37 Cross Street Manchester

 

Small change, big difference

 

Flat owners at a block in Manchester were struggling to cope with high service charges and bad debts until Casserly Property Management stepped in

 

The changes Casserly Property Management have made since their appointment in 2012 as property manager at 37 Cross Street in central Manchester, have earned them a Highly Commended in the latest round of ARMA-Q Awards. 37 Cross Street Management Company Ltd is an RMC set up as part of the underlease to manage the residential element of a listed building in the centre of Manchester, where twelve apartments are located on the second, third and fourth floors. The ground and first floor are commercial properties which are managed by another managing agent along with the exterior of the property on behalf of the freeholder.

 

In 2012 the directors of the management company along with the leaseholder were exasperated at the high service charges at the development which were being levied mainly as a result of the high overriding service charge charged by the freeholder for managing the exterior of the building and basement areas. This had resulted in service charge debtors of more than £95,000 and creditors of £71,000. The apartments were also proving almost impossible to sell due to the high service charges, despite three different managing agents which had tried to resolve the situation during the previous ten years. After reading an article in Flat Living magazine in early 2012 in which the company was featured, the director of the RMC appointed Casserly Property Management as managing agent in the hope that these issues could finally be resolved. “We had suffered nearly nine years of the misery of mismanagement in our small residential block in central Manchester, having got rid of one company after two years, only to find the successor was even worse. After meeting and appointing Paul Casserly to run our block of flats, the transformation has been astounding,” confirms Marika McGregor, a former RMC Director at Cross Street..

 

The first step was to undertake a detailed review and analysis of the lease and to then start negotiations with the freeholder. The lease stated that the “Tenant’s Share” is a proportion, which is based on a comparison of (i) the net internal area of the demised premises and (ii) the net internal area of the “Lettable Units” This was calculated at 55.83% which resulted in an annual overriding service charge charged by the freeholder of £18,100 in 2012. However following a detailed review of the lease the following further clause was identified:

 

“The Landlord shall adjust the Tenant’s Share to make reasonable allowances for differences in the Services provided or enjoyable by the Lettable Units…and the Landlord shall recover the total cost of the provision of such services from the relevant class of tenant”

 

On analysing and questioning the freeholder’s service charge accounts it became apparent that most services undertaken concerned the basement area of the commercial properties and were of benefit only to the commercial tenants. The lift motor room which was located in the basement had a footprint of only 3.73% of the basement area. Director Paul Casserly therefore successfully negotiated the residential tenants’ share to be only 3.73% of expenditure in the basement/commercial area as opposed to 55.83% in previous years. This resulted in the overriding service charge charged by the freeholder reducing to £5,062 in 2015. Paul then pursued refunds for historical charges which culminated in a six year refund in historic overriding service charge dating back to 2006 – which came to a grand total of £40,908. “The flat owners were delighted when the Deed of Settlement securing this refund was executed in May 2015,” says Paul.

 

However, service charges weren’t the only problem at the block. There were two electricity meters in the residential communal entrance. The previous managing agents had assumed one was for the lift and one for stairwell lighting but Paul thought the communal electricity was unusually expensive, “So we requested an electrical contractor to investigate this when undertaking an emergency light test. It was then discovered one meter was for the commercial basement area and therefore should be paid by the freeholder”. This refund totalling £5,982 was also received in May 2015. The flat owners were also very happy to receive a buildings insurance refund of £1,700 for incorrect billing of VAT for the previous five years which had been wrongly charged as a result of the freeholder sub-billing the residential element of the block and incorrectly adding VAT.

 

As a result of what Casserly Property Management achieved at 37 Cross Street the leaseholders have seen clear benefits.

 

All the recent refunds and credits received mean that there are no service charges to pay for more than 12 months which is very welcome after years of high service charges.

 

Service charge debtors in 2015 are nil and all outstanding long term creditors are settled. This is a huge relief to the Directors of 37 Cross Street Management Company Ltd who were previously worried that the company may fall into administration if the precarious financial position of 2012 wasn’t resolved. This would obviously have had a huge impact on leaseholders, severely effecting their investment.

 

Leaseholders now have a considerably lower service charge budget without a reduction in service. This has particularly benefited those leaseholders who sublet the apartments as many were previously trying to sell due the majority of the rental income being spend on service charges.

 

Sales of three apartments finally completed in 2014 as negotiation with the freeholder moved closer, although retentions were held by solicitors pending the final deed of settlement figures. These retentions have now been released by solicitors allowing the matter to be finally concluded.

 

So what have Paul and his colleagues learned from their experiences at 37 Cross Street? First, says Paul, read and re-read the lease. This is in reference to not only understanding what the management company’s obligations are but also understanding the obligations of all parties to the lease in terms of clarifying what additional costs the management company may be responsible from areas that are sometimes outside of their control.

 

“Once you have the backing of the RMC and their leaseholders do not be afraid to appoint a solicitor to conclude an issue where required,” he says. While the refund figures at 37 Cross Street were all agreed in principal without the need for a solicitor, achieving the refund and approving the Deed of Settlement required legal assistance. “In hindsight if we had appointed a solicitor earlier I believe we would have received the refunds approximately six-12 months earlier as a solicitor’s letter or two often carries for more weight than those from a managing agent,” Paul explains. He also outlines the importance of keeping leaseholders informed via regular meetings and written correspondence, especially during protracted negotiations: “The constant knowledge that we were fighting the leaseholders’ corner with the freeholder particularly helped in our efforts to reduce the large service charge debtors”.

 

And finally, don’t be afraid to challenge large multi-national managing agents who often represent large freeholders. The assumption that just because they are big they are correct is often wrong, says Paul, “they often miss the detail.”

 

Casserly Property Management secured a reduction in the annual overriding service charge from £18,100 in 2012 to £5,062 in 2015 together with a six- year refund in historic charges totalling £40,908.

 

http://www.casserlypm.co.uk/