Written evidence submitted by ARMA [BSB 334]

Introduction

ARMA is the leading trade association for residential leasehold management in England and Wales. Founded in 1991, it brings together professionals involved in private residential block management. ARMA members work to high professional standards, are part of an independent ombudsman scheme and agree to comply with the RICS ‘Service Charge Residential Management Code’ as well as ARMA’s own Consumer Charter and Standards. In the absence of statutory regulation, ARMA Accreditation continues to be a key milestone for consumer protection in the residential leasehold sector.

 

ARMA members manage 50,000 buildings in England, comprising over 1.4m leaseholds – equivalent to nearly 6% of the population living under ARMAs wings. ARMA members range from small family run businesses to national companies managing hundreds of thousands of flats.

ARMA Partners are organisations which provide essential services to managing agents.

 

ARMA provides a range of unique member benefits including industry-leading training courses, guidance notes, CEO webinars and weekly circulars. ARMA also helps to better educate leaseholders on the role of a managing agent. An authoritative voice for the leasehold sector with an ear to the ground, ARMA frequently advises key government groups on policy affecting the industry, such as funding for cladding remediation and the Regulation of Property Agents (RoPA). In response to the government’s recently published ‘Draft Building Safety Bill’, ARMA encouraged its members to offer pre-legislative feedback to the Housing, Communities and Local Government Committee. This document summarises the responses received from ARMA members towards the Bill.

 

 

Summary

The Draft Building Safety Bill is to be welcomed as a positive step in increasing safety. However, there are concerns about:

  1. Leaseholders will still be left to pay potentially large sums for inherent faults in legacy stock caused by systemic inadequate building control at the time of construction. The Bill does not recognise this reality and in the Building Safety Charge (BSC) provides a mechanism whereby leaseholders will have to pay for such works within only 28 days.
  2. The Building Safety Manager position will incur a not inconsiderable cost to leaseholders. The impact assessment suggests £6,400 to £10,000 per building. This is based on a salary of £60,000 (without actual staff overheads such as office space etc.) plus a ratio of 7-11 buildings per BSM. We believe both figures are optimistic.
  3. The BSM is responsible for day to day contact with residents and their concerns/complaints. This is likely to be an uneconomic use of an expensive resource and will significantly reduce the block/BSM ratio and hence increase costs.
  4. The Building Service Charge is separate to the lease service charge, intended to increase transparency we are informed. However, this introduces the additional cost of two separate sets of accounts, demands, reconciliation and credit control. It may increase confusion to leaseholders whereby additional demands, quite possibly at different times, will be due. It also removes the protection of leasehold law to leaseholders such as reasonableness and consultation and will require test cases afresh to be built up in court to establish its parameters.
  5. Without a Register of accredited contractors who are ‘deemed to comply’ by the Regulator the managing agent will need to refer a significant number of proposed works and contractors (for example, cabling that might breach the external wall) to the BSM for the latter’s approval, both pre and post works being done. This could add a significant administrative cost.
  6. The Property Manager (PM) is not the Building Safety Manager. The comparison is that the PM is a medical GP, knowing a little about a lot, and the BSM is a consultant with detailed specific knowledge (and a higher salary to reflect that). Some larger managing agents may choose to develop an in-house BSM capability, to be charged out separately under the BSC. However, most managing agents are small and may not have the organisational capability or even requirement (in terms of the number HRRBs managed by a small firm) for a full-time resource. Many will choose to buy-in the Nominated Individual role as a contractor. It is not clear where all of these BSM’s and Nominated Individuals to manage potentially thousands of buildings will come from and urgent consideration must be given to the supply side of the BSM role.
  7. The requirement and liabilities on the Accountable Person will further discourage RTM, RMC and Commonhold directors to stay in post. One solution is to allow professional directors to be appointed but this again has a cost implication.

Overall

In leasehold properties the requirements for a separate cost recovery method will create the need for two systems rather than one: one to deal with management in accordance with the lease; the other to address only building safety issues.

Expecting the Nominated Individual appointed by a Building Safety Manager [BSM] to be both an expert manager and the name over the door to whom all complaints must be directed, as is suggested in the explanatory notes, risks incurring significant time of a valuable (and expensive) resource and is in conflict with the team based approach applied by most Managing Agents. This again drives two systems, each of which do not sit very comfortably together.

Managing Agents already have duties under health and safety legislation that attract the criminal liability and far higher financial penalties that those that are being attracted by the proposed Bill. However, it appears from our discussions with ARMA members that many are discouraged for taking on the role because of the rhetoric surrounding compliance with duties under the Bill.

Such focus risks driving only those who are risk tolerant being willing to undertake the role and again driving two systems.

The costs associated with recruiting a Nominated Individual with the skills set out by Working Group 8 will also make it difficult for smaller managing agents to take on the role of BSM. They may also not have sufficient HRRBs to justify a full-time role and hence a third party contractor relationship will likely be required.

A Principal Contractor under CDM 2015 is not required to appoint one individual to oversee how they manage health and safety on a construction site. Competence is spread across the team with specialist advice available through employment or appointment of a consultant to help them implement the required systems.

The aim must be for buildings to be managed on behalf of the Accountable Person (AP) by one organisation under one system with the necessary specialist input to ensure that the system works.

Cost to residents

The bureaucracy involved with implementing the system described in the draft Building Safety Bill will be expensive.

Nominated Individuals appointed by a Building Safety Managers will be an expensive commodity. To require them to undertake resident engagement work that is currently undertaken by a Property Manager, who is paid significantly less, appears to be an inefficient use of a valuable resource.

These costs will be borne by residents.

Skills, knowledge, experience and behaviours [SKEB] and organisational capability

The draft Bill makes a distinction between skills, knowledge, experience and behaviours [SKEB] of individual Building Safety Manager [BSM] and capability of the corporate BSM.

Article 67 (3) states The accountable person may appoint a person under subsection (1) or (2) only if—

(a) the regulator has given the accountable person notice that it is not vetoing the appointment;

(b) where the person is an individual, the accountable person is satisfied that they have the skills, knowledge, experience and behaviours to carry out the functions of a building safety manager;

(c) where the person is not an individual, the accountable person is satisfied of the persons capability to perform the functions of a building safety manager.”

This is confirmed at Page 159 Para 64 of the Explanatory Notes which states:

Another statutory obligation is for the Accountable Person to appoint a Building Safety Manager, who must have the organisational capability and relevant skills, knowledge, experience and behaviours.”

This makes the point that whether the BSM is an organisation or an individual they must have both the SKEB and the organisational capability necessary to deliver the role. One without the other is not adequate.

Currently the BSI Built Environment Competence Standards (BECS) Strategy Group appears only to be considering and developing standards for skills, knowledge, experience and behaviours.

At the BECS meeting on the 27th August, Andrew Firman, when setting out the research plan for Phase 2, suggested that the work for the PAS for the BSM had largely been completed by Working Group 8.

Working Group 8 WG8 was tasked to respond to relevant recommendations in Dame Judith Hackitts Report Building a safer future:

             Recommendation 5.4: Relevant parties should work together, along with the relevant professional bodies, to develop and define a robust, comprehensive and coherent system for:
o The competence requirements for the role of the building safety manager of HRRBs; and
o The remit of this role in introducing and overseeing the process by which residents in HRRBs would be able to access fire safety awareness training.

             Recommendation 3.1.c: The dutyholder must nominate a named building safety managerwith relevant skills, knowledge and expertise to be responsible for the day-to- day management of the building and act as a point of contact for residents. The building
safety managers name and contact information must be notified to the JCA and to residents and should be displayed in the building.

The task required WG8 to determine the competency requirements for the BSM when that role was to be undertaken by an individual.

WG8s report therefore set out the skills, knowledge, experience and behaviours for the BSM where they are an individual or the Nominated Person where they are not.

Comparing the work undertaken by Working Group 8 on the SKEB of the individual BSM and the requirements of PAS 91:2013+A1:2017 Core Question Module C4 which set out the standards for measuring the organisational capability for managing health and safety for those working in the construction industry the difference between SKEB and organisational capability is clear.

It is possible and perhaps likely that professional indemnity insurance [PII] requirements will result in individuals being able to obtain PII cover for the role of BSM. Even where this is not the case a good proportion of the appointed BSMs will be organisations.

It would therefore appear essential that the PAS standards acknowledge the differences between SKEB and organisational capability and identify the expected standards for accreditation for each.

The Role of Building Safety Manager

If the SKEBs of the individual BSM or the Nominated Individual are based, as proposed, on the standards set out in Working Group 8s report they will need to be a senior professional with overall advancedcompetence. Their knowledge levels to be aligned with the Recognised Qualification Framework (RQF) between Level 4 and Level 6 spectrum. Given the need, as set out in the WG8 report for the individual BSM or the Nominated Individual to:

             know and understand how buildings work, the systems within them and know how fire behaviour can impact on their effectiveness and overall life safety in buildings;

             know and understand the building operating environment, legal framework, golden thread and safety case requirements;

             know, understand and apply the key principles of good governance and risk management and know how it relates to the building and resident safety;

             know, understand and demonstrate personal leadership, have adequate oversight of building safety risk, understand residents and stakeholders needs and develop a framework to monitor those risks;

             how to provide effective communication, deliver safety, engage residents and maintain accurate information systems that support the proactive delivery of safety; and

             how to provide effective communication, deliver safety, engage residents and maintain accurate information systems that support the proactive delivery of safety,

             they will likely need to come from a built environment background.

 

The draft BSB indicates that the BSMs duties are to:

             manage the building in accordance with the safety case;

             operate a complaints system;

             provide prescribed information to the regulator and notify them if the risk assessment or steps to prevent are a major incident are not valid;

             comply with all directions given and statutory notices issued by the Building Safety Regulator; and

             co-operating with other occupiers or owners of the building.
 

However, despite the responsibilities in relation to engagement with residents being allocated to the Accountable Person, it was confirmed to ARMA that the BSM will be the named person with whom residents should contact where they have concerns in relation to the management of the building.


Although it is clear that the BSM must operate a complaints system, to make the individual BSM or the Nominated Individual the named person to whom all issues should be addressed, appears to misuse the time of a person who is, as previously noted, a senior professional with overall advancedcompetence and a comparative associated cost. A decision needs to be made whether the Named Individual is the person who:

             is responsible for managing the systems that deliver the functions of the Building Safety Manager;

             delivers the functions of the Building Safety Manager in accordance with the systems set up by the Building Safety Manager; or

             both manages the systems and delivers the functions.
 

The issue is of concern, primarily because of the costs associated with the role. Whilst it is essential that Higher-risk buildings are managed effectively in accordance with the safety case, it is also essential that the cost to residents is reasonable.

             Requiring a Nominated Individual to personally handle and respond to residents complaints would appear to be a costly use of the skills of a Senior Professional with a built environment and leasehold management background.

             Requiring a Nominated Individual, as Article 70(4) suggests, to manage the building safety managers functions, and allow delivery of the functions, including the complaints system, by others within the BSM team would appear to be a better use of the Nominated Individual SKEB and would provide better value to residents.
 

Training for the future
 

It is clear that there are not sufficient people in the marketplace that can meet the competency standards suggested by Working Group 8 for the role of Nominated Individual. To retrain people to achieve this standard will take some time. Those larger Managing Agents who may choose to develop an in house BSM capacity are keen to start the process so that they are ready to implement the requirements of the BSB when it is enacted. To be able to do so they need to start this process now. If, as has been suggested by the BECS Committee, the standards suggested by Working Group 8 are likely to be the standards that will ultimately set out in the PAS for the Nominated Individual, this information needs to be communicated clearly to the industry to allow them to start training now. Better still the PAS standard for the role of BSM [Nominated Individual] should perhaps be fast tracked given that the core information appears to already be available.

Planning for the future

Similarly, a clear direction needs to be given on the role of the BSM to allow Managing Agents to be able to plan for the future. Those Managing Agents who choose to subsume the role of BSM into their business will need to set up the necessary structure. Those who may not wish to take the role need to consider how this will affect their business and how they will be able to work in conjunction with a separately appointed BSM.

Thought needs to be given as to where all of these new BSMs will come from as there is no current obvious source.

Setting up and testing of any new business system will take time. There appears to be a genuine desire to get started. At present there is insufficient clarity about what the role will entail to allow Managing Agents to make a start.

Ensuring that the Authorised Person is aware of their duties

The role of Accountable Person will, on a significant number of properties fall on a Residents Management Company or Right to Manage Company (or in the future, Commonhold). The Boards of these companies are largely made up of residents with no specialist knowledge of fire safety management. Such people will be volunteers and will receive no reimbursement for the work they do.

We note that Article 4(1) of the BSB requires the regulator to provide such assistance and encouragement to” the accountable person as it considers appropriate with a view to facilitating their securing the safety of people in or about higher-risk buildings in relation to building safety risks as regards those buildings however there appears to be no duty for the Building Safety Manager, who is arguably the APs expert adviser, to ensure the AP is aware of their duties.

Regulation 9(1) of the Construction (Design and Management) Regulations 2015 [CDM 2015] states that A designer must not commence work in relation to a project unless satisfied that the client is aware of the duties owed by the client under these Regulations.”

It would appear appropriate that a similar duty is included in the Bill or supporting Regulations, for example:

A Building Safety Manager must not commence work in relation to a higher-risk building unless satisfied that the Accountable Person is aware of the duties owed by the Accountable Person under this Bill.”

Management Company Directors

As noted above the role of Accountable Person will on many properties fall on a Residents Management Company or Right to Manage Company with volunteer directors with no specialist knowledge of fire safety management.

Although it is accepted that they already have criminal liability under health and safety legislation, it is likely that the over emphasis on penalising the Accountable Person, which appears to be prevalent currently, will discourage leaseholders from volunteering to be directors. It should be noted that there is already a problem getting leaseholder to volunteer. In many cases leases mandate that Directors must be leaseholders, preventing the appointment of professional directors.

Although it is acknowledged that the appointment of professional directors to the board of a management company will add to the already significant costs that residents will need to pay is the current proposals are enacted, legislation permitting such appointments would at least allow management companies to continue to function and avoid a situation where the only director is the one that did not resign fast enough.

Appointment of the BSM where there is more than one AP

On some Higher-risk buildings there will be more than one Accountable Person. This situation would occur, for example, where the Landlord retains responsibility for the management of the external shell and structure shall transfer, through the lease, responsibility for all other common parts to a Management Company.

In large complex buildings there could be a number of APs, depending on how the title has been structured, how many intermediate titles have been granted, and of course if the occupational leases are tripartite. At each level in the title chain” certain functions can be retained by the Landlords.

In commonhold there are also potentially a considerable number of APs under the Sections proposal in the Law Commission report.

In such situations, under the current proposals, all Accountable Persons will need to appoint a Building Safety Manager. Residents in such a situation would be expected, if the lease requires, to pick up the not inconsiderable costs for multiple BSMs. They would also need to deal with multiple accounting systems associated with recovering costs under the lease and building safety charges for each Accountable Person.

CDM 2015 Regulation 4 (8) allows Where there is more than one client in relation to a project (a)one or more of the clients may agree in writing to be treated for the purposes of these Regulations as the only client or clients”.

Alternatively, it should perhaps be made explicit that there will only be one Building Safety Manager for any Higher-risk building.

Communicating with residents

Managing Agents currently need to communicate with leaseholders, and to some degree residents, to implement the lease. It is no means certain that all Managing Agents will have the desire or resources to undertake the role of Building Safety Manager. In such circumstances it should not be assumed that information about the ownership or occupation of a flat can be shared with the Building Safety Manager. Where this is the case the BSM will need to develop their own records unless these records are listed as an essential element of the golden thread of information for the building.

It is noted that under the current proposals residents will now receive communications from two sources:

             the Managing Agent on behalf of the Management Company in relation to lease compliance, health and safety and other general areas of compliance; and

             The BSM in relation to Building Safety matters and charges.
 

Even where a Managing Agent chooses to subsume the role of BSM the separate accounting system will result in an essential separation between the roles. The parallel systems are likely to create confusion amongst residents - who do they report the bicycle in the stairwell to? The BSM or the property manager - in reality probably both, setting two hares running.
 

Knowing who to communicate with

In Article 82 Residents Engagement it would appear that the AP must engage with all residents of a flat over 16 and the leaseholder. It will be hard to provide this level of information if Clause 86(1) does not require residents to provide such details, which it currently does not.

Similarly, if an accountable person cannot identify the person or persons in default it will not be possible to serve a notice upon them under Article 86(2) unless again Clause 86(1) requires then to provide such information.

Even if the Bill was modified to require residents to provide their names and contact details to the AP, there would be a significant administrative burden associated with the collecting and administering of this information. This cost will once again be borne by leaseholders.

Allowing Article 86(2) notices to be served on the leaseholder and requiring them, through contract, to take action against their tenant, would appear to be the only effective way of enforcing against residents.

Approval of work that may affect the safety case

The BSB makes it clear that there will be a requirement on the AP and therefore the BSM, whether the BSM be an individual or an organisation, to assure themselves that all work and maintenance undertaken on HRRBs is delivered by competent persons.

Where work is instructed by a Managing Agent they will need to seek approval to appoint any contractor.

There is also a need for the BSM to verify that any work undertaken, whether instructed by a resident, a Managing Agent or indeed by themselves, has not affected the safety case. The most obvious example of low-level work that could create an issue would be data and telecommunications cabling.

All of these checks will take time and resource, the costs for which will be passed back to the leaseholder and resident.

The obvious solution to this has been tabled by Working Group 8 and is supported by ARMA who are actively involved in the development of the proposal.

WG8 have proposed a central register of competence for anyone working on High Risk Residential Building (HRRB) [The Building Safety Suppliers Register (BSSR)]. The register will provide organisations with confidence that those appointed to work in HRRB are safe and competent to do so.

Experience from other schemes/registers such as Safety Schemes in Procurement (SSIP) and the Occupational Safety and Health Consultants Register (OSHCR) have established several criteria that are required for success:

             Government or Regulator as initial sponsor (as per Part 2 Clause 6 BSB);

             Key stakeholder group to secure the business case;

             Initial funding from government;

             Mechanism and infrastructure to operate the register e.g. utilising existing registers or a professional body as lead;

             Independent advisory board to provide oversight and governance.
 

It is anticipated that the Register would operate on a not for profitbasis being both transparent and industry led with system to easily identify those on the register, such as I.D card, searchable web portable, to provide building owners and residents with assurance. After the initial setup, the costs for operating the register will be recovered from those on the register either through a levy on accreditation bodies for recovery or directly from the person or organisation listed on the Register. A central register will ultimately be the single source of truth, operating on a not for profit basis and providing the following benefits to the AP:

             Significantly reduce bureaucracy thereby saving time and money;

             Avoid any confusion over competency standards and multiple schemes;

             Simplify the process of appointing both BSMs and contractors working on HRRB;

             Places the onus on those joining the register to demonstrate competency to agreed and transparent standards;

             Provide the residents of HRRB with added assurance and confidence; and

             will avoid the risk of suppliers moving to alternative registers following complaints or breaches of the code of conduct.
 

It is also anticipated that a central register would seek to maintain both the regulators and public confidence by including a code of conduct, robust complaints procedure and sanctions for malpractice which may include removal from the register.

Appointment of Competent BSMs by the AP

In many cases the Accountable Person will have little or no specialist knowledge of the Bill or its requirements, yet despite this they must appoint a BSM with the organisational capability who have themselves appointed a Nominated Individual with the necessary skills knowledge and experience.

Given the likely costs associated with the appointment of a BSM it is essential that Accountable Persons have easy access to the names of a number of suitable organisations and individuals so that they can obtain best value for the Residents of the Building.

WG8 have recognised this issue and suggested, for many of the reasons described above, that the proposed Building Safety Suppliers Register (BSSR) also includes the names of Building Safety Managers and Nominated Individuals that have passed the appropriate test of organisational capability and competence.

Commonhold

We note the examples and links to legislation follow long leasehold only. What about commonhold given that is being promoted by Government? Commonhold will heavily feature lay boards.

Building Safety Charges

The current proposals with the building safety charge outside of the service charge, although transparent, will inevitably increase costs (two budgets (and possibly different accounting periods), two sets of levies (with different documentation and information accompanying them), separate holding” of funds, two sets of accounts, and the removal of certain protections for lessees under ss.18-30 Landlord and Tenant Act 1985 that are not all faithfully replicated in the draft Bill. It would seem that the proposals increase costs whilst simultaneously reducing protection to leaseholders. Whether the required level of transparency could be achieved within the service charge should be an option to consider.

ARMA also understand that leaseholder groups see the separate Building Safety Charge as a way to circumvent protections and allow owners to "dump" any charge they like on leaseholders in the name of safety, which they have to pay within 28 days. As in any system there is scope for abuse and a robust redress system will need to be present, but even under a genuine safety issue the Bill does not recognise the likely significant charges that will fall onto leaseholders via the BSC for legacy stock. For example, compartmentalisation failures incurred during construction, once discovered by the BSM, will require to be quickly rectified and a BSC will have to be raised and hence paid within 28 days. These issues are not the leaseholder or even building owner fault, but instead represent a historic failure in building control. However, the leaseholder will be left to foot the bill, with little time or recourse to complain about the unfairness.

There is also an administrative difficulty in that the Bill stipulates that the BSC accounts must be made available within 28 days of the year end. This is insufficient unless a number of accruals are likely placed into the account. Late invoices might not be captured at all in the correct year, making the true cost of safety difficult to establish. Alongside this requirement is the caveat that leaseholders do not have to pay the BSC unless they have been served with last years approved accounts. These together mean that funds to pay the BSM will not be available for some months into each year (awaiting accounts and the 28 days to pay) which will cause cash flow difficulties, particularly for APs/Managing Agents that hire the BSM as a contractor.

Clause 88 - Generally

The Bill seeks to introduce a new regime with this concept of a Building Safety Charge [BSC] such that Managing Agents (on behalf of their Landlord [LL] clients) will be running two separate regimes, demanding monies and accounting for them separately.

This comes at a cost. And that cost is met as part of the BSC.

We appreciate attention has been given to the costs associated with the introduction of the new regulatory regime, but the back office” comes at a cost.

Leasehold management is full of bear traps for the unwary. The BSB introduces another set of bear traps that LLs and their agents could fall foul of. Theres a certain familiarity about the proposed requirements; theyre the same but different.

The proposals, if adopted, are going to see this tested up and down the country in Courts and Tribunals before the industry fully understand how different (or similar) they are. Managing Agents will be at the front and centre of this process and tenants will be paying the costs.

A better solution would appear to be making the BSC part of the current service charge, with its own head in accounts to identify it and provide the transparency desired in the proposed separate charge, although separating the BSC out in accounts may come with its own issues.

However, it appears a simpler solution to imply terms into leases that allow all of BSC to be recovered via the Service Charge [SC] than to create two systems.

In such a system there is clearly a need to imply all new requirements, such as the ability to:

             cash call and raise one off demands; and

             collect reserve fund etc.

Clause 88 - In detail
Clause 88 inserts implied building safety terms into long leases.
The definition of long leases mirrors definitions in other legislation (e.g. LTA 1985, LTA 1987, CLRA 2002 etc)

Essentially, clause 88 implies covenants by the Landlord [LL] (see below for comments on LL”):

             To comply with obligations in relation to building safety charges (BSC) payable by the Leaseholder (LH)

             Where LL is the AP:
o To carry out prescribed building safety measures in relation to the building; and

o Co-operate with any other accountable persons

             Where LL isnt AP:
o To co-operate with all APs

             Where Special Measures Manager (SMM) has been appointed:

             o To co-operate with the SMM
o To pay the SMM any sums to be paid

             To take all reasonable steps to apply for any relevant financial support.

It also implies various covenants on the part of the Tenant:

             To pay LL (within 28 days of demand) the BSC

             To allow the LL (or any person authorised by LL in writing) to enter the flat:
o To carry out building safety measures; Page 10

o Inspect or access in connection with carrying out building safety measures

• Where Tenant is a resident of higher-risk building, to carry out the duties under ss.86-86

Building Safety Act 2020

On the face of it, these seem relatively straight forward. But the devil is in the detail, and the detail here is the definitions.

Rather unhelpfully, we have different definitions of landlord” on our statute books. The leading statute on service charges is LTA1985 and it sets down a raft of protections for LHs, many of which are mirrored in the draft BSB.

Section 30 LTA 1985 defines LL as including any person who has a right to enforce payment of a service charge.

And service charge is defined by s.18 LTA 1985 essentially sums payable to a LL by a Tenant.

Accordingly, the wide definition of LL includes residentsmanagement companies under tripartite leases, managers appointed under s.24 and right to manage companies who have acquired the RTM under CLRA 2002, not just the entity immediately expectant to the reversionary interest in the lease. This is because the entity immediately expectant to the reversion often doesnt provide the service and ergo doesnt need to collect the service charges. To make sense of leases and ensure lessees have the benefit of protections, its absolutely right that LL has the wide definition set out under s.30.

The new section 17F tells us what LL means where were dealing with BSC and its the person ....entitled to the reversion”.

This seems to be an obvious drafting error. The LL (as the entity expectant to the reversion) may not be the person whos complying with s.17H in relation to BSC.

There could be multiple APs on the bigger, more complex blocks with chain of title. There could therefore be multiple entities who are recovering BSC because there are multiple APs.

The definition of landlord, in our view, should mirror the definition in s.30 LTA 1985 in order to give effect to what the BSB is trying to achieve.

This unfortunate definition of LL continues throughout the draft Bill.

Residential leases come in all shapes and sizes, and some are more fit for purpose than others. We therefore support the proposal in the draft Bill to imply terms into leases in order to fill in any gaps and address any deficiencies in leases. ARMA believe in this generally as part of general leasehold reform.

Criticisms are levied against the Bill in that Tenants have 28 days to pay. Tenants are used to paying their Service Charge [SC], and such SC are payable in accordance with the lease. Leases set out, amongst other things, the payment dates. Tenants therefore know and understand when they will be liable to make payment of SC; They have certainty. they dont have that certainty with the Building Safety Charge [BSC] – its just a requirement to make payment within 28 days of demand, but they dont know when that demand might be coming.

We accept, however, that there is a requirement under section 17H to notify the Tenant of the annual accounting period.

One must question whether 28 days is appropriate and sufficient for a Tenant to make payment of their BSC?

BSCs are defined under the new s.17G.

Section 17G(1) entitles a LL to require a Tenant to pay a BSC to the LL. This is done by written demand. We assume that because this is a term implied into leases that this would be treated by the Courts as a notice under leases. If so, then notice provisions in leases will apply. And we know from the multitude of questions during lockdown how pernickety service clauses can be. It would be incredibly helpful if the BSB could permit service by other means, including electronic service. Perhaps allowing for Regulations to be introduced to deal with service.

Building safety charge is given to mean a charge in respect of building safety costs (s.17G(2)).

Building safety costs are costs (or estimated costs) incurred by the AP in connection with the AP carrying out prescribed building safety measures (s.17G(4)).

But this mechanism doesnt work with the current definition of LL. The current definition could lead us to a situation where BSC are paid to LL, but its not the LL whos providing the services.

Section 17H sets out precursors to payment of the BSC. There are further precursors or triggers to liability on Tenant to make payment later in the Bill.

Certain information must be given to the Tenant under s.17H:

             details of the accounting period to be used;

             a budget setting out:
o the building safety costs to be incurred; and

o the BSC payable by the Tenant,

             if additional costs arise during the year that werent included in the budget, then s.17G(3) seems to allow an updated budget to be served.

             We are broadly in support of this mechanism.

             We have more concerns, however, regarding s.17G(2)(c) which requires the LL to send out a reconciliation account within 28 days of the end of the accounting period. ARMAs standards and the RICS Code are rather more generous when dealing with year-end accounts. When we have spoken to agents, they are rather worried about this short time frame. The information to be set out in the reconciliation account has a similarity to s.21 LTA 1985. And of course, s.17G(4) allows a Tenant to withhold payment if they havent been given the reconciliation account in respect of the previous accounting period.

             Turning then to reasonableness. This is best highlighted by comparing the proposed section 17J to the existing s.19 LTA 1985.
 

Section 17J states:
17J Limitation of building safety charges: reasonableness

Building safety costs may be taken into account in determining the amount of a building safety charge payable by a relevant tenant—

(a) only to the extent that they are reasonably incurred, and

(b) where they are incurred on the provision of services or the carrying out of works, only if the services or works are of a reasonable standard,

and the amount payable is to be limited accordingly.

Section 19 states:

19 Limitation of service charges: reasonableness.

(1) Relevant costs shall be taken into account in determining the amount of a service charge payable for a period—

(a)only to the extent that they are reasonably incurred, and

(b)where they are incurred on the provision of services or the carrying out of works, only if the services or works are of a reasonable standard;

and the amount payable shall be limited accordingly.

(2) Where a service charge is payable before the relevant costs are incurred, no greater amount than is reasonable is so payable, and after the relevant costs have been incurred any necessary adjustment shall be made by repayment, reduction or subsequent charges or otherwise.

Section 19 has two limbs:

             costs actually incurred; and

             costs budgeted
 

Section 17G only has one limb:

• Costs actually incurred

Is this deliberate or should S17G mirror S19?

Section 17K imposes a further statutory restriction on the recovery of BSC, and limits the contributions payable unless:

             Consultation requirements have been either:

o Complied with; or
o Dispensed with

             Section 17M (urgent cases) applies to the works; or

             Section 17N (special measures) applies to the works

This mirrors the restriction we have in s.20 LTA 1985. Our concerns are:

             What will be the limit? Is this going to be different to the limit we have under the Service Charges (Consultation Requirements) (England) Regulations 2003?;

             Will the new regulations which set out the consultation process to be followed follow the 2003 Regs or will it be different?
 

There is potential to end up with two different regimes, which will cause added work for Managing Agents and added cost for Tenants.
Turning then to excluded costs under s.17O. This section operates as an additional statutory restriction on the recovery of BSC and makes clear that costs incurred in the following scenarios are not building safety costs:

             Costs arising solely as a result of any penalty imposed or enforcement action taken by the regulator;

             Costs arising by any reason of negligence, breach of contract or unlawful act on the part of an AP;

             prescribed costs” arising in connection with the carrying out of prescribed building safety measures.


Regulations will tell us, in due course, what prescribed costs are.
Lets assume the AP is lessee-owned and controlled, and that they self-manage. Whats their route to recovery if they cant recover as a BSC? SC instead? We cant see the lease allowing that (or it being deemed reasonable within the meaning of s.19).
 

Section 17O(2)(b) is likely to generate a significant amount of case law on when the AP is negligent, when they breach contract (and which contract? we assume the lease), and when theyve committed an unlawful act. This really needs further elaboration otherwise this may lead to a considerable number of claims and consequent cost and availability of Directors and Officers liability [D&O] Insurance.


Section 17Q replicates the current s.20B. We have tested this with some frequency in the Courts and there is a case making its way to the Court of Appeal [CoA] presently. All this case law will need to be re-tested in the context of BSC.


The position will be the same for s.17R which mirrors the current section 20C.


Section 17S mirrors the current s.21B regarding rights and obligations. The LL will have a new set of rights and obligations to accompany any BSC demand. And a Tenant is entitled to withhold payment of the BSC until the rights and obligations are given.
 

It would be helpful if the Bill could give some consideration to the interplay between these restrictions. For example, if a LL doesnt send the correct rights and obligations, but only does so 2 years later, would those BSC become stale for the purposes of s.17Q? This type of issue is still being tested in the Courts and Tribunals who are trying to work out whether the 18 month rule bites where theres been non-compliance with the contractual restrictions (it does) and non-compliance with the statutory restrictions (it depends).
 

Sections 17U and 17V require the BSC to be held on trust and in a designated account. We presume that, this is a separate account to the one which holds SC. Increased burden on agents means an increased cost to Tenants. And these costs are recoverable as a BSC.

 

September 2020