The Managing Agent is not your 'mate', mate.

I recently had to put together a letter to a Landlord’s agent asking for various items for the purposes of a service charge audit, as a demand had come out of the blue for an extra £27k for service charge items.  There was also a 10% ‘pre arrangement fee’  on all of the service charge items with another 10% managing agents fee on the total! Hence I sought to investigate this fee on fee charging arrangement, which did not reflect the lease terms.

The NHS Client was paying near on half a million pounds a year to this Landlord for one block of accommodation but unfortunately the managing agent seemed to be more of a construction company rather than a company used to dealing with service charges per se, and in particular, did not seem to be familiar with the RICS code of Practise for commercial service charges.

Having put together an extensive letter and asked my Client to review before sending, my Client asked me to ‘tone it down’ because they want to be ‘friends with the Landlord.’  I was surprised because I thought the letter was incredibly normal for a service charge audit – and did not think that the Agent would be surprised given their fresh demand for extra money out of the blue.

I  felt a loss with this ‘friends’ business and sought to sensitively explain to the NHS Client that the Managing Agent is not the Landlord. I’m still not sure that they understood.

So for my blog I decided to list a few golden rules to help NHS tenants understand this relationship:-

1)      The relationship between Landlord and Tenant is based on the lease contact.

2)      You do not have to be ‘friends' or 'mates’ with the Managing Agent to do a great job for your Client or Employer.

3)      Always be polite and professional, engaging in timely communications, face to face where possible.

4)      Understand that the Agent is NOT the Landlord.  They merely represent the Landlord and can be taken  ‘off the job’ by the Landlord at very short notice.

5)      If you are a Tenant as big/reliable at paying rent as the NHS, you do not have to put up with second best from your Agent/ Landlord.

6)      If you are a Tenant in occupation of massively over-rented accommodation, yet paying reliably, again,  you do not have to put up with second best.

7)      Never be shy of raising issues in support of financial transparency and industry best practise.

8)      Never be shy of raising contractual issues in support of the proper performance of the lease contract.

9)      Long term contractual relationships are based on correct administration of the lease contract and NOT on the rapport with the Managing Agent.

10) Most commercial Landlord's know that 'happy tenants make happy rent payers'. Make sure they are keeping you happy! 

There’s probably lots more of rules that I could think of, but that's plenty for this blog. More soon!

Moving in without a lease...picking up the pieces years later on

This week has seen me forensically vetting some NHS files to establish the original condition of a property at the time the NHS moved in and took up residence.

If there is one thing that I have come across on regular occasions when dealing with NHS leaseholds, it is where the NHS has moved teams in to a leasehold building before agreeing the lease.

Whilst this might be the answer to urgent operational requirements at the time, the risks of doing this are most likely never realised until many years down the line when the NHS decides to move out and the landlord serves a rather large dilapidations schedule and someone like me is asked to sort out the problem. It is an error that the NHS never seem to learn from and I have no idea how they might ever stop doing it.

The number of times I have wished there had been a decent schedule of condition and improvements file to help me unravel the situation regarding a dilapidation claim.  Unfortunately I have found the same with improvements and that quite often NHS has made quite extensive improvements to a property without considering  the contents of the lease or what might happen at the end of the term.

Some Trusts are happy to move out of a leasehold property and leave the place with the improvements in a tidy state and later argue using section 18(1) Landlord and Tenant Act 1927, but now the market is moving a little this might be foolhardy depending on location.

Having recently worked with a most excellent QS, if the original ‘base’ condition that the property was in, when it was first used by the tenant can be established, then it may be worth getting a price for the tenant NHS to do the work and comparing that price with what might have to be paid out through a dilapidation claim.  Both of the options somewhat rely on there being someone ‘expert’ to negotiate / manage on behalf of the NHS to see the matter through to conclusion, so it can be a close thing financially on which option to take.  Often NHS just budget for having to pay dilapidations at the end of the term simply because ‘that’s where they have the budget’ – as to strip the improvements out / undertake the dilapidations workload would be classed as a ‘Capital Project’ with all the ‘wrappings’ in terms of procurement and business cases.

I must say that perhaps I am a bit old fashioned in that I find the rise of the email/electronic file and decline of the ‘hard copy file’ can also make things difficult in these situations when trying to find correspondence relating to improvements and works over the life time of a lease.  Whilst electronic filing is great for space saving, it needs to be part of a good overall office system where there is someone decent to oversee the electronic filing and ensure that the filing is (i) done correctly in an organised manner – and maintained as such, (ii) timely – so you can find what you have sent  just a few days before; and (iii) that someone from IT doesn’t decide to move the files from one server to another and lose half of them and (iv) there is a decent search facility – that can also search PDF files – then you also need to be running some hard copy system alongside. 

The advent of half thought out electronic filing systems, combined with the pressure on NHS to save money by streamlining admin staff – and also combined with changes of landlord and landlord information management systems over the period that a building has been occupied-  means you can often end up with a rather opaque situation. Over the years I’ve come to believe that a partial hard copy filing system really does need to co-exist the electronic system.

There is nothing quite like returning to a client’s office several years further along the line and suddenly realising that they are still using the hard copy filing system that you set up several years previously to run alongside the electronic system.  Picking up files with your own handwriting on in third party offices that you have not been to in many years is strange but when you see that it has worked for your client  -and in the case of a dilapidation claim – is saving them a king’s ransom– well the feeling is one of quiet satisfaction.

So your Landlord sorts out your buildings insurance? And sends you the bill?

You may be wondering what your rights are as the tenant and whether your Landlord can procure any insurance policy he wishes, at any cost and expect you to pay the bill.

I hope today’s blog will clear things up a little for you.

Let’s start with the basics first:

Where is your lease?

If you have a lease make sure you have a copy. Make sure it is a copy of the actual signed lease and not a draft. Print it out so you can annotate it and keep it in a safe place where you can lay your hands on it.

If you don’t have a lease but you are paying money to your Landlord (and there are many NHS occupiers like this at present,) this does not mean you don’t have a lease, it means you have a lease in Common Law.  Believe it or not it is possible to have a lease without having anything on paper. It can make things slightly more tricky and is not ‘best practise’ for Landlords, but is more common then you imagine, particularly in NHS shared premises.

Why have a lease in the first place?

Leases are generally a good thing to have because a lease is a contract that sets out the terms of the arrangement for your occupation of a property - so each party knows where they stand. In the commercial world it also is a document that protects tenants from being ‘thrown out’ on no notice – so affords safety in business continuity.  It also enables Landlords to forecast contractual rental income.  Landlords are agreeable to getting leases in place as it means they can borrow money from the bank against this guaranteed income – or if they have already borrowed the money, they can arrange to pay it back on preferential terms.

 

What sort of occupier are you?

GPs

If you are a GP Practise then I refer you to ‘The National Health Service (General Medical Services – Premises Costs) Directions 2013.  Part 5 covers ‘recurring Premises costs’. At Section 46 you will find the detail of ‘Payments in respect of running costs’.

This section basically provides you with the detail of what you will get reimbursed for under your GMS contract – including insurance. However under Section 47 you will see that you may, depending on the circumstances, only receive part payment of the cost of the service charges for your premises.  Furthermore, there are lots of costs that may be included in your actual service charge bill, that are not re-reimbursable under these Directions.

This means that it is in your Practise’s financial interest to minimise, where possible, these particular payments to your Landlord. This doesn’t mean that you refuse to pay for your insurance and service charges – but it does mean you should be seeking for transparency of these charges, to ensure they are 100% clear, justified and accurately reflect the lease contract.

Clinical Service Provider and charities

If you are providing a service/ charity work from an NHS property, then quite often you will want to know where you stand with using a property for the purposes of business planning.  For charities, under the Charity Commission rules, you will be aware that you must seek value for money when undertaking business and this means you need to be prudent when it comes to dealing with your financial undertakings – and therefor when dealing with your accommodation costs.

So how is your insurance bill arriving?

Some Landlords wrap the rent, insurance and service charge into one single bill. Others split out the invoice completely and send it on an invoice, quite separate from the Rent and service charge invoices.

There is no hard and set rule about how you should receive your insurance bill for your property. However this is what you need to know:

Your lease is key to setting out the basis of the insurance that your Landlord procures on your behalf. So if you have a lease – flick through with a highlighter and mark every single element which refers to insurance.

Most leases will have an insurance schedule located towards the back of the lease document and there will be a clause nearer to the front of the lease which sets out what you, as the tenant, must pay under the lease contract.  Often it will say ‘the tenant will pay for the costs buildings insurance as set out in Schedule X’ – and this will be the respective Insurance schedule at the back of the lease.

Tenants proportion?

In terms of the proportion of the bill that you must pay – this can be quite a complex issue – so I will save that for another day – so watch this space.

FSA Regulation of Insurance

Over recent times, EU Directives have led that most areas of insurance are now regulated by the Financial Services Authority (FSA). You can check here to see if your Landlord / their nominated managing agent should be registered with the FSA

http://www.fca.org.uk/firms/firm-types/intermediaries/property-managing-agents

Quite often, commercial Landlords will be deemed as registerable under the FSA if they are ‘acting in the administration and performance of a contract of insurance’.

What does this mean?

Most Landlords need to be registered by the FSA if they are involved with the procurement of insurance products for tenants.  If they are registerable under FSA rules then they fall under the ‘Treating Customers Fairly’ principles.  So even if it does not say explicitly in the lease, it is reasonable for you, as the tenant, to ask for a copy of the insurance that has been procured on your behalf plus details of all the costs involved in its procurement. 

So when you get a bill for insurance – make sure you contact your Landlord and ask for:

Details of their FSA registration. A copy of the insurance policy. Details of all costs being claimed (this includes any brokers fees.)

Once you have a copy of your insurance you need to check that the cover accurately reflects the cover that is set out in the insurance clause of your lease contract.  This is because the landlord must ensure that the insurance they have procured falls squarely within the scope of your lease.  If the policy does not comply with the lease contract, then the Landlord may not seek reimbursement from you, as his tenant.

Can the Landlord use any insurance company he likes?

The short answer for commercial leases is yes. The lease contract must be used as the basis of this arrangement, however, the Landlord is under a Common Law duty to ‘act properly’. Current case law has seen that it is not necessary for the Landlord to go out and get the cheapest deal, but Landlords do have to undertake the exercise of procuring the insurance ‘at arms length’ and the rate charged should be no more than the chosen insurer’s going rate for the policy in question.

Can the Landlord take a commission?

Unless the lease says otherwise, it’s generally accepted that the Landlord or his managing agent should not profit from placing insurance products without the Tenant’s consent. This means the Landlord should really give the Tenants the benefit of any discount they might receive and be transparent about this aspect.

What about broker’s fees?

The issue of broker’s fees has come up with a situation I have been dealing with recently. I have not been able to find much detail on this in terms of legal cases (yet), but where the lease does not mention that the cost of insurance brokers fees is rechargeable to a tenant, then I would be arguing that the broker’s fees are something that the Landlord has to pay and that these specific costs cannot be demanded. Clearly, if I discover information to the contrary, I will update this blog.

 

Supply of Goods & Services Act

What I have established is that there is case law in 1994, the arrangement by insurance by the Landlord is not something that is caught by the Supply of Goods and Services Act 1982.

 

So that’s the end of this blog for now. Will do another soon.

 In the interim if you have any queries about commercial service charges please refer to the property industry best practise - the RICS code practise guidance- which can be purchased here:

http://www.rics.org/uk/knowledge/professional-guidance/codes-of-practice/service-charges-in-commercial-property/

I believe it is £20 if you are not an RICS member