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When I first started out in property management in an era before ARMA was set up and ARMA Q was merely a twinkle in ARMA’s eye, the first lesson I was taught was that “the Lease is always king” and that any building you manage must be insured. These were the building blocks of my career and are the two principles that I still adhere to even today 22 years later.
However, these two ideas can only get you so far. In order to be able to manage a property and build up a reputation as a property manager as one who can “Make It Happen” then you need to be able to make the Lease at a property work for your client, and undertake what I call practical property management.
On the basis that the Lease is king, how do you explain to your client that although the Lease states that if ground rent remains unpaid after 21 days you can repossess. You can’t get the bailiffs, from “Can’t pay, we’ll take it away” in as the courts would not look favourably on this action if the sum outstanding is only £7.50.
Furthermore, Sections 166 and 167 of the Commonhold & Leasehold Reform Act 2002 mean that not only can the rent not be recovered if it has not been demanded in the prescribed format, the landlord can only use the forfeiture procedure under the Lease if the amount is more than £350.00 or has been outstanding for more than 3 years.
And finally, although ground rent can be recovered up to 6 years later the amount of the ground rent is often far less than the amount spent to recover this.
In the same vein, most Leases provide that service charges need to be paid to maintain a property. Notwithstanding this it would seem a common-sense approach that maintenance is required to upkeep a property much like giving your car a regular service and MOT.
Unfortunately, some Lessees do not understand the need to spend money on upkeep and will therefore suggest any means to avoid this and treat service charge demands as what used to be known as a “red reminder.”
Again the Lease will state that service charges should be paid without deduction and in some cases will state that it can be collected as rent, which taking into account the above would suggest a guaranteed victory for the management company, unfortunately this is not the case as tenants have the right to challenge service charges at any time and the Lease does not automatically have a mechanism to recover the costs of legal fees from the tenant if they later decide to pay.
In these two instances, it is clear that practical property management approach is required. While legal action can’t always be avoided and as Shakespeare once said “ Lets kill all the lawyers”, a good property manager should be able to assess which approach will work best i.e. perhaps meeting with the Lessee and asking them what they are disputing, dealing with their queries and ensuring that should the matter progress to court, it can be seen that all efforts have been made to resolve any disputes.
Alternatively, you could speak to the Lessee and ask them to sign a waiver to their mortgage company confirming that these funds should be paid and finally it is worth looking at the size of the debt and judging whether the costs of recovering this outweigh the actual debt itself which often happens. Sometimes it is better to leave the balance on account as this is likely to be paid when a consent is needed in the event of a sale or re-mortgage.
This advice is based on debt recovery and in the next part of this blog we will advise on PPM in respect of major works and adhering to the Lease terms. Please get in touch if you have any questions.