You rent for some years, save for a deposit and then make the most all-important decision to date: the location and price of the flat you can afford. So far so good, but if you consider the buying process to be the most important decision of all, you’d be wrong.
It’s a bit like a wedding and a honeymoon: what seems important now is in fact the trivial preamble to the important bit – the long-term marriage.
When buying that first apartment, choosing your new home is the fun bit: then you have to live with the service charges and the way your block is managed. Like most decisions, going into this unaware is a recipe for misery or, in some cases, disaster. But with a few simple rules to guide you, the business of leasehold property can be smooth-sailing.
Ten-Point Guide for Would-Be Leaseholders
1. Who’s in charge of managing your block?
The key question to ask is ‘how is this block managed’? Is there an outside freeholder who may or may not be interested in the property. Or is your building controlled by the lessees themselves through their own Residents Management Company (RMC)? Whichever is the case, it is likely that a managing agent will have been appointed to run the day-to-day management of the building and oversee any major works.
However, it is staggering to note that anyone can set up in business as a property manager. If you are wise you will make sure that your managing agent is a member of ARMA – the Association of Residential Managing Agents – which gives you peace of mind that the person or people managing your most precious asset knows their stuff. Having an ARMA Member company on the case brings the sort of comfort that you get when booking a holiday through an ABTA-bonded agent. It just makes sense. If your agent is not a member of ARMA ask yourself why not?
2. How is the RMC run?
If, as is increasingly the case, the lessees control the management through an RMC, check whether you will be a shareholder, who the directors are and whether the company is compliant with the Companies Act in which case annual returns and accounts need to be filed. Also find out how active the directors are and whether regular shareholder meetings are held.
3. Laying down the law
If you think the process of managing your block is easy, and some residents do manage themselves, then be aware of the pitfalls1. There are at least a daunting 82 pieces of legislation and regulations that owners and occupants of apartment blocks need to heed. And that’s before you start on the requirement to understand the minutiae of leases, property services, accounts, company law and building works.
4. How much?
Be clear just what the service charges are and how these are reported to you. Across England and Wales, residential managing agents hold £1.5 billion in other peoples’ service charge contributions. Residential lettings is the only other sector where so much money is held by businesses with no requirement to be registered with anyone.
5. Is the managing agent insured and audited?
Ask, is the managing agent properly insured and are they subject to an independent annual audit of client accounts? ARMA members have to provide annual evidence of both professional indemnity insurance and independent auditing of client accounts.
6. Health & safety?
Ensure that the block has had a Health & Safety risk assessment carried out. The public areas in and around your block are a workplace for those who provide services – gardeners, window-cleaners and others – so make sure your managing agents is complying by keeping the place safe.
7. What if things do go wrong?
Find out whether there is a published internal complaints procedure in case something does go wrong. All ARMA members are expected to have one of these and if this doesn’t resolve your problems, you can turn to ARMA who will look into the issues on your behalf and, in worst cases, employ sanctions against Member companies including suspension or even removal from ARMA.
8. How is your money accounted for?
How are service charges budgeted and accounted for? What are the procedures for reporting to the leaseholders? Communication and comprehension of this important matter is essential.
9. Meeting of minds
And finally, if your block does have a managing agent, ask how easy it is to communicate with him or her?
10. Moving on
You are only just moving in but be aware that one day you’ll probably want to move on and that, if this is after June 2007, the Government will require you to provide a Home Information Pack (HIP). Keep all important paperwork including management charges and other bills as this will save you time, trouble and money later.
So just what can go wrong? One block using a non-ARMA Member paid for insurance for public areas that in fact wasn’t appropriate: so if a tree branch, for example, had crushed a car or a person, the lessees would have been liable. In another example, Directors of a residents management company needed firm advice from the ARMA managing agent to persuade them that although they owned the freehold, they could not ignore the terms of the leases and the Landlord and Tenant legislation which is there to protect the interests of all leaseholders: e.g. that relating to the consultation procedures where expenditure exceeds certain statutory limits.
So remember, when you’re buying leasehold don’t just ask ‘how much?’; also ask ‘how managed?’. If they’re not ARMA Members, you may be in for some nasty surprises.
To find out more about ARMA Members3 in your area, visit www.arma.co.uk