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NARA warns that new case law puts lenders at risk on property management issues

wantspacegotspace.co.uk - NARA warns that new case law puts lenders at risk on property management issuesNARA, the Association of Property and Fixed Charged Receivers, has warned lenders that a recent legal case will put lenders at risk. Residential block management is not often a source of concern or risk to most lenders, but a recent case has brought the potential for huge financial shortfall to be brought into sharp relief.  Phillips v Francis 2013 has ramifications across the world of residential property management but has particular concern for lenders who have monies secured against such assets and where they have had to call in fixed charge receivers.

The heart of the issue focuses on whether a landlord can recover expenditure on the common parts and structure of the building. It is well established in law that a landlord who wishes to carry out works in excess of £250 per flat has to follow a strict prescriptive notice process allowing residents the opportunity to comment on and secure competitive quotes for major works. This recent case means that the cumulative costs of works now needs to be taken into account and thus if you have had several roof leaks then the aggregate cost of works now tips the statutory scale.  In other words in a block with ten flats, one could previously carry out works up to £2,500 (10 flats times £250 per flat) without serving notices under Section 20 of the Landlord & Tenant Act 1985. If work was required on a roof leak in January at a cost of £2,000 then needed to be attended to again in say April at a further cost of £1,000 then £500 will not be recoverable unless there is adherence to the full Section 20 process.

Whilst this seems like relatively small sums of money, on larger properties and with larger projects landlords could quite easily find themselves with unrecoverable elements to the service charge if they do not follow strict procedure.

"It is essential that those in charge of residential assets know exactly what they are doing and have experience in dealing with statutory notices to ensure that full recoverability is possible and that landlords can fully recover expenditure incurred," said Simon Tilsiter spokesperson for NARA, The Association of Property and Fixed Charge Receivers. “In addition banks and lenders who have funds secured against properties with long leasehold premises included such as a parade of shops with flats above, need to ensure that any fixed charge receiver is fully conversant with changing property management law".

Posted by The Editor (wantspacegotspace) on 9th June 2013 (updated 11/06/2013)

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