The Enterprise and Regulatory Reform Act 2013
By Colin Jaque, Partner.
Amongst the provisions of this little known legislation is a requirement for the setting up of Redress Schemes to govern the letting and management of property the provisions for which will be a cause for concern for the public and the profession alike and will have a resounding effect on all those involved in such activities whether on a commercial or voluntary basis.
No doubt such provisions were intended to control rogue individuals offering such services to the general public and to bring a measure of business efficacy to these important tasks, but the provisions of the Act are so wide that they encompass anyone who becomes engaged in the letting of property or property management work and which will include any small block of flats or converted house or an estate of properties which are let either on short or long term lettings.
With the larger estates employment of a professional manager to carry out the tasks of management of the property will be a usual and accepted procedure, and no doubt such professionals will have been advised to register themselves under the terms of the Act. However, where there are only a few leasehold interests involved, invariably it is one of the lessees who takes on the responsibility of carrying out the management simply because the cost of employing a professional manager would increase the service charge to an unacceptable level.
The Act provides that all such individuals who arrange services, repairs, maintenance, improvements or insurance or who deal with any aspect of the management or letting of premises must apply for and become a member of a recognised Redress Scheme “for dealing with complaints” in connection with that work.
It is difficult enough to persuade lessees to take on those responsibilities, but these additional provisions will undoubtedly cause worry and concern to anyone who might be considering offering their services to keep the cost of service charge to a minimum where the work involved is time consuming and tends to attract complaints from one or more of the other lessees or occupiers of properties on the estate.
The new regulations require such individuals to register under an approved Redress Scheme with the intention that anyone whether it be another lessee or an occupier of another property on the estate can make complaints in connection with that work. A failure to comply with that requirement will be sufficient reason for the local authority by formal notice to require the person to pay the authority a monetary penalty the amount of which will normally be £5,000.
An application to join an approved Redress Scheme will involve the individual in providing all information required and complying with conditions intimated by the Administrators of the Redress Scheme as well as leaving himself open to questioning in relation to any aspect of the work he carries out and dealing with any complaints raised in respect of that work.
The individual should also be aware that sanctions can be imposed on the individual to include the imposition of civil penalties and Orders prohibiting a person from engaging in any such work and any breach of the Orders can result in the individual committing a criminal offence. Furthermore the individual could find himself entered onto a list of rogue agents.
There are some limitations on the requirements arising from this legislation, but they are very limited. Where an individual (or company) owns the freehold of the property in which the manager lives, there is the possibility that such registration will not be required, but there is no guarantee that this will be so and much will depend on the circumstances in which this arises. The Act provides for registration where the manager receives instruction to deliver any management services and where the premises consist of or include a dwelling house let under a relevant tenancy.
Another exception arises where an individual carries out work on a temporary basis whilst for example the appointed manager is absent, but there is no indication as to how long that temporary arrangement can exist and anyone accepting that responsibility should be made aware of the risks involved.
The Act describes property management work as “anything done by a person in the course of a business in response to instructions received from another person”. In the case of G Crawford Management Services Limited v London Borough of Tower Hamlets it was argued before the Upper Tribunal that a person occupying a property on an estate was not carrying on “a business” but simply carrying out the work as director on behalf of the management company which also happened to be the freeholder the obligations of that company. However, the Upper Tribunal decided that, in order to constitute “a business”, it was not essential that there should be more than one client or money paid for the services given. The word “business” in this instance “covers almost anything which is an occupation as distinct from a pleasure”.
In a printed explanatory statement issued by the Ministry of the Environment who was responsible for this legislation they intimate that resident management companies which are run by the residents and manage the property on behalf of the residents would be excluded from these regulations as the work is only in respect of the residents own premises and would not be operating “in the normal course of business”. However the note also mentions that “resident management companies are not explicitly excluded from the requirement to register”, although in many cases these are not caught by the legislation.
Their conclusion is that, where the management company owns the freehold of the properties and operates also as a Manager of the block, there is no requirement for the company to join a Redress Scheme because property management work only arises where one person instructs another person to manage the premises and in such a case they are one and the same person. However that situation would change if there is any payment made to the manager or if the manager acts through a separate limited company in an endeavour to protect himself from claims.
Thus it would appear that the only clear exclusions from the requirement to register under an approved Redress Scheme arise where an individual is carrying out management work where he or she is that same individual or company who also owns the freehold of the property or there is an informal arrangement for a very short period of time.
Even so anyone taking on such a responsibility would be wise to check their situation before agreeing to take on and carry out such duties and to be certain that they are fully insured against all possible liabilities that might arise. They should also appreciate that there are serious personal risks involved which should not be taken lightly, particularly as any offences arising under the Act or complaints which are held to be justified could result in the finding that a criminal offence had been committed.
To speak to Colin Jaque about The Enterprise and Regulatory Reform Act 2013 or any associated matter please contact Colin Jaque by email at Colin.Jaque@dwfmbeckman.com or call on 02074088888.