Open Letter to all Flat Owners - 15 April 2007
Note: this article publish in 2007 was written when CPM Asset Management were the managing agents for the Island - 5 months before Amber Management were appointed
I have been employed as the CPM Property Manager, responsible for helping manage the Residents Association (RA) and many of the flats on the Island since August 2005. I am also a resident of the Island. Prior to my appointment as Property Manager I was a Director of the RA. I cite my ‘credentials’ to establish my ‘authority’ for writing such an article as this which aims to dispel some of the ‘myths’ being posted on the Bulletin Board in respect of living on the Island. I believe, being the Property Manager, a past RA director as well as a resident, gives me a unique insight into the joys, difficulties and costs associated with living on and maintaining the Island on behalf of the Residents Association and, in particular, flat owners who this article is primarily aimed at. I am prompted to write this article now as we are about to embark upon a major programme of works on the flats which will result in, regrettably, yet another extra bill for some owners. Flat owners are naturally concerned and looking for answers as to why. I contend that many residents fail to appreciate what they ‘bought into’ when purchasing a property on the Island and are all too quick to blame others when realisation sets in! Hopefully my providing some background information into some aspects of running the Island will help residents appreciate why costs, particularly for flat owners, need to be increased some more. This article should/must be read in conjunction with the 2006 Annual Report I prepared for the RA’s AGM in December 2006 which amongst other aspects explains the ‘constitution’ of the Island and the importance of residents complying with the rules and conditions contained in Restrictive Covenants and Lease documents. A copy of the Annual Report can be viewed/obtained here and copies of the Rent Charge and Leases documents here
Now to the meat of this article. One word of warning; it is lengthy. If you are intellectually challenged/intimidated by having to read and absorb such a tome then give a thought for the author who has taken the time and trouble to string the words together!
MANAGEMENT OF BLOCK MANAGEMENT COMPANIES
A Limited (Block Management) Company (BMC) has been set up by your Freeholder to manage your block of flats. Day to day responsibility for managing your flats has been devolved down to directors. The directors are residents, voted in by other residents belonging to the same Company, normally at an Annual General Meeting (AGM). Your directors have, in turn, devolved their responsibilities to a professional property management company, currently CPM Asset Management, who has been contracted to act as Managing Agent. CPM handles all aspects with regard to the running of your Company. Essentially, it advises the directors on what level of service charge to set, deals with all maintenance issues, oversees contracts, arranges for payment and collection of the service charge and provides legal advice as and when necessary to ensure the smooth running of the Company. Note, CPM advise directors; directors instruct CPM. This subtle distinction is important. I cite by way of an example the setting of the Service Charge. Each year I present costings to directors for the next year’s Service Charge based on the previous year’s expenditure, and after taking into account other ancillary factors such as inflation etc. This information is then scrutinised by the directors. Having provided the directors with ‘best advice’ it is then up to the directors to decide if they wish to accept it or not and how much service charge to levy. The decision rests solely with the directors. I reiterate, CPM advise, directors instruct!
HOW BUSINESS IS CONDUCTED
In contrast with the RA, which meets several times a year, I tend to meet only once or twice with BMC directors; once to agree the Service Charge, and once at the AGM. The AGM is the primary means via which residents can meet and discuss concerns with their directors and, if necessary, help set the Agenda for the forthcoming year. I also hold other occasional ad-hoc informal meetings with directors but these are few and far between as the majority of business can be conducted quite successfully by email. I also have an open-door policy. I am fortunate to have an office on the Island, at No 39 island Centre Way, and am available for a one-to-one meeting with directors or residents alike should the occasion warrant it. I brief your directors fully on all matters pertaining to the running of your Company. My first responsibility is to them, your elected representatives. More importantly, they make the decisions based on informed, often detailed, advice provided by me. I, in addition, aim to keep residents informed as much as possible. The website, particularly the Bulleting Board (BB) is an effective tool for this purpose but it is not necessarily the correct vehicle for residents to either raise, debate or contest issues/decisions made by directors. Neither should residents expect me to provide them with a detailed response to every issue of concern posted on the BB. The website has a valuable contribution to make – primarily as an informal communications tool to engender community spirit and highlight areas of concern – but it should not be viewed as a substitute for the more conventional and official means of notifying issues; namely, via written communication with directors, through the managing agent, and/or attendance at meetings and AGMs.
It is probably worth pointing out at this stage that I run the website, as a resident, not as an employee of CPM and, more importantly, as an extra-curricular activity. If I do reply to postings then it is out with of my responsibilities as Managing Agent. That said your comments are invaluable to me as Managing Agent. Hence why I do invariably find the time to reply to most topics, particularly those, pertaining to the running of the Island as I am, unarguable, the most competent person to provide the answer! The point I am making (labouring) is that some residents are ‘abusing’ the BB and using it as their primary vehicle to criticise how CPM and directors go about their business – whilst retaining their anonymity! To further illustrate my point the majority of the AGMs held last year were very poorly attended; in most cases only 2 residents turned up. In light of the comments/concerns expressed on the BB prior to the AGMs being convened I had expected there to be a full house/attendance! Now I will get off my soap box!
LEASE CONDITIONS AND RESTRICTIVE COVENANTS - WHY DO WE NEED RULES?
In order to manage effectively one must have guidelines. Flat owners have certain responsibilities towards their Management Company/fellow residents and are required to abide by certain rules and conditions. These are stipulated within the Lease. I wonder how many residents actually read the Lease and, if they do, how many choose to blatantly ignore the rules contained within? I cite by way of example flats and satellite dishes. The Lease states no dishes are allowed on blocks of flats, yet time and time again, residents put up dishes. The major culprits tend to be tenants of flats who often tell me, when I enforce the terms of the Lease and take the dishes down, that their landlord gave them permission. I can but speculate why. I am sure landlords are aware of the rules but prefer to put profit before compliance and are content to place the burden, and costs of enforcing the terms of the Lease, onto the Management Company without any due regard for residents who do conform to the law. The major transgression by householders is in changing the external appearance of their house, whether it be the erection of a front porch or fitting of brown replacement UPVC windows, both of which are in contravention of the Restrictive Covenants. The rules are there for a reason; you ignore then at your peril! Your solicitor should have advised you of the conditions attached when you purchased you property. Ignorance of the rule is no defense, nor will you get any sympathy if you decide, for whatever reason, that the rules do not apply to you. CPM is empowered to enforce the rules on behalf of the RA and the BMCs but each and every transgression invariably costs you, the resident, money to put right. Bear this in mind when you next see your neighbour flout the rules!
It is an irrefutable fact that a block of flats tenanted out will be less cared for than those occupied by owners. Blocks of flat which have a high percentage rented out deteriorate quicker and have more maintenance money spent on them than those which are owner occupied. Communal living requires collective responsibility. It only takes one bad apple to spoil a barrel full!
The payment/collection of the Service Charge (applicable to flat owners only) and Rent Charge (applicable to both flat owners and householders) is crucial to the successful running of any management company. If residents are slow in paying their Service Charge or, refuse to pay it altogether, then it will have a direct impact on the financial viability of the Company. It is not acceptable to withhold payment. Many/some residents do so because they perceive they are not getting value for money. This is, in my experience, a weak argument. Very few residents, other than directors, know what is involved, or what effort is required, in running a BMC. More importantly, many disputes/difficulties are not of the BMC’s making. I cite by way of example the disquiet expressed by flat residents having to pay for communal water. The decision to put in communal water meters was made by the Council and developer. It is not fair to blame/penalise the BMC by withholding your Service Charge payment because you consider water bills are to high! Protest by all means if you feel aggrieved but note it is a false premise to believe your best and only course of action to resolve a dispute or register dissatisfaction is to withhold your Service Charge! Those that do so (debtors) are seriously affecting the BMC’s cashflow and denying the Company essential funds - necessary for the day-to-day maintenance of properties. A high percentage of debtors can also lead to higher charges being levied when contemplating major work projects. Shortage of funds, through a resident’s failure to pay must be made up somehow! This is the situation facing some BMC now while they debate the cost of major works. If you are in arrears with your Service Charge or Rent Charge then please pay up! You owe it to yourself and to your fellow residents. Consider, charges on the Island are already deemed to be high. If you are in arrears it makes no sense to incur further costs from litigation brought about to pursue the debt!
MAJOR WORKS - EXTERNAL AND INTERNAL DECORATIONS
I have deliberated hard on how best to present the facts (and complexities) surrounding external and internal decorations (hereafter referred to as major works) which, according to the terms of the Lease are required every 3 year (external decorations) and every 7 years (internal decorations). I propose to provide a brief background to the problem which will, hopefully, give you a flavour of the amount of thought and work that has gone into this matter. It should also give you an insight into my role as Managing Agent, the role of your directors and how the decision process works.
Money to pay for major works is collected through an element making up the Service Charge and set aside in ‘reserves’. When I came into post in August 2005 residents were paying £100 towards reserves. It is currently set at £363 per resident.
Major works, have not always been undertaken in accordance with the terms of the Lease. There are many factors as to the reason why. One of the major factors is past under funding of reserves; namely, the cost of decoration works have never been assessed adequately in the past, and as a result too little money has been set aside. Even though that assessment has now been made there is a general reluctance to accept the costs and to increase the Service Charge accordingly. The solution in the past was to defer decorations - this was the easy option – what should have been done thereafter was an analysis into why funds were not sufficient and a strategy developed to ensure reserves were in a healthy state to pay for decorations in future years. I suspect the reality of the situation is that there was a reluctance to either identify or face up to costs in the past. No one wants high service charges. However failure to ‘bite the bullet’ in those early years and to set a realistic service charge has led to the situation we are faced with today; namely, there is not sufficient money in reserves to pay for the full (forecast costs) of decoration works. Decorations must now be done, indeed some are long overdue.
Suffice to say that I (CPM) and your directors are resolved to ensure major works are undertaken on schedule in the future, not only to maintain the essential fabric of the building but also to maintain the value of your property.
More importantly, we have done the necessary assessment of costs for future years. The £363 figure you are currently saving towards reserves this year was based on the actual costs of painting 2 blocks of flats on the Island in September 2006 – thereafter costs were projected forward 21 years. This was to help determine if sufficient money would be available in future years without the need to ask resident for any extra through the issue of a Supplementary Invoice. A Supplementary Invoice is only required when there is insufficient funds in reserves to pay for major works. Note: since agreeing the £363 figure we have had a further assessment of costs undertaken - provided by a qualified surveyor. He assesses the costs to be significantly higher than that currently budgeted for. The £363 figure will have to be adjusted in light of this (in September 2007) if we are to maintain parity with current let alone future costs!
The difficulty facing directors at the moment is how best to pay for long overdue decorations, knowing that there is not sufficient money in the reserves at present. Regrettably, the only option is through the issue of a Supplementary Invoice. The cost of which will only be known when a Specification of Works has been drawn up, contractors willing to tender notified, and their costs obtained. The Notice of Intent letter, sent out to residents recently, asking you to nominate contractors of you choice is the first step in the process. It is also an opportunity for you to cut costs by having works undertaken by a contractor who is, hopefully, competitive.
I trust you find the above information helpful. Further details pertaining to the decision making process are contained in 3 letters written recently to your directors. These are available to view in my office if required.
I hope you will see from the foregoing that important issues are being dealt with effectively and head on. I also contend that many of the past criticisms of CPM are no longer valid. I keep reiterating the fact that CPM is committed to addressing past issues and in making the Island one of its flagship developments. I believe CPM and the current directors have made significant progress over the past 19 months towards achieving this. Much more work is needed and yes, more difficult decisions have to be made and past prejudices overcome if we are to move matters forward further. However, there is much more structured management of the Island now, and far more commitment, transparency and accountability, than at any other time in the past. I believe we have every reason to be optimistic and trust that some, if not all, will share my vision/enthusiasm for the future!
Please note, and in accordance with the Lease, if a Supplementary Invoice is required, and after reading the above it most likely will be, then you will be requested to pay when notified - and for the cash flow reasons already stated above.
It will take a few more months (maybe as late as July) to finalise details, to obtain actual prices and work out how much (extra) money needs to be added on top of reserves, so it would be prudent to set aside a sum of money each month as of now following receipt of the recent Notice of Intent letter. I do not have sight of actual costs but, if helpful, as a guide and without prejudice, I would suggest perhaps £100 per month, to help ease the financial burden?
In respect of nominating contractors. It is not necessary to have a detailed specification of works before you provide us with a nominee. Potential contractors should be approached and simply asked if they would be willing/able to provide a quote to decorate the internal common areas (such as hall/stairways, windows and internal doors) and/or external areas (external doors and window frames), as required. Assuming they meet the requirements in Anne Miller's letter, once notified Anne will send them out a detailed specification of works and details of the properties concerned.
15 April 2007