will be expected to approve the RMC’s company accounts, attend general meetings to discuss the running of the building, approve the service charge budget and set funding plans for the short, medium and long-term. The block manager is normally appointed by the RMC to provide objective guidance to the board of directors, particularly with the management and funding of the building. The block manager’s principal responsibility is always to the directors of the RMC.
Although an individual can be both a shareholder and leaseholder at the same time it is important to keep a clear distinction between the two roles when making decisions. As a shareholder you will be entitled but not forced to take part in decision-making and if you think the board of directors has wrongly exceeded its powers, you can take the RMC to court under the Companies Act 2006. Your liability to the RMC and its creditors is limited to the extent of your shareholding or guarantee (i.e. commonly £1). As a leaseholder, you are contractually bound under your lease to abide by the covenants to the RMC or landlord, which will include the payment of service charges. Any breach of covenant would render you liable to Court action or an appearance before the First Tier Tribunal (FTT). If you think the RMC is in breach of its own covenants (i.e. charging unreasonably) you may take the RMC to Court with your rights as a leaseholder not restricted by the fact you’re also a shareholder and member of the RMC.
The company secretary undertakes a range of legal, administrative and filing responsibilities on behalf of the RMC and the role is often delegated to the appointed bock manager. Legal duties include maintaining the existence of the RMC by establishing the registered office, keeping the statutory books and records, complying with business stationary rules and ensuring the security of all documents. Administrative duties include taking responsibility for summoning director and shareholder meetings and ensuring proceedings are recorded through formal minutes approved and signed by the chairman. Filing duties include submission of the annual confirmation statement and company accounts to Companies House within strict reporting deadlines to avoid any late penalties, prosecution and fines. Other duties include acting as a signatory, advising the directors to ensure they comply with the articles of association, negotiating with outside advisers and agreeing company contracts if required.
The AGM is usually the only time the directors and shareholders of the RMC will meet throughout the year and is normally held after the company’s year-end. The typical AGM agenda will be as follows:- approval of last year’s AGM minutes, directors presenting the company’s annual accounts, approval of budget for the year ahead, re-appointment vote regarding the directors and accountants and general discussion points about any building and leaseholder related issues during the year. The RMC’s articles of association should state whether the company needs to hold an AGM each year and whilst it is still considered best practice there is no longer a legal requirement under the Companies Act. All shareholders of the RMC can attend and vote at the AGM. Shareholders unable to attend can appoint one or more proxies to attend the AGM and vote for them, provided a proxy form has been completed. The proxies can either be instructed how to vote on each resolution, including to abstain, or allowed to vote as they want. Shareholders can also decide to neither attend nor appoint a proxy to vote at the AGM. AGM’s are increasingly being held electronically which is acceptable provided all attendees can hear and fully participate in the meeting.