Tuesday, 4 September 2012

Don’t buy a flat if you want to live in it

Not sure who this advice is for, or if it is coherent. It is more a call to arms. We need to find a better way to manage leasehold property in England.This goes along with my advice - if you have a choice don't work for a lawyer, unless you are a lawyer.
On Saturday I got into a heated discussion with my friend Simon. He was furious at the service provided by the Housing Association managing his block. They kept making mistakes in his service charge and then there was this issue of the paladin bins. He and his friend Reg had done some research and discovered that they could buy the bins more cheaply than the managing agents were renting them from the council.
My view is that the managing agents were probably managing a huge number of blocks, that the management fee income they were getting was probably not covering their costs. Basically they were probably getting more than they paid for.  I asked, would you pay more, say three times as much if they guaranteed to not make mistakes and take an interested in betters ways of procuring the bin? Well, no not really.
Would they want to enfranchise and manage the building themselves. Well no because it is only me and Reg who cares.
The dovetails with the experience another friend was having with major works. Significant works is required to the balconies in her building. They have enfranchised and therefore the management company is made up of residents. Should be straight forward? Well no, because not all the leaseholders are resident. Some are buy to let landlords who do not want to foot the bill of the work. Others are on fixed income and don’t have the money up front.
The work is now much delayed and more than one shouting match has taken place.
But if they had collected a provision then there would be no problem. Well not that easy. Provisions work best if collected over a long period of time to fund replacements. On a new build block recently I had to manage complainants unhappy about the level of the service charge. In particular the provision for future replacement. Typical of the comments;
'I am not going to be here in 50 years time, I don’t want to pay for the roof replacement.'
Of course go back to what the lease says. This normally only leads to lawyers who spend money that does not exist enforcing terms. Or the Commonhold and Leasehold Reform Act 2002. Again a short trip to legal expense.

Basic problems with how we manage flats

1)      For the individual leaseholder. While have right to be consulted has limited control over the timing of major works. If provision has not been collected they can be many thousands of pounds. However those selling flats try to keep provision low to enable sale, therefore inadequate funds are collected. Also unlikely that block will be managed to reflect their personal desires an prejudices.

2)      For the private managing agent- while one can charge a management for on what is spent this does not generate the kind of surplus that enable to do more than the minimum. Few leaseholders will pay for ‘more’ service.

3)      For the enfranchised management company- Not all residents are on the same page, and getting agreement from your neighbours can be a fraught place.

Net result is everyone is dissatisfied.

So, don’t buy a flat. Or we should find a better was of managing leasehold.