Member Article

Avoiding the hidden cost of investing in the apartment boom

INVESTING in apartment developments has become one of the boom growth areas of the past decade.

But leading Sheffield property expert Amy Ryan warns that anybody thinking of becoming a leaseholder should do so with their eyes fully open.

For she is finding that it is increasingly common for major works to be required on a building, but insufficient funds have been dedicated to a reserve fund through service charge collection.

Section 20 of the Landlord & Tenant Act 1985 (as amended by S151 of the Commonhold and Leasehold Reform Act 2002) sets out a statutory consultation procedure to follow when carrying out qualifying works to an apartment building.

Qualifying works are those when the contribution from any one lessee exceeds £250, or a qualifying long-term agreement where the contribution from any one lessee exceeds £100 within one service charge year.

“This is an important piece of legislation that actually means vital maintenance works can be carried out, which is good for both landlords and tenants, but the main purpose of the process is for transparency of costs rather than funding the works,” said Amy, Operations Director with Sheffield’s Omnia Property Group.

“If a building has been successfully managed historically, there will be sufficient monies within a reserve fund that can be dedicated to major works, rather than monies being demanded from often unsuspecting leaseholders.”

“If you think about any property, from your own home to a commercial site, there will eventually be a need for maintenance and repairs to be carried out - and that applies to apartment blocks too.

Michael Harrison, Senior Property Manager for Omnia Property Group, added: “What Section 20 gives property management companies like Omnia is the structure to carry out vital works such as roof and balcony replacements, rendering and pointing, cladding replacement, lighting renewals and upgrades, fire alarm upgrades and even car park resurfacing.

“These are all areas of importance if any property is to maintain health and safety standards as well as value, but they are areas that too often people who are purchasing apartments do not think about soon enough - and that’s when cost can become a problem.

The way that a successful property management company will handle the issue, he said, was by maintaining a reserve fund that apartment lessees have to subscribe to as part of service charge collection, helping spread the cost of major works.

Michael added that the process of implementing essential works could be a lengthy one, with the Section 20 legislation in place to provide a minimum two stage format that protects property lessees’ rights.

“Anybody thinking of buying into an apartment complex really should look very carefully at the provision and cost of a Reserve Fund,” Michael explained.

“It is the only viable way to ensure that when maintenance works are carried out you are not left facing a crippling bill.”

This was posted in Bdaily's Members' News section by John Highfield .