Written evidence submitted by IRPM (Institute of Residential Property Management) [BSB 401]
IRPM Response
The Institute of Residential Property Management (IRPM) is the leading professional body for residential block and estate management professionals, providing learning, qualifications and support for 5,000 members from over 1,000 organisations, who serve the private, social, build-to-rent and retirement sectors, managing large buildings, estates and developments across all tenures. It is estimated that well over half of all leasehold properties in the UK are now managed by our qualified professionals, since our inception in 2002.
IRPM’s mission is to raise standards in the management of residential property in the UK and provide individuals with independent professional accreditation. IRPM is not a trade body and does not lobby on behalf of firms, but instead is a professional body of qualified individuals with a trusted voice and a ‘public interest first’ mandate.
Limitations of response
IRPM is for the most part confining its comments to the management phase of residential blocks (HRRBs) and is not commenting on the design and construction phases of the regime.
General comment
IRPM welcomes the draft Building Safety Bill. The intentions of the bill are laudable, and we recognise the effort that has gone into its creation.
IRPM also recognises the considerable, life-changing harm, both financial and psychological, being experienced by leaseholders who own flats in blighted blocks rendered unsafe or in doubt through an inadequate regulatory regime and poor standards of construction. We are supportive of the intention of the Bill to end these harms and to ensure our people can live in peace and safety.
However, this Bill has serious flaws as drafted and requires extensive revision.
Within the confines of building management, the Bill has some limited success as drafted, when seeking to meet the Government’s own policy objectives as regards building safety. However, it creates difficulties for other Government policy objectives on leasehold and commonhold reform.
i) The Building Safety Charge (BSC) provisions are constructed as an integral part of the current leasehold system, inserting chunks of mainly borrowed legislation into existing leasehold statute. This is critical, since the use of leasehold legislation means the provisions simply do not apply to commonhold, a remarkable omission. Although the number of commonhold buildings is presently small, Government and the Law Commission have invested considerable capital towards reforming and promoting commonhold tenure.
The remedies necessary to include commonhold either require the financial provisions of the Bill to be scrapped and entirely rewritten or a second set of completely different provisions created to accommodate the tenure. The former would require large chunks of the Bill to be rewritten, the latter would create a two-tier system to try and achieve the same end result under two regimes, risking inconsistency of outcomes and adding hugely to the complexity and cost of regulatory oversight and practical delivery. How a building containing both tenures would operate is beyond understanding.
ii) Clarity of roles and responsibilities is a key objective of Dame Judith Hackitt and Government. The introduction of the Accountable Person (AP), Building Safety Manager (BSM) and Building Safety Charge (BSC) tackle the Government’s stated intentions to bring clarity of responsibilities and identify those that bear them.
iii) The Building Safety Charge certainly brings clarity to consumers and building managers that there is a new charge for a new regime. That is a logical approach in principle, but it comes with numerous problems in practice, including the risk of passing the cost of historic defects onto leaseholders, which we pick up again later.
i) As noted above, the Bill does not address commonhold developments.
ii) The focus on HRRBs creates a complex and rigorous regime that is suited, with caveats, to large and complex buildings. However, the stated intention is to extend the regime to lower height/risk buildings in the future. It can already be seen that both Government through its advice notes and external influencers such as mortgage lenders are driving HRRB requirements below the initial threshold, which is expected to be but is not stated as being 18m. Many town houses have been split into flats and the full panoply of regulation would be excessive for 3 converted flats with 2 staircases and 3 lightbulbs for common areas. In accordance with the Five Principles of Better Regulation, the legislation and supporting regulations must be drafted in a way that permits a proportionately less onerous regime for more modest buildings in the future.
i) As drafted, the Bill brings some clarity to the role of the AP but the relationship between the potential multiple APs is not clear and provides scope for responsibilities to be drop between parties. Further clarity is required on the demarcation of responsibilities for multiple APs.
ii) If Accountable Person is an organisation (which is permitted see explanatory note 58) they don’t seem to need to have a named individual which was expressed as a requirement in the original report. Conversely, a company acting as BSM does. Explanatory notes do imply that the prescribed information will include a named dutyholder for the purposes of registration but that does not necessarily carry through into further responsibility. The Bill is not clear how an RMC / RTM or Commonhold will be an accountable person unless they are held joint and several. This needs further clarification and there should be specific reference to these groups.
iii) The Bill seems to assume that there is always a professional landlord owning the freehold or head leasehold interest, able and willing to be an AP. That will not be the case. Already under existing leasehold tenure, there are many buildings where the freehold/reversionary interest is held not by a third-party landlord but by a limited company (an RMC – residents’ management company) which is owned by the leaseholders themselves. Government has an objective to empower leaseholders and increase the number of buildings that are controlled by leaseholders. With ground rent and other income streams to be removed, there will be no financial interest in owning the freehold/reversionary interest and developers will likely hand it to the leaseholders via an RMC. We can therefore expect to see more buildings in resident control in the future.
Under present arrangements, leaseholders standing as RMC directors do so as unpaid, civic-minded volunteers, putting something back into their community. Increasingly, such directors are becoming aware of the risks they personally carry for their volunteering. Indeed the Bill is clear that criminal responsibility will pierce the corporate veil. Whilst many buildings have enthusiastic volunteer directors, others simply cannot attract volunteers to take on the responsibilities and that is before the new responsibilities are crystallised for their consideration. Government will be asking unpaid volunteers with no knowledge or experience of building management to be responsible for the certification of a building to a state regulator, to exercise due diligence in the selection of a BSM and to be responsible for the resident engagement strategy. This will not succeed in every case and Government must provide a Plan B for leaseholder directors who do not wish to take on the AP liabilities. IRPM has outlined two different mechanisms that would allow such directors to appoint an external director or, through modestly extending existing powers under the Landlord and Tenant Act 1987 (though not for commonhold) a professional AP to take on the responsibility, giving residents control with choice and protection over how they manage their own affairs. The draft Bill does not accommodate either suggestion but instead will force some RMCs into dissolution, with the freehold returning to the Crown, which is unable to insure or manage the building.
iv) A consequence of the current Bill as drafted is that managing agents who were written into the lease as manager are likely to be held as an AP. Notwithstanding this is a significant change to their intended responsibilities, it is thought unlikely the agent would be able to get professional indemnity insurance to cover the role.
v) The role of the BSM is not yet clear and the Bill cedes clarity to future regulations yet to be drafted. This does not help industry towards early adoption.
vi) Further clarity on the role of the BSM and the interaction with the building manager is important. There will be a demarcation between the two. Who tackles a resident blocking a fire exit with possessions, for example?
vii) IRPM has compared the draft competencies of the BSM role, as prepared by WG8, against the competencies of a traditional building manager. IRPM concluded that a building manager might be compared to a GP doctor, having a broad breadth of knowledge across many disciplines but not being a specialist in any. A building manager earning £25-35,000 pa needs knowledge of landlord and tenant law, employment law, H&S basic principles, planning law, building pathology, contract law, environmental law, accountancy, company law, customer service behaviours and basic project management. A building manager can set a budget and read annual accounts, but an accountant does the annual audit. A building manager may carry out some visual safety inspections during a visit but does not do the fire risk assessment or PAT Test appliances.
Whereas the competencies of a BSM are narrow but deep. A BSM is a safety specialist, not a generalist. To illustrate, early adopters are recruiting BSMs at salaries up to 300% above a building manager. In short, the duties of a BSM, which also attract significant liability, will not be carried out by traditional building managers as part of ‘business as usual’.
viii) Whether managing agents outsource or provide in-house a robust BSM service, there will be an additional expense to leaseholders. If that is a fair price to pay for building safety, then so be it, but the additional £200 pa per leaseholder (MHCLG’s own impact assessment) is akin to a typical managing agent’s unit fee; an approximate doubling of professional fees (but not service charges) is the outcome. It is important that the final regime is robust, but simple and efficient to reduce this cost burden to the practical minimum.
ix) There is a potential conflict of interest in the BSM and building manager being the same person since the building manager will be carrying out safety related tasks as part of normal duties. If the tasks are not carried out satisfactorily by an individual wearing both hats, who calls out the failure? A lay AP, however well intentioned, may not spot the problem until they are prosecuted for loss of life.
x) The resident too must be accountable for their actions but the Bill as drafted does not fully address this. The definition of common parts and section 86 Duties on Residents does not address the issue that some building features which contribute to overall building safety can be owned by leaseholders. Particularly this includes items such as flat entrance doors, windows and balconies. Section 86 defines residents need to cooperate on prescribed matters. This is basically disclosing evidence of gas and electrical safety only. This therefore leaves both the AP and BSM toothless to address associated structural and compartmentation risks which are fundamental to the safe operation of the building. The Bill also does not provide realistic mechanisms outside of expensive and slow Court proceedings for the enforcement of residents’ responsibilities; proceedings that can be halted through temporary compliance that ends with the termination of proceedings. Court enforcement will not prevent some occupiers having BBQs on balconies or fatally maintaining petrol filled motorbikes in Northamptonshire stairways.
Also note, there is no obligation for a leaseholder if they are the occupier to check their gas and electrical appliances. This conflicts with the requirement to disclose documentation.
xi) The process of conveying basic safety case information to a resident must accept that a BSM will not know who is in the building. Many leases do not require the owner to tell the landlord or manager if they are subletting to tenants or tourists. Flats are sometimes transacted without the manager’s knowledge. An AP should be responsible for providing key safety information to the recorded leasehold owner. If the leaseholder transacts the flat, whether selling or letting, they should be obliged to pass that information on to the new resident. This can be enforced through sales as part of the conveyance process, but a specific obligation should be placed on leaseholders (not letting agents, who are often not engaged) who rent out their flats.
xii) Two different Government departments are simultaneously working to define the basic set of resident information, MHCLG as part of the resident engagement strategy and the National Trading Standards Estate and Letting Agency Team (NTSELAT) in Powys. The latter is seeking to enforce the Consumer Protection from Unfair Trading Regulations 2008, whereby potential tenants and buyers receive all material information that may affect their transactional decision at the earliest practical opportunity. These two teams must coordinate to ensure we do not have two different sets of information, doubling up on complexity and cost. Instead, having the same basket of information deployed as per the BSB will enhance the home buying and letting markets instead of impeding them.
xiii) The requirement to determine from risk assessment whether hazards may lead to a major incident does not exist in current practice. This will require a new approach to risk assessment and therefore specific guidance.
xiv) More definition is needed around what constitutes a notifiable change to the safety case to require notification to the regulator. This requirement is necessary but may discourage people from changing the safety case, undermining its purpose.
i) We await the regulations on the responsibilities of the BSM before making final comment but support the ability of the resident to raise concerns directly with the regulator if dissatisfied with the response from the AP and BSM.
i) We see merit in the BSC as a concept but on balance we feel the existing service charge provisions provide better protection for leaseholders and will be simpler, cheaper and easier to implement. The restriction on the size of this submission precludes a detailed dissection of the BSC provisions but IRPM has the necessary detail to hand and would be pleased to submit further evidence. However, there are important issues with the Bill as drafted and our further comments below address some of these.
ii) The provisions ignore the tenure of commonhold. As noted above, that either means the entire set of provisions needs to be redrafted outside of the L&T Act 1985 or a second complete set of provisions specifically for commonhold needs to be written into the Bill. For this reason alone, we believe the provisions as drafted are deeply flawed.
iii) IRPM understands the merit of having a separate charge, of clearly signalling to leaseholders, stakeholders and commentators that Government has acted to ensure leaseholder money is protected, accountable and solely dedicated to the worthy cause of safety. It is important that leaseholders are given confidence in the new regime. However, the method chosen to achieve this is to image large chunks of existing service charge provisions and near-replicate them outside the protection of existing service charge legislation, with some important leaseholder protections removed. Consequently:
To illustrate the cost of this, in the Upper Tribunal alone there are on average 21 cases each year on mature leasehold legislation. At an average cost of £50-100,000 each, that is approximately £1.5m pa, or £53m over the last 35 years at today’s prices. This does not include the hundreds of First Tier Tribunal and Court cases over the years.
iv) Leaseholders will receive three demands, for ground rent, service charges and the BSC. Health and Safety will appear on both the BSC and the standard service charge. Notwithstanding the use of the words ‘fire and structural safety’, this apparent repetition will cause confusion.
v) The 28-day demand provisions allied to the consultation processes appear to permit a landlord in receipt of enforcement proceedings to issue short-notice demands to leaseholders, circumventing the consultation provisions. Leaseholders appear open to being billed unexpectedly on 28 days’ notice, and potentially for the cost of remediating historic building faults such as flammable cladding.
vi) The provisions for costs are limited to actual costs and not budgeted, with an appeal only to be heard after the event. This is coupled to an inability to seek a pre-event determination from the Tribunal. In short, the landlord/RMC will have to risk post-event appeals instead of testing the proposed expenditure at Tribunal in advance of spending leaseholders’ money.
vii) The 28-day accounting period for a complex set of reconciliation accounts with a large amount of information is extremely tight compared to existing service charge and company accounts and clarity is sought over whether the right to claim payment is lost or suspended.
viii) The definition of landlord (as being entitled to the reversionary interest) brought in by clause 88 is inconsistent with other leasehold legislation and excludes RMCs and RTMs, forcing reliance on the duty of a landlord to cooperate with an AP.
ix) The cost of administering a separate trust client account and separate accounting regime behind it will add work and bank charges being incurred by the managing agent, which will ultimately end up in additional costs being paid by the leaseholder.
x) The thresholds for consultation are not set and may be different to existing consultation thresholds. A consistent approach would be appropriate and, when they are set, they should [have the facility to] be index linked to avoid erosion over time by inflation.
i) The HSE have long experience of regulating safety in sometimes very high-risk sectors. However, we would caution that H&S is traditionally an affair of business, to wit: The Health and Safety at Work Act. Here, the regulator will be dealing with APs who are neither property specialists nor in business but are unpaid volunteer lay people of good intent, who will be expected to understand and shoulder a high-risk burden to the same standards as a professional, with the threat of prison for ultimate failure. That is a very tall order and the regulator should make provision to support these civic-minded individuals not just with guidance but with practical measures and the ability, should they wish, to appoint an AP of their choosing to relieve them of risk.
i) IRPM would support the mandatory installation of sprinklers in HRRBs.
ii) The Bill must mandate the use of the Unique Property Reference Number (UPRN) system on all documentation relating to the Building Safety Case and Resident Engagement Strategy documentation. Government has made the UPRN system freely available for regulatory purposes. Industry across the management, sales and lettings sectors will be greatly assisted in providing key information directly to consumers during transactions and on demand. This will greatly enhance building and life safety, improve the home buying and selling process, improve transparency and accountability and empower enforcement agencies such as HMRC, environmental health, fire safety, Trading Standards and more to target enforcement efficiently and effectively. Applying the UPRN to key documentation is the built environment equivalent to road safety enforcement through putting number plates on cars.
September 2020