Do it yourself Self-management: The experience at Bankside Lofts

March 1, 2006
by News on the Block Editorial Team

Do it yourselfSelf-management: the experience at Bankside Lofts     

Why did the directors at Bankside Lofts Management go down the self-management path? What has been the experience of self-management so far? Will they stick with it? Can directors of other RMCs draw lessons from Bankside Lofts’ experience? By James Thomson

The directors of Bankside Lofts Management Limited terminated the contract with their property managers in mid-2004 and went self-managed from the end of September that year.

Reactions were mixed and varied from the sympathetic “That’s brave” to the less encouraging “You’re mad – I hope you have thought about the potential liabilities you are letting yourself in for?”

What sort of property is Bankside Lofts like to manage?

Developed by Manhattan Loft Corporation and designed by Piers Gough of CZWG, Bankside Lofts (above) comprises 129 flats and 120 car parking spaces in front of Tate Modern’s main western entrance.    Built in 3 phases between 1995 and 1998, the block is a combination of converted and new buildings with retail and office units at ground level. The residents benefit from a head porter during the week and additional 24 x 7 security manning is provided by The Corps of Commissionaires. 

Two factors have had a particular impact on the management of Bankside Lofts during its first 10 years. 90% of the flats were sold as shells, leaving the original purchasers to employ their own architect to design and fit them out; as a result the layout of no two flats is the same, which sometimes makes the managing of water leaks, for example, challenging.   And the block was built under a design-and-build contract resulting sometimes in poor documentation when trying to resolve building problems.

Evolution of management at Bankside Lofts

When the last flat was sold in 1999, control of the RMC transferred automatically to leaseholders. However the RMC was facing a cash crisis because service charges had been higher than the sales agents’ estimates and, in the absence of answers to their questions, leaseholders held back payment.

Working with the property managers but also with their own professional advisers, the directors put in place a number of cost-cutting measures. They renegotiated the basis of commercial service charge apportionment, negotiated a contribution from the freeholder and communicated all these issues to leaseholders, explaining why withholding service charges was not a good way to resolve their concerns. 

One consequence of the successful turnaround of the RMC finances was that the directors got used to taking a very hands on approach. They authorised payment of the monthly cheque run; involved themselves in the arrears collection process; wrote scoping documents for refurbishment projects; and prided themselves on identifying building faults their surveyor may have missed. 

The RMC directors became increasingly dissatisfied with the performance of the existing manager. They were less frequently on site. Leaseholders reported slower response times. A new contract was discussed but never finalised.   At the same time, the property managers themselves become frustrated at the level of detailed information requested by the directors. They felt disempowered and demotivated.   

The RMC directors were keen to move away from the existing property managers. But they were held back by concerns about the work involved, especially educating the new managers about the historic building and management issues at Bankside Lofts.   And there was somebody available to take on the property manager’s role.

  For leaseholders, self-management held out the prospect of:

  • A manager whose motivation was more directly aligned with leaseholders;
  • Better communication;
  • Faster response times;
  • Greater transparency for those leaseholders who wanted it.

In short, leaseholders would be able to sleep easy at night.   The expectations gap

This then had been the history and thinking which led the directors to leave their property managers. But at a deeper level, discussions with those property managers about a new contract had revealed a serious expectations gap between client and manager. This may be instructive to other RMCs unhappy with their managers.

For most owners at Bankside Lofts their flat is a major investment and for many it is their single largest asset. For the RMC directors property management meant:

  • high level strategic advice to the board;
  • management of all maintenance, staff and service contracts;
  • troubleshooting building problems and managing their resolution with the block’s building surveyor;
  • policing the lease, ensuring that approvals were obtained by leaseholders where required and contributing to enforcement of the nuisance provisions of the lease;
  • a private client service communicating with and dealing with enquiries from leaseholders.

 

This is the service the RMC board thought they were paying for. But the property managers knew that the fees they were receiving of approximately £210 per unit would provide little more than a basic administrative service.

This expectations gap only became apparent when the account director tabled his staffing and cost analysis for the Bankside Lofts contract Of his costs per unit of £250 (20% higher than the existing fee) 35% were attributed to bookkeeping and banking, 7 1/2% for preparing the budget and a further 10% for servicing 4 board meetings each year. I calculate that an average of 1 hour per leaseholder each year spent dealing with leaseholder enquiries would absorb another 12% leaving just 35% of the fee or £75 per unit each year to “manage” the property.   This equated to 3 man hours per week which, based on my experience at Bankside Lofts, is inadequate.

The on-site advantage 

In getting to grips with some of the management of the block, it has been a great advantage to live in and be familiar with the block. A couple of examples illustrate this.

When taking over the maintenance contracts, it became apparent that we would need to:

  • set up some contracts from scratch which either had not existed or had been allowed to lapse;
  • establish what equipment was covered by each contract to ensure that it was all maintained –much of the equipment in the third and last phase of the development, for example, had never been added to the schedules at all;
  • introduce the day-to-day maintenance routines necessary to support the quarterly and half-yearly maintenance visits; either these had never existed or they had fallen into disuse.

It also emerged early on that there was a state of near-anarchy in the block with regard to building alterations and under-lettings, both of which require licences under the Bankside Lofts lease. We have found it helpful that the manager lives in the block, is quickly made aware by the porter of leaseholders’ plans and can remind them of their obligations and help them to comply.

Will Bankside Lofts continue with self-management?

It is too early to say.   We substantially under-estimated the work involved to bring management in-house, especially since we were learning on the job and setting up new systems. However, if the management of Bankside Lofts is in future once again outsourced, the RMC directors and manager will be able to go out to tender with a high level of knowledge of what is required from the property managers.

What skills are needed to self-manage your block?

The key requirement is to have a suitable person available to take on the role on a full or part-time basis. However the directors and the proposed manager also need to address the raft of regulation covering residential block management. 

 

n Legal: you will need a basic understanding of property law, land registration and conveyancing procedures. Unless your are a property lawyer, you will need to take legal advice in the specific areas of assignment, pre-contract enquiries, notices of assignment and the concepts of nuisance and quiet enjoyment between leaseholders,   If you employ your porter or use contract staff, you will need some basic understanding of the principles of employment law including TUPE.

  • Company Secretarial: your RMC is almost certainly a limited company with individual leaseholders as its shareholders and subject to all the requirements of the Companies Acts. Apart from the submitting the usual Companies House returns, you will need to run the share register and issue new shares when flats are assigned.
  • Banking: service charge accounts are trust moneys and bank accounts need to be run with this in mind. Funds are collected in advance and held on a trust basis in bank accounts designated as such to meet expenditure. Some understanding and, ideally, experience of collecting debtors in a professional practice, business or banking will also be necessary.
  • Insurance: You should discuss with your insurance brokers the regulatory requirements of the Financial Services Authority as they apply to property managers.
  • Health & Safety: An RMC board already has statutory responsibilities in this area but normally relies on the property manager to advise. Once the principles are understood, they can largely be managed in-house. But again, appoint a professional to help you with risk assessments, setting up the systems and reviewing your procedures from time to time.

There are also some very practical matters. Unless you have an assistant who can do it, you will need to be familiar with spread sheets and e-mail and most important, able to master the intricacies of mail merge. 

Tips for those considering managing their block themselves

So if you are comfortable with the regulatory framework and have decided to take on the management what else should you bear in mind?

 

  1. Make sure that you have a board with as much relevant knowledge, or at least good contacts, as possible. Without one it will be a very lonely job best left to the professionals.
  2. Insist on a chairman, even if the role rotates every year. You need this to ensure a clear distinction between matters of policy and matters of execution.
  3. Consider appointing a director to oversee compliance with the raft of regulation applicable to the sector and to act as a back-up diary for key deadlines such as s20b and s166 notices.
  4. Make sure that you have your professional advisers on side. Accountants, lawyers, building surveyors will need to be supportive of your initiative and find extra time to help educate and support you on property management matters – which they will of course charge for;
  5. Communicate what you are doing and why to leaseholders. You need and will be given a honeymoon period – but never forget that it will come to an end. Be prepared for that.
  6. Don’t bother with an extended handover period unless the lease demands it. You may think you are being helpful but the manager you are replacing will feel hurt or disinterested or both whatever happens. Spend money instead on getting professional support to set up your systems.
  7. Make sure that you know about the building you are taking on. If you do not have a full set of plans, health and safety files and established maintenance programmes, insist that the RMC directors hire a building services engineer to help ensure that you do.
  8. Don’t undervalue Health & Safety. Ensure that one of the directors joins in and is prepared to take responsibility as the “responsible person”.
  9. Talk to the broker for your Directors& Officers insurance about what you and the directors are planning. Also talk to your solicitor about the risks the directors and you may be taking on with no conventional capital cushion in the company.
  10. Get some secretarial or administrative support or, if you cannot, consider whether there are some tasks such as the service charge apportionment and invoicing which should be checked by one of the directors. The bookkeeping and administration for blocks of flats involves a lot of detail and four eyes are better than two if mistakes are to be avoided.
  11. Invest as much as you can afford in computer memory, a powerful sheet-fed scanner, a laser-printer and a shredder.
  12. Assume it will take 2 to 3 times as long to get the management running smoothly than you imagine.
  13. Plan your retreat in case it doesn’t work out.

So is self-management a good idea?

The extent of regulation, the absence of a conventional capital structure to cover risk and the lack of economies of scale mean that except for the smallest blocks self-management should not be a good option.

But the experience at Bankside Lofts suggests that, until ARMA members and professional property managers can ensure that they compare with an in-house manager in terms of local knowledge and service standards, there is still a place for self-management. 

 

James Thomson is property manager at Bankside Lofts opposite Tate Modern in London. Formerly a banker in the city he was a director of the RMC before taking on the day-to-day management.

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