Written evidence submitted by FirstPort [BSB 042]

 

Overview and summary

FirstPort is the largest residential property manager in the UK.  We currently manage close to 200,000 properties across England, Scotland and Wales.  Our clients include over 300 resident management companies (RMCs), developers, investors, and freeholders, giving us a unique perspective on the sector and often requiring us to act as honest broker between those parties

 

We are pleased to offer support to the Government and HCLG Committee in bringing forward the draft Building Safety Bill. As it stands the bill represents a major piece of reform legislation which substantially addresses the concerns raised by Dame Judith Hackitt in her review and by the Government in its ongoing work. Ultimately, the intention of the bill is to make and keep buildings safe, something we believe the proposed new framework will broadly achieve. 

 

While we feel the draft bill goes a long way to addressing the most pressing issues, and meets the objectives it set, we remain eager to support the Government and the committee as the bill is finalised by suggesting areas which may be improved.  In this paper we set out those areas where we think specific provisions of the bill can be strengthened

 

Most importantly, we believe it is vital to establish clear demarcation of responsibility – a central tenet of the Government’s reform agenda but something that is not made unequivocal in the draft legislation.  Dame Judith Hackitt emphasised the need to remove ambiguity between roles, and we believe there is more work to do on this in the draft bill.  In this paper, we seek to address how role definitions can usefully be strengthened as between the different parties – so that the roles and responsibilities of leaseholder, building owner, and property manager are made crystal clear

 

We have undertaken additional thinking around this point and are currently developing an outline document to demonstrate how these roles could be apportioned effectively under the new system.  The framework would see the building safety manager and the property manager appointed by the accountable person, with the former providing assurance and oversight, and the latter carrying out the day-to-day and on-site services. 

 

We hope this document is of use to the committee as you scrutinise the bill and as Government finalises the legislation.  We would be happy to meet to discuss it further.  

 

We have also included information on four key points we believe address the committee’s questions and that could be used to improve the draft legislation:

 

We have included more detail on each of those points, and how they pertain to the committees specific questions, below. 

 

We would be happy to provide additional detail and evidence should you wish.  Please do let us know if there is any way in which we can support your work further.

 

Mark Varley

Director of Health and Safety

FirstPort

 

 

Further detail

 

New build vs legacy buildings the importance of recognising the differences in how rules and regulations are applied

 

Committee question posed: Does the draft Bill establish an appropriate scope for the new regulatory system?

 

The draft bill establishes a robust regime for new build properties, but we see a number of challenges in its application to the many legacy buildings across the UKThe bill would be strengthened through recognition of the substantial challenges that remain in bringing existing properties up to the new standards – and the burdens that this will place on all parties involved in the occupation, ownership, and management of those buildings.

 

Legacy buildings must retrospectively be made compliant to a new framework.  This would involve intrusive surveys, inspections, insurance costs, the possible displacement of residents, extensive works and a great deal of expertise, the cost for which would likely be significant.

 

As the committee and several industry figures have flagged, funding under the £1 billion Building Safety Fund is expected to fall short of what is required to pay for remediation of legacy buildings around the country.  When that money runs out there is little doubt that issues around many legacy buildings will still exist, and the costs for the extensive works required would then, per the terms of standard lease agreements and the findings of previous tribunal and court decisions, fall to leaseholders.

 

In the short term, this is likely to trigger high costs falling to leaseholders for remediation, which are then compounded through rising insurance premiums on buildings that do not meet the new standards.  In the medium to long-term there is a risk that a two-stream property market could emerge, with a proportion of legacy buildings becoming blighted through non-compliance with the new standards.

 

To demonstrate the scale of issue this could cause, we have provided a list of the typical works we find are required at a building with existing external wall issues. This should go some way to demonstrating the challenges and costs which are associated with these buildings – and the risks associated with letting these costs fall to leaseholders:

 

 

Suggested solution: We suggest that further provision is made to acknowledge and address the extenuating circumstances around legacy buildings in the legislation.

 

It is our view that an additional short-term up-front funding option should be found to cover the costs of remediating existing buildings so that they can be made safe quickly.  That money could then be reimbursed to lenders at a later date, by building funds overtime through gradual provisions.  For example, other territories are currently using a development levy to generate funds for this purpose

 

If that is not an option, longer timescales for certain aspects of the remediation of those buildings should be allowed, to avoid any penalties for missed deadlines which may then legally fall to leaseholders.  This should consider the implications for rises in insurance premiums and other day-to-day running costs which would be borne by leaseholders.  This could potentially be achieved through supplementary guidance to support the bill, to avoid any legislative delays. 

 

While that is finalised, the appointed accountable people should be given guidance on the measures they can take in the first instance to begin the process of alignment and compliance.  We would suggest that clarifying the building’s ‘golden thread’ requirements and updating all required data against the relevant standards should be the initial priority.  Similarly, early completion of safety cases against set standards would be an effective early indicator of risks and identify the required controls. 

Clarity over roles and responsibilities

 

Committee question posed: Will the Bill provide for a robust – and realistic – system of accountability for those responsible for building safety?  Are the sanctions on those who do not meet their responsibilities strong enough?

 

The bill establishes the new roles of accountable person and building safety manager and gives them differing degrees of oversight of fire safety matters.  However, further clarity over the specific responsibilities and interactions between these roles is needed – especially in the case of more complex ownership structures. 

 

Resident management

 

In simple cases, the legislation is clear that the building owner or freeholder will typically be named the accountable person.  However, in instances where the ownership structure is more complex it is not so simple.  This is especially the case where there is involvement from resident management companies, where lay people are being asked to take on onerous responsibilities around safety.

 

In these instances, while resident boards and committees can be effective in managing certain types of development, they are not equally professional.  Many committee directors will lack the time, resource and expertise to carry out the role.  Our view (based on experience of working with over 300 RMCs around the country) is that many directors will be reluctant to stay in post and adopt such onerous personal liabilities should they find that the RMC is designated the accountable person. 

 

To support this, we have recently carried out a survey of RMC directors in our portfolio (including all buildings, not just those over 18 metres).  A third of those respondents recorded being at least somewhat concerned about their role being changed by new building safety regulation being brought forward.

 

The risk is that this leads to an abdication of responsibility by the many RMC directors who do not want to take on responsibility for exercising the role of accountable person.  There would also be a risk of overburdening non-qualified and inexperienced people who take on such roles without adequate knowledge or training. As the Government, through its work with the Law Commission, seeks to strengthen the role of commonhold and give residents greater powers to manage their own buildings and buy freeholds, these responsibilities risk being a barrier by making those roles complex and prescribing onerous responsibilities to them.  

 

Alternative Tripartite lease structures

 

The same issues exist at developments where leases have been granted that contractually include the property manager.  These agreements are common within the ownership structures of complex buildings.  Such arrangements introduce the property manager into the lease and impose direct responsibility to deliver services in return for the payment via service charge funds.  This is unlike more straightforward lease structures, whereby the manager typically only collects funds for and on behalf of the freeholder, who in turn is obliged to provide the services (which they do via the appointment of a property manager).  The freeholder often retains direct collection of other income streams, and very often also controls the fabric of the building.  These lease structures exist across the sector and are entered into by operators of all sizes and scopes.

 

We have serious reservations over the viability of the property manager being made the accountable person in these instances, which will be exacerbated even further in the case of smaller and less established operators.  We are also wary of creating an expectation that property managers accept the associated liabilities of the role. The role of the property manager is to collect money by way of service charge funds, then, using those funds, pay for services. It is usual practice for leases to have an express condition precedent stating that services will be provided subject to receipt of service charge funds. it appears disingenuous that the property manager (as accountable person) should be expected to step in in an instance where leaseholders were unable / unwilling to raise funds for a major safety related cost.  In a low profitability sector this unintended consequence would lead to most or all property management businesses being unable to afford to trade. 

Many property managers would feel unable to take on the role of accountable person. Those which do would likely find themselves under-qualified and under-resourced to carry out the responsibility competently.  In addition, under the terms of most named manager leases, a managing agent fulfilling the role of the accountable person would take on the liability associated with the role, but would not have ultimate power to act without consent and funding from the freeholder and / or leaseholders. 

 

That would result in a situation where the property manager would have the responsibility for safety work, but not the authority to carry it out without permission.

 

Suggested solution: We recommend that the final legislation puts emphasis on ensuring liability is accepted by the intended parties, without forcing onerous financial responsibilities on businesses that will be unable to raise the necessary capital. 

 

As a solution to the scenario of an RMC adopting the accountable person role, we propose that the final bill should allow for an individual or company to be named a professional director to the company.  The position would adopt ultimate responsibility for fire safety, removing it from lay residents, and be able to provide guidance to the committee on the running of building and compliance. 

 

We would foresee this role being similar to that of a professional director to a defined benefit pension scheme, for example, a position which has worked effectively for several years.  The role would require professional indemnity insurance, allowing the entity could take on responsibility for stewardship and advice over fire safety – though it would not adopt the financial responsibility to pay for remediation.

 

Similarly, the role of the accountable person in an instance where a named manager lease is in place also needs to be clearly addressed.  The final bill should acknowledge that the financial structuring of the property management sector does not allow operators to raise the funds which would be necessary for the accountable person if it was required to provide financial cover where leaseholders found themselves exposed.  As property managers are unable to act today without leaseholder funds, they cannot take ultimate liability for the safety of a building in the future

 

The role of the building safety manager

 

Committee questions posed:  Will the Bill provide for a robust – and realistic – system of accountability for those responsible for building safety? Are the sanctions on those who do not meet their responsibilities strong enough?

 

Does the bill introduce sufficient protections to ensure that leaseholders do not face excessive charges and that their funds are properly managed?

 

The draft bill is very clear about the responsibilities and expectations for the accountable person in most cases (other than those detailed in the section above) but more clarity is needed over the expectations of the building safety manager.  We believe that this will ensure the success of the regime and have proposed an initial model for how we see these roles interacting.

 

The position of the accountable person is onerous, and under the draft provisions even large and well-resourced building owners will be unable to fully discharge the responsibilities without delegating some of the work.  So while the draft grants responsibilities to the accountable person, it does not currently set out how they can be delegated to the building safety manager.

 

That presents risk to the accountable person, who may be unable to delegate day-to-day responsibilities in the way the bill no doubt intends, but also to the building safety manager which will be uncertain of its responsibilities under the current draft.  There is also a possibility that, without clear direction, standards may vary across separate sites, with some operators bringing a high degree of professionalism to the role and others providing a less thorough service.

 

There will also be issues for the property manager, which we expect to carry out some of the more rudimentary fire safety tasks, such as daily inspections and communication with residents – as indeed they do now.  However, there is a risk currently that duties become blurred between the building safety manager and the property manager, unless roles are mapped out intricately.  This could lead to tasks not being carried out, or equally to double-charging for small day-to-day jobs should two separate parties consider them their responsibility.

 

Suggested solution: The final bill should be clear on the role of the building safety manager, and provide a list of its responsibilities. 

 

To support this, we are developing an overview listing the responsibilities which a property manager carries out currently and how these might be apportioned under the new framework.  We believe there is a system which can provide operational clarity and effective management under the new regime.  The framework we propose would see the building safety manager take on a role of oversight and assurance, while the property manager continues to carry out the majority of day-to-day and on-site services. 

 

The building safety manager should also set a high standard for those taking on the role.  Not all property managers will be able to discharge the full responsibilities required, but this will ensure the necessary level of service is met. 

 

Resident engagement  

 

Committee question posed: Will the Bill provide strong mechanisms to ensure residents are listened to when they have concerns about their building’s safety?

 

Detail of issues: As has been made clear by Dame Hackitt’s report, and referenced in the draft bill, resident engagement and communication will be crucial in effectively implementing the new regime. 

 

The responsibility for resident engagement is likely to fall to either the property manager or the building safety manager, and as such the parties need to be given the tools to communicate effectively.  Currently the legislation fails to provide a system which gives clarity over who is in the building, and who should be engaged with.  There is little way to track sub-lets, lodgers and cohabiters which stymies effective communication.

 

This is also a safety risk.  Knowing who is in the building enables effective planning, allowing the property manager or building safety manager to account for any issues around mobility or disabilities which may require additional support.

 

Suggested solution: We propose that the final bill could include provision so that each flat in a building has a nominated point of contact.  This person would change based on sub-let or sale, and would hold responsibility for informing their property manager or building safety manager of who lives in the flat and of any specialist needs.

 

This would bring clarity, allow for effective and regular communication, and allow residents to have consistent access to information about their responsibilities and fire safety protocols.  We would also call on the legislation to standardise this process, possibly by mandating that reminders and updates are shared with all residents at the least on an annual basis.

 

 

Next steps

We hope that this document is helpful to the committee as you consider the bill and support Government to bring forward an effective piece of legislation. 

 

We believe that the draft bill brings forward a robust set of frameworks and represents a positive step toward meeting the intentions set out by the Government through its reform agenda and by Dame Judith Hackitt in her work.  With the clarifications which we have set out, the bill can meet all of those intentions and establish a new framework under which buildings can be kept safe.

 

Please do not hesitate to contact us should you have any queries or need any clarification.

 

 

September 2020