Working with the Private Sector – S106 Properties

1. Working with the Private Sector – S106 Properties Jeff Platt Chairman Institute of Residential Property Management

2. Working with the private sector and problems of mixed tenure Jeff will be looking at the differences between public and private sector leasehold management organisations and reflecting on the difficulties this can cause to RSLs managing Section 106 properties within private sector managed blocks.

3. Section 106 Properties • What are your experiences when managing S106 properties? • What difficulties have you faced? • What do you think are the main issues?

4. Private Sector Managing Agents • Profit driven • Young / inexperienced staff • High (relative) salary levels • Huge portfolio size • Wide geographical areas • High staff turnover • High staff churn between organisations • Lack of support – from management • Lack of training • Lack of support services – technical staff • Low on-site presence • Limited ASB procedures / powers • Manage ‘properties’ – not ‘people’ / ‘lifestyles’ • Reactively instructing contractors – not proactive

5. Private Sector Managing Agents • Individual service contacts on each estate • High Management Costs – perception • How many RSLs fully cover their costs of leasehold management? • Dependent upon Developers for future management streams

6. RSLs • Non profit making • Government scrutiny • Audit Commission – KLOEs, benchmarking, VFM, Continuous improvement, best practice • Tight geographical areas - often • Small portfolio sizes • Induction training • Management Support • Partnering

7. RSLs • Technical support staff • High level of tenant involvement • High cost base • S106 Properties – dual role Landlord / Tenant

8. Working with Developers • Low (initial) service charges • Low (initial) Management Fees • Reserves Holidays • False impression of costs to purchasers • Leasing contracts – door entry systems, gym equipment • Full void contributions? • Cashflow difficulties? Black Hole? • After short time (2-4 years) • large service charge increases • Replacement of equipment / building elements • Lack of funds for redecoration etc

9. Potential Issues with S106 props. • Dual Role – Tenant & Landlord • No direct relationship between occupier & landlord • No direct relationship between occupier manager • No occupier involvement within RMC • Affordability – especially long-term • Dual Management • Dual Management Costs • No management relationship with other tenants • ASB Issues (how do you resolve?) • Absentee Landlords

10. Manager’s perception of RSL • Absentee landlord • Problem tenants • Reluctant to get involved • ‘Never talk to us’ • Don’t inform us when tenants staircase

11. Resident Managing Companies • Directors • Limited experience of knowledge of role • Lack of volunteers • Empowered by Managing Agents • outside their legitimate areas of influence • Pressure to keep costs low • Short term perspective • Low / no Reserves Contributions • Frustration at increases in service charges / lack of proactive management etc • Change Managing Agents – lack of continuity • Fully funded accounts? Black Hole?

12. Things to look out for • As Tenant • Artificially low initial service charges • Reserves Holidays • Leasing agreements – do they comply with CLRA? • Maintaining Public Realm • Affordability? • Full void contributions - Black holes? • Differential service charges • Within the lease? • Stand up to LVT challenge from private tenant?

13. Questions • How often is RSL a Director? • If so how / from whom do you recover the costs? • How much do you scrutinise & challenge the lease initially? • Reserves holidays? • Insurance tie in? • Full void contributions? • Do you reflect terms fully downwards? • Full recoverability of costs? • How often does RSL Challenge service charges? • Payability under the lease e.g. leasing arrangements? • Reasonableness e.g. defects, renewing building elements? • How frequently does RSL challenge in LVT?

14. Suggestions • Manage the whole estate / block • Can you compete on price? • Sell added value • Non profit making • Government scrutiny • ASB multi-agency ability • Insurance costs • Support services – in-house technical staff • VFM - partnering • Initial agreement to purchase freehold • Management later down the line • Enforce rights as a tenant • Director • LVT

15. Suggestions • Scrutinise the lease – before committing • Intermediate landlords? • Challenge ‘chain of obligations’ • Challenge initial service charge estimates • Knowledge of comparables • Outsource S106 Management

16. Suggestions • Why do it??