ISSUE No.104 Spring 2013
‘BOMBSHELL’ FOR LEASEHOLD PROPERTY By the Editor
Managers of leasehold property have been thrown into chaos and confusion by a ruling in the High Court. December’s decision has been described as a ‘bombshell’.
The judgement in the case of Phillips and Goddard v Francis appears to rule that the £250 limit per flat for spending on repairs and mainten- ance without having to consult with leaseholders applies to the year’s total, not (as previously understood) a particular project or set of works.
This would mean that, once the £250 threshold had been reached, every tiny repair in the year after it would have to be consulted on. This would create a paperwork and administration nightmare for block managers and increase the cost to leaseholders.
FPRA Hon Consultant Colin Cohen, an expert in property management, said he was “shocked” by the decision in the case, “which I see will only jeopardise future management for smaller RMCS and self-managed blocks, particularly whereby budgeting is not always possible well in advance.” He commented: “Absolutely this is the most far reaching decision in years and could affect everyone who deals with management of any type of residential property in the future.”
FPRA Hon Consultant Bernie Wales, also a property management expert, said urgent action was needed to clarify this “mess”.
The reaction of the Association of Residential Managing Agents (ARMA) was: “The decision in this case has overturned accepted legal views on how landlords and their agents should comply with S20 consultation. Whether the High Court’s views are right or wrong, in law the decision is likely to have adverse consequences for everyone involved with residential leasehold dwellings.
“For lessees, it could mean their landlords – including RMCs and RTM companies – will be cautious and serve more S20 notices before carrying out relatively minor repairs. That will mean delays in getting works done. A repair to the door closer or door entry system of a block of flats for example, is needed quickly to maintain security; it is not meant to wait for two months whilst two consultation notices are served. Moreover, planned maintenance works for, say, fire equipment can often be obtained more cheaply and at better value to lessees if
INSIDE THIS ISSUE Insurance Commissions
Dysfunctional Leasehold New Faces
3 9 12 negotiated for longer periods than one year.
“Another consequence for lessees is that the cost of management is likely to go up. Many more S20 notices may be sent and notices would have to go to all lessees in a block each time.
“It introduces uncertainty for landlords, including RMCs and RTMs, because there is no clear guidance in the decision on when it is necessary to serve S20 consultation notices. Failure to serve the correct notices can result in failure to recover expenditure on repairs. RMCs and RTM companies in particular do not have monies to fall back upon if they cannot obtain payment through service charges from lessees.
“It is unworkable for managing agents. They want to advise their clients about the need to consult with lessees about works but there is no clear position now, after this case. If agents adopt an overly cautious approach they are likely to get complaints from their client landlords and lessees that urgent repairs are being delayed because of the need to serve S20 notices for minor repairs.”
ARMA has met officials at the Department of Communities and Local Government (DCLG) and the Leasehold Advisory Service (LEASE) and stressed to them that the implications of this judgement are potentially serious and far-reaching.
The FPRA, along with managing agents, freeholders and leasehold professionals, is consulting lawyers to understand the validity and impact of the ruling, and exploring avenues for a rapid reversal of the decision.
Please turn to page 2 for a briefing on the case by our Legal Expert Nicholas Roberts. Also see Legal Jottings on page 8.
ARMA’s briefing notes are available on the FPRA website.
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