Residential Property Management Insurance Repairs and Dilapidations

Insurances you should consider getting professional indemnity insurance (PII): to cover you against a compensation claim if you have made a mistake or are negligent (see section ); public liability insurance: to cover your legal liability to pay damages to a third party if someone suffers injury, illness, disease or loss or damage to his or her property as a result of your business activities;

PI INSURANCE It is based on an ‘each and every’ claim basis. The policy wording is written on a full civil liability basis. It is fully retroactive. It is satisfactorily underwritten (you should discuss this with your broker). It includes cover for past and present partners, directors, members and employees. This protects those who leave the firm, as well as your firm, for the work that has been carried out in its name. It includes run-off cover. To ensure that you are not exposed if you or your company ceases to trade, a run-off cover for an absolute minimum of six years is recommended.

Insurances you should consider getting business interruption insurance: to cover your loss of income if damage occurs to your office that stops you from trading; legal expenses: to cover legal fees and court costs if legal action is taken against your business; motor insurance: to cover any cars used for business; and cover for clients’ money (this could be part of your PII cover).

Insurances you should consider getting; employer’s liability insurance: to cover your legal liability to pay damages if an employee suffers injury, illness or disease because of work (this is a legal requirement); buildings, contents, fixtures and fittings insurance: to protect against a range of incidents, such as fire, theft, flood, storm, explosion and malicious damage;

REPAIRS etc -Definitions ‘Dilapidations’ refers to a state of disrepair of a property for which there is a legal liability to remedy the disrepair. “repairs” – more individual minor items which require attention. Less formal route

Liability for repair Liability for repair may fall on the tenant or the landlord. The lease will set out the terms of the contract between the landlord and the tenant, but there are other documents that may vary or change the terms of the original contract.

Responsibility - Repairs Unless tenant has a fixed term of >7 years under Landlord and Tenant Act 1985 LL responsible for Structure and exterior Basins; sinks and sanitary installations Heating and hot water installations Otherwise according to terms of tenancy agreement

Responsibilities Landlord not generally responsible for repairs arising from damage caused by the tenant But may be for installations owned by them but not in actual premise And for repairs that affect the flat but again are from another part of the building to which LL can get access and owns (typically roof leaks!)

Tenant’s obligations Use property in responsible way Take proper care of it Should not damage the property Only to carry out repairs if terms of tenancy agreement require it Implied term in tenancy agreement under Rent Act 1977 and Housing Act 1988 to allow LL access for repairs

Legislation Leasehold Property (Repairs) Act 1938 Law of Property Act 1925 Landlord and Tenant Act 1927 Landlord and Tenant Act 1985 Landlord and Tenant Act 1987 Service Charges (consultation requirements) regulations 2003 and 2004

Landlord’s duty of care – such care as is reasonable to all persons who might reasonably be expected to be affected by defects Reasonably safe from personal injury or from damage to their property Property manager also has this duty of care

“Reasonable care” and “reasonably safe” Appropriate insurances and renewed Notify tenants how and to whom repairs should be reported Established procedure for dealing with them Deal promptly with them Comply with inspection procedures under terms of lease – probably contains provisions for emergency inspections

Consult tenants before commencement No undue inconvenience Reasonable minimum standard Cost effective - ? replace or repair Arrange cyclical maintenance wherever possible Consultation on long term agreements required Consider “quiet enjoyment” entitlement of tenants Health and Safety considerations

Dilapidations Probably the most common dilapidations situation is where: a lease has ended or is close to ending; and the property has been, or it is anticipated that it will be, left in a condition below covenanted condition.

Necessary components for a claim to succeed A lease A piece of property A state of disrepair for which one party has accepted a legal liability and as a result of which the other party has suffered or will suffer financial loss.

Law of Property Act 1925 Section 146 sets out the conditions that a landlord has to comply with if he is to regain possession of his property. The landlord must serve a notice upon the tenant which specifies the breach and advises the tenant how the breach is to be remedied. The landlord is only able to re-enter or regain possession through forfeiture if the tenant fails to remedy the breach and pay compensation within a reasonable time.

Law of Property Act 1925 Section 147 entitles the tenant to apply to the court to seek relief from carrying out internal decoration, unless the lease stipulated that this work had to be undertaken in order to put the property into decorative repair at the commencement of the lease. Relief will not be given if the repair is required to put the property in a sanitary condition, or is required for the maintenance of the structure. With these exceptions, relief is usually given by a court. The normal redecoration clause, requiring redecoration periodically, will not exclude the tenant from relief.

Landlord and Tenant Act 1927 Section 18.1 This section states that the maximum damages that can be obtained shall not exceed the amount by which the value of the reversion is reduced as a direct result of the breach. No damages shall be obtained if it is shown that the premises would, at the end or shortly after the end of the lease, have been pulled down. No damages shall be obtained if structural alterations would be carried out shortly after the end of the lease, and these alterations would render valueless the repairs required to remedy the breaches of the lease.

Leasehold Property (Repairs) Act 1938 (as amended by the Landlord and Tenant Act 1954) Section 1 states that where the lease has three years or more to run, the tenant may serve a counter-notice, claiming the relief provided for within this Act. Section 4 states that any notice served under section 146 of the law of Property Act 1925 must contain information about the counter-notice benefits for the tenant, in letters not less in size than those used in the remainder of the notice. Section 5 sets our the requirements that the landlord must meet if he is to succeed with his claim for damages or remedy for a breach of the covenants of the lease where the lease has three or more years to run.

The landlord shall not succeed unless: (a) the breach must be remedied immediately to prevent substantial diminution is the value of the reversion, or that such substantial damage has already occurred. (B) The breach must be remedied immediately because the work is required by a court order, a Public Health notice, Notice under the town Planning Acts or similar enactment or bye-law. (C) The property is in multiple occupation and the immediate remedying of the breach is required in the interests of another part of the premises.

(D) The work required is remedy the breach will become mush more expensive, because of the increase in the extent of the work, caused by delay, and the breach can be remedied for a small cost, by comparison at the moment. (E) the court decides to allow the landlord to succeed because of a special circumstances that might apply to the case. (F) the Act does not apply to a lease which contains a covenant which requires the tenant to put the premises into repair at the commencement of the lease

Rules The notice The landlord must serve a notice upon the tenant which contains: Notice of Breach Remedy sought to discharge the breach. Adequate time reasonably to carry out the necessary repairs. Advise about the availability of relief.

Prevention of claim for damages No damages will be obtained if: (a) the landlord demolishes at, or soon after the end of the lease; or (b) the landlord carries out alterations which would render useless the required remedies for a breach at, or soon after the end of the lease.

Limit to damages Damages cannot exceed the amount by which the value of the reversion has been reduced as a direct result of the disrepair for which the tenant is liable.

Relief available to tenant The tenant may seek relief if the lease has three or more years left to run, provided that: (a) the repairs are not required to put the building into repair under a covenant in the lease, or are required by bye-law or statue, or are required to avoid substantial damage to the value of the reversion; or (b) the work can be remedied at a low cost now against a must higher cost in the future.

Information required to determine liability Certified copy of lease with coloured plans Copies of all licenses Plans of building Copies of schedules of dilaps. and any settlements Schedule of condition Photographs before and after Past notices

Lease terms Demise Repair Decoration Alterations and reinstatement Yielding up Statutory obligations – any notices, order or other statute’s

Repair Put = put building into repair at beginning of lease, usually within specified time Keep = must put it into repair and keep it in repair during lease Leave = leave in repair at end of lease. No obligation to keep in repair during term. But cannot allow it to fall into “wanton destruction”

Defective lease Varied by mutual agreement or Part IV Landlord and Tenant Act 1987 Section 35 allows either party to apply to LVT to vary terms Where >8 leases 75% must agree and no more than 10% disagree Where <9 all but one must consent, plus LVT and Landlord

Notice - important Purpose is to advise tenant of a breach and give him reasonable time to carry out the repairs Not to threaten and necessarily start proceedings! Protect position

Types of notices Repairs notice – minor repairs for which tenant responsible. Served by surveyor. Letter form Interim schedule – by solicitor detailing what required and ensuring justification. Sets out breaches and required remedies. Section 146 notice under Law of Property Act 1925. 3 years or more remain Terminal schedule – served during last 3 years. Tenant can no longer seek relief. Sooner the better. Section 146 notice under Law of Property Act 1925. Remedy sought is repair not damages initially

Final schedule – after end of term Final schedule – after end of term. No longer remedy of repair bit only of money as compensation for landlords loss Schedules record breach; remedy required; cost of carrying out work. No longer section 146 Can be served up to 12 years after end of lease

Remedies Repair carried out Compensation Possession Unlikely to get forfeiture Section 146 can not be served after repairs carried out even if urgent Purpose of notice is to give tenant opportunity of doing work

Procedure RICS CODE OF PRACTICE? ‘Scott’ Schedule

Questions?