Residential Service Charge Management

CASE STUDY: CORRECTING A DECADE OF MISMANAGEMENT

Melrose Apartments is a development consisting of a block of 51 private apartments and two commercial units, and three blocks of 25 social housing flats in Hampstead, NW3.

The problems:

The building was barely 10 years old, yet there was flooding in the two basement levels; the comfort cooling system never worked due to poor installation; the boilers had started to fail less than a third of the way into their anticipated useful life; and there were complaints over the cost and selection of suppliers used by the freeholder to provide services to the development. When the lessee of one of the penthouses complained to the freeholder about the level of service charge expenditure, a private deal had been reached to reduce that lessee’s liability, and the freeholder re-allocated the shortfall to all other lessees in the building. Cladding remediation was required and – at that time – strict deadlines had to be met for Government funding to be obtained; yet it appeared that no action was being taken.

The solution:

A majority of the private lessees applied to the First-Tier Tribunal (Property Chamber) for the appointment of a Manager pursuant to s.24 Landlord & Tenant Act 1987, and Michael Maunder Taylor was appointed for a term of three years in March 2021.

Year one:

All service contracts were reviewed, all except three contractors were replaced with immediate effect.

Upon handover from the previous agent, only £7,000 was received, together with a pile of unpaid supplier invoices exceeding £200,000. Cash flow issues were severe.

A full review of the service charge apportionment and cost allocation was undertaken. Various issues were identified; costs were not being charged to lessees in accordance with the terms of the various leases, and the apportionment matrix needed revising as a result.

The budget was set with sufficient provisions to resolve the cash flow issues and fund the anticipated costs for the first year. Reports were obtained to seek to establish the cause of the basement flooding, and on the condition of the heating and comfort cooling plant, and passenger and vehicle lifts.

An application was made to the Tribunal for a variation to the Management Order as a result of the freeholder obstructing the appointed Manager’s functions. Some but not all variations were made by the Tribunal.

The NHBC had been notified by the previous managing agent of a potential claim in respect of the cladding. Consultants were appointed to progress the claim, and also progress the application for funding via the Building Safety Fund.

Year two:

The second of three boilers failed with unfortunate timing just before the Easter weekend in 2022. Works had to be expedited before the final boiler failed, which would have left the whole site without heating or hot water services. Works were completed in good time and crisis was averted.

Issues raised within the fire risk assessment were remedied, and health and safety related works were carried out to each of the three passenger lifts in the building.

Litigation against the freeholder continued. The freeholder had reached another private deal with one of the commercial tenants, limiting their service charge liability. Variations were sought from and granted by the Tribunal, including a penal order against the freeholder. By the end of year two, the freeholder’s lender had appointed LPA Receivers.

The application to the Building Safety Fund continued, even if it was a painfully slow process. The NHBC accepted the cladding claim and paid out an interim settlement of circa £1.9m.

Year three:

Works to renew the comfort cooling system were carried out and the communal plant was installed. By the end of the financial year, the contractor was in the process of arranging inspections within each flat to ascertain the work required to the demised equipment connected to the comfort cooling system. Works to resolve the basement flooding issues were in hand, due to complete by early May 2024.

The developer signed the Government’s developer remediation contract. The Greater London Authority confirmed the developer was taking over the remediation, and the building was transferred out of the Building Safety Fund.

Present position:

The basement flooding remedial works are due to complete imminently.

The Receivers are in the process of disposing of the freehold via private treaty, having sold the commercial parts on long leases via auction during year three. In the meantime, an application supported by a majority of lessees has been made to the Tribunal to extend the Management Order for a further term, as we await details from the developer as to the timing of the cladding remediation works in accordance with their obligations under the developer remediation contract.

The budget for the new financial year has been sent out to lessees, with a vast decrease in anticipated expenditure this financial year as a result of the significant capital expenditure incurred over the past three years. A number of leaseholders are reporting that they are finally in a position to put their flats on the market, having been unable to do so for some considerable time due to the scale of the past mismanagement and likely responses to pre-sale contract enquiries.

Maunder Taylor specialise in the management of distressed, neglected and previously mismanaged buildings. We have extensive experience of preparing detailed management plans, and executing strategies to reinstate reasonable management at reasonable cost, restoring market value to assets.

Should you wish to discuss our service or your particular requirements in more detail, then please contact:

MSc FRICS FIRPM


01707 871 703