Uncertainty regarding service charge arrears levels and recovery options are just one of the many Covid-19 challenges the block management sector is adapting to.  This update from Brady Solicitors service charge experts consider the latest developments in the light of a further extension to residential possession proceedings.

With service charge the only source of revenue to estates it is crucial to ensure that arrears are managed to allow Managing Agents to continue to deliver good building management, block safety and maintain client relationships. ARMA reports substantial rates of communal apartment charge default in Spain and Italy since the impact of Covid-19 but that is fortunately yet to be seen in England and Wales.*

Extension to stay on possession proceedings

The stay on residential possession proceedings announced initially in March has been extended to August 2020 by Practice Direction 51Z. The driver seems to be to protect residential renters from eviction but arguably seems a blanket approach that fails to consider some of the nuances of different lease scenarios

However it is important to note here the extension does not affect the majority of referrals and still means service charge arrears can be collected

The Current approach to service charge collection

After some challenges in the initial weeks of lockdown we now have a clearer picture of how courts and banks are functioning currently.

Overall, the message is  positive, and we are seeing high levels of success with service charge recovery processes with minimal changes to our procedure.

  • Letter before Action – These are being sent as normal with updated text outlining the continued obligation to pay service charges in Covid-19. It remains the case that the majority of claims are settled at this stage. Even though there has been some slowing of payment by lenders, Bradys are working to  the usual level of speed, expertise, thoughtful leaseholder communication and success.
  • Claims – These are made as standard via a volume online court process.
  • Judgments – These are available online. There are some delays on paper copies, but this is reducing and not all lenders require them.
  • Lenders – Mortgage companies are paying regularly. There was initially is a backlog and slow down due to the logistical challenge lenders have faced working remotely coupled with the demand for processing mortgage holidays. We are leveraging our contact information and relationships with senior staff at the key lenders to ensure Bradys clients’ cases are at the top of the pile for payment.
  • Leaseholders – we are continuing to see the majority of leaseholders making payment. Some cite Covid-19 as the reason for non-payment and our teams are trained in how to deal with these forms of objections in our usual firm but fair manner to ensure that payment is obtained as quickly and appropriately as possible

Common areas of confusion

Leaseholders seem to be confusing the mortgage payment holiday that many have taken up as also applying to service charges. This is of course not the case.

We have also seen a small number of leaseholder communications where they are suggesting there is nothing a Managing Agent can do as all property possessions are “banned”.  Clearly this is not the case. Possession proceedings on residential properties have been stayed until August currently.

Anecdotally we are seeing BTL leaseholders raising rental income reductions especially in city centre blocks were students formed a large part of their tenant portfolio. Of course, the building remains needing management and the service continues to need to be paid especially where the non-payer owns multiple apartments in the same block

We are persuading leaseholders to pay to avoid costs increasing, and offering reductions in costs over and above our usual rates of reduction, to assist settlement.

Hearings

We are still seeing cases being listed, however possession hearings will not be heard and small claim trials will be slow to be listed. Again however, the issue is not one that will go away for leaseholders and they must be told that cases that take long in getting to a hearing are very expensive and they are better settling the case early to avoid huge expense later.

Where there is a lender in defended cases we will try to persuade the leaseholder to agree to the lender paying arrears and costs.

Only a very small number of cases ever get to this point of hearing in any event, and most are settled prior to hearing.. Our teams are focusing on negotiations prior to trial now more than ever, with a view to securing early settlement of arrears.

Central government approach to Managing service charge challenges

Through our status as ARMA partners, Brady Solicitors are aware of the ongoing discussions with ARMA and central government. Dr Nigel Glen reported* that the Government understand the nature of service charge and the importance to maintain building management and there does seem to increasing consideration for service of demands, and other notices by email rather than post.

One challenge to this is that the variety of Acts and legal instruments that the obligations relating to notice are spread over do not permit a simple one step change.

We will keep you posted on this but for those property managers who wish to read the detail on service demands obligation you can see our blog here.

Whether it’s sensitive recovery of service charge arrears or even some ideas on how demands out electronically, we are here to help – please don’t hesitate to get in touch.

*Dr Nigel Glen comments on the May ARMA Partner Update.