Is self-management an option for your block? 10 traps for the unwary

There is much to be said for managing your own block. With no managing agent in the way, you and your fellow leaseholders will hope they will have better decision-making powers, reduced costs, more control, and improved service. Self-management however also needs a good knowledge of leasehold and company law, tight financial control, an incredibly thick skin and, more often than not, plenty of spare time.

Essentially, if you are serious about self-management – and by this we mean taking care of the management of your block or estate without the support of a managing agent – then it is something that you must tackle with your eyes open.

At Clear Building Management we have plenty of experience of ‘picking up the pieces’ when self-management goes wrong.

Here we set out 10 traps for the unwary. Get these nailed and you can go into self-management with confidence!

1. Billing correctly. The Landlord & Tenant Act is very specific about how service charges must be demanded. Each demand must be accompanied by certain prescribed documents; set out in a prescribed format. Get this wrong, and you won’t be able to recover unpaid demands if you need to debt collect.

2. No Section 20 consultations. Sometimes, like when there’s an emergency, it isn’t practical to undertake a S20 consultation before carrying out major works. In these cases you can apply for ‘dispensation’ from consultation. In the majority of cases however, you need to go through the S20 process before you can start incurring major works costs. Without the consultation you may find that you can recover no more than £250 per leaseholder.

3. Ignoring the lease. An essential part of self-management is reading and understanding the lease and your obligations within it. For example, it may set out cyclical maintenance activities. Failure to meet the requirements of the lease can lead to leaseholder disputes and dents in your vital cashflow.

4. Spending on ‘unauthorised extras’. Again thinking about the lease, you can get into hot water if you spend the service charge monies on items not permitted in the lease. We dealt with a situation once where the RMC directors had installed a water feature, with expensive ongoing running costs, totally contrary to the lease. All of which meant that the costs couldn’t be charged to the leaseholders, and the RMC ended up with big financial and legal problems.

5. Changing how the service charge is apportioned. We agree that sometimes the percentage split between leaseholders can seem at best arbitrary and, at worst, highly unfair. But change these at your peril, as a service charge demand will not be payable if it fails to follow the correct apportionment as set out in the lease. There are remedies for dealing with unfair or inappropriate service charge apportionments but correct process must be followed.

6. Failing to re-tender. One of the key drivers for self-management is to save costs. But you still need to maintain transparency to show your fellow leaseholders that their funds are being used in the best possible way. If you don’t re-tender for contracts such as cleaning, gardening, maintenance and so forth you risk a leaseholder challenge.

7. Ignoring arrears. Talking to the chap in the flat above about his unpaid service charge demand might feel as appealing as a poke in the eye with a sharp stick but cash-flow is vital in self management. And if word gets around that the directors are a soft touch when it comes to arrears recovery…

8. Poor procurement. Not a regulatory point but another that affects cash-flow and costs. A lack of market knowledge combined with limited buying power can mean that self-managed blocks fail to realise the cost savings they thought they would achieve, and end up having to increase the service charge anyway.

9. Wrong insurance cover. Saving money on insurance is not an option. If you are self-managing you must have appropriate Directors & Officers insurance plus it’s important to ensure that the policy underwriter specifically understands the complexities of block management. For example, will tenants be covered for alternative accommodation or just loss of rent? And what happens if any leaseholder rents to students? A specialist block management insurance policy will deal with these complications.

10. Understanding voting rights. Clear Building Management dealt with a situation recently where a development wanted to add a new bike store; this was allowed under the lease but the costs exceeded the £250 per leaseholder Section 20 consultation limits (see #2 above) - but the directors didn’t think they needed to follow the consultation procedures as they had “a majority shareholder vote”. Unfortunately, one leaseholder objected and refused to pay. Because the correct consultation procedures had not been followed, the directors cannot recover the contribution from this particular leaseholder.

At the end of the day, self-management is undeniably a viable and rewarding option for leaseholders with the time, knowledge and ability to deal with the myriad layers of both leasehold and company law. The problems arise when those in charge treat it more like running a club than a limited company with all the associated responsibilities.

Ian Hollins is a Director of Clear Building Management a residential property and building management company who manage blocks across the North West, Yorkshire and East and West Midlands.