The housing market continues to evolve as a result of the pandemic, with average house prices drop for the first time in 8+ years, and prices down by 0.1% year-on-year according to the latest House Price Index by Nationwide.
Unquestionably, the Coronavirus has shocked the economy and the devastating results on the housing market have caused unease amongst property owners and leaseholders alike. During the COVID-19 pandemic, property management has not ceased, rather it has been of paramount importance as people spend more time at home and the emphasis has been on hygiene to prevent transmission of the disease.
The Government is trying to ease the pain and keep momentum in the housing market, hence the temporary removal of stamp duty for first homes with a value of less than £500,000 until March 2021, unhelpful for landlords who are dealing with one or more second properties. However, keeping your home well maintained is also essential to preserving its value. Ensuring your property is compliant with current regulations and conducting regular property maintenance will prevent damage and sustain the value of your home. It is in your best interests to keep your property in good condition to minimise the financial repercussions; whether you live in it or rent it out, as your home or as an investment, keeping the property well maintained is essential. Directors of Resident Management Companies have varying responsibilities but in broad terms, the overarching remit of the Company is to maintain and protect the investment residents have in the property.
Why is maintaining your investment property so important?
Looking after your investment property will help maintain its value and this is never more important than in a hard market where prices are falling. There are also several other reasons why this is critical:
- Attending to minor property maintenance issues promptly prevents them from becoming major and more costly problems later on
- Keeping the property in good repair will maintain its value
- A well-cared for property in good condition will be far more appealing to new tenants and purchasers further down the line and will help you push for higher rentals or a robust sale price
How can a good property manager help with your property maintenance?
Caring for your property is all about handling maintenance issues when they arise rather than leaving them to deteriorate into more serious problems. Some looming issues you may not be aware of can be picked up by regular, routine inspections of the property, providing peace of mind.
Maintaining the property is an essential part of the role of RMC Directors and aside from the legal responsibilities, actively embracing property maintenance will see a better return in the long and short term. A proactive property owner with a documentary record of property checks, repairs and maintenance makes the property far more attractive to a potential tenant or buyer.
Health and Safety
A big element of a property owner’s legal responsibility is around Health and Safety. A hot topic at the moment after the Grenfell Tower tragedy is fire safety and there are many new initiatives, protocols and procedures which have come out of this episode; it is important to stay up-to-date with what is an evolving picture.
One direct example of a new measure is the advent of the External Wall Fire Review or EWS1 form, which is designed to capture the results of assessments of external wall construction in a consistent and universal manner. This applies to multi-occupancy, residential apartment buildings and will flag any potential fire safety concerns. The EWS1 form is going to be a hard hitter when it comes to property valuations on a sale or re-mortgage and a real focus for financial institutions who will want demonstrable evidence of building safety and that a property offers a safe lending risk. For the landlord or owner, there could be the prospect of specialist reports and remedial works with both cost and time implications acting effectively as an embargo on any movement until these issues are resolved.
The specific issue with the EWS1 form has broader ramifications than might first appear and in a rightly cautious and safety-conscious environment, these measures are being adopted in a more broad-brush approach but there are other key elements in property management such as the presence of asbestos and electrical safety. The grave dangers of asbestos require no introduction and regulations are in place, which closely govern the repair or maintenance of buildings where asbestos is present. The precise definition is contained in the 2012 Control of Asbestos Regulations and describes who has ‘the duty to manage’ this material and the exact application of their role.
New regulations came into force this year, such as the Electrical Safety Standards in the Private Rented Sector (England) Regulations 2020, which require ongoing monitoring of electrical installations by a designated competent person to protect resident safety at minimum intervals of five years. This is in line with the criteria set out in the regulations. Legislation is constantly changing and so it is crucial to have a managing agent who is fully regulated and up to speed on recent or anticipated changes to the law and official guidance. HML do this so you don’t have to.
Government policy and the impact on leaseholders
A key target for the current Government is that everyone has a safe and affordable home, which is in a good state of repair. This has resulted in some major restoration and remedial work in the social housing sector, as many property owners step up to future proof their properties.
Major structural works can be daunting for leaseholders because of the financial impact and are payable under the terms of your lease. The type of thing which might be required could be the replacement of old windows in a poor state of repair or the removal of an old or broken lift.
B-hive in-house Surveying team, Shaw and Co, work closely with clients. The team assume an impartial role and act as a liaison point between all parties. If a lease does not make provision for a reserve fund then service charge demands will be issued to lessees for monies to cover the maintenance work. This process is regulated by the Royal Institute of Chartered Surveyors (RICS) providing peace of mind and reassurance that the building is being repaired and upgraded in a manner which is both fully compliant legally and also cost-efficient.
Further legal protection
Managing agents are obligated by law to consult in a prescribed manner if more service charge payments are required, as set out in the 1985 Landlord and Tenant Act. The process is referred to as a Section 20 Consultation. Section 20 stipulates that consultation with leaseholders is mandatory if the RMC wishes to impose charges or £250 or more per individual to cover the cost of works to the apartment block or estate.
These works are defined as major works of repair, maintenance or improvement to a building or any other building that a managing agent is responsible for and towards which a client can make a financial contribution. This might include work to the exterior or structure of the building such as the roof, the windows, rainwater goods and communal areas. The definition of major works will not include routine maintenance and repair of the interior parts of your own flat, commonly referred to as ‘demised premises’, which are the responsibility of the leaseholder. The full definition of what constitutes your demised premises can be found within the lease.
Financials and Cash Flow management
Having an ordered approach to property maintenance and repair and keeping track of costs will help to manage a property to maximum advantage. Setting an annual budget each year to cover routine maintenance costs and also any unexpected repairs is sound financial management and will keep owners in control of both their properties and the costs – it is about being proactive rather than just reactive and there is the added reassurance that there are always funds available to carry out work at short notice. Close control also limits overspend and reduces the likelihood of additional service charges being levied to recoup this. Part of this financial organisation is a robust arrears management policy to ensure that cash flow is not compromised and there is always funding available to undertake works. The covenants contained in the lease will set out what the required works are and there is a legal requirement to produce year-end service charge accounts and company accounts if necessary.
The Coronavirus pandemic has brought unique pressures to everyone’s lives but service charges must continue to be paid to ensure the upkeep and maintenance of your home and to keep it safe and in good repair. Service charges will give you peace of mind that your home is well cared for and will ultimately help protect your investment.
Some useful definitions
Service charges – these allow a freeholder (the owner of the building or the land the building is on) to recover the cost of maintenance under the lease; a collective pool of funds is established from the individual contributions of each leaseholder. Typically, the accumulated fund is put towards items like buildings insurance, fire safety compliance, general maintenance, repairs, gardening and the cleaning of communal facilities.
Section 20 payments – any additional payment resulting from a Section 20 consultation will also be called a service charge. A reserve fund, if there is one, may cover some or all of the works built up from earlier leaseholder contributions.
Lease – the contractual arrangement between a tenant and a landlord or the owner of a property and the freeholder evidenced in writing and setting out the nature of the agreement between the two parties.
Covenants – a clause or clauses contained within the lease or other document, which sets out the obligations between the signatories. Typically, these will include duties of repair and maintenance and the upkeep of a property. Breach of a covenant may give rise to a cause of action at law.
Landlord and Tenant Act 1985 – a statute governing all aspects of the legal arrangement between landlords and tenants and containing full and comprehensive provisions about this relationship. Statutes can be revised or varied by further legislation or replaced by a completely new Act.