Tenement dwellings - provision of Building Reserve Funds: report

Number of tenements that currently have and do not have BRF arrangements (1)

At all stages of research, we attempted to elicit the proportion of tenements with or without BRFs, or with any other arrangements in place akin to BRF. We found that Owner’s Associations were incredibly rare:

• Only 8% of the public have an owners’ association or owners’ group. This varies widely across Scotland (see figure 6.1)
• Only 2% of those who do not have an owners’ association or group have considered creating one.

Base: All (2,134)

The literature and anecdotal evidence suggests that BRFs are very rare and confined to areas such as Glasgow’s West End where flat values are comparatively high.^[34] We would caution against transferring learning from the exception of cases to be applicable to all tenements.

Tenements with functioning sinking fund arrangements are less likely to get in touch with local authorities for support, however one local authority staff member explained:

‘We have around 1200 contacts every month from customers, many are looking for advice and guidance about how to progress common repairs in their tenement. We rarely come across flat owners that have a Building Reserve Fund for long term repairs. Many Customers do have joint maintenance accounts for reactive repairs (as required by the Tenement (Scotland) Act 2004) and occasionally they tell us that they build up funds for future repairs…In our experience owners indicate small repairs & maintenance are carried out, example - the upkeep of gardens or common areas or redecoration in the common stair. But we rarely hear of owners carrying out annual roof checks or regular gutter cleaning etc.’

Our research including factors, emphasised how professional factoring can incorporate client accounts and pooled funds for repairs and maintenance. A factoring professional responding to TWG’s earlier consultation wrote:

‘the way most factoring firms are set up it is more reactive than proactive for example most will have a tiny percentage of developments with sinking funds in place at around 5-10% To make things more proactive takes money and more responsibility on behalf of the factor.’

Overall, it is important to consider:

• Learning from existing BRFs would be limited from rare cases, with relatively affluent owners.
• There are existing arrangements in place to pool money for repair and maintenance that are not officially BRFs.

Where there is a BRF, how are the monthly/ yearly amounts calculated? (6)

For this research question we looked to examine how contributions to maintenance and repairs were organised.

In our public focus groups, we found:

• Mixed experience from those contributing to pots through factors,
• Owner occupiers and landlords feeling it is not always clear in factoring charges what is going towards repair/ maintenance/ something else,
• Positive experiences of Housing Associations acting as factors being clear on how rents went towards scheduled works.

‘I used to rent privately and it doesn’t compare- space, cost and maintenance levels are all much better through the housing.’ (RSL tenant)

Speaking to stakeholder, professional surveys were seen as the only way to understand what outstanding repairs were needed, and to give a basis for costs. Housing Associations in particular, explained they needed the surveys to then work out what prioritisations were to be for different buildings and estates. In their case they had to balance the needs of maintenance and repair with the available funds coming in through tenant rents. Housing Associations explained that it was always much harder to coordinate and plan repair and maintenance for tenements where they did not have full or majority ownership.

An earlier Local Authority response to TWG’s consultation explained:

‘Making 5 yearly inspection results publicly available is, on balance, desirable. However, there exists a risk of certain buildings becoming ‘untouchable’ due to backlog maintenance. Alternatively, there is a risk of the unscrupulous buying into the building with the intention of demolition and redevelopment, irrespective of the wishes of existing owners. It may also trap some owners in negative equity, particularly in the early years of any scheme, where inspections will identify the need for maintenance or repairs of which they were not aware when purchasing the property a relatively short time before.’

Therefore, our primary research on contributions to maintenance and repair found these:

• are calculated differently by different property managers;
• are communicated differently- in different levels of detail and jargon; and
• are not always fully understood by tenants based upon the above.

Investigate whether factoring fees include contributions to BRF (9) and whether owners who currently pay into a BRF had it been explained to them how their contribution has been calculated (7)

Speaking with factors, they emphasised that factors provide repair and maintenance as a core service already. There were a lot of compliments from the broader professional sector towards professional factors for their services and a perception that factoring arrangements prevented even higher levels of building disrepair in Scotland. A local authority staff member shared their opinion:

‘Ultimately, we would love for more factoring in our area. For people to know what they are contributing every month and what it is going towards. And you know that work is carried out and your fees will cover it. I think good factoring can really help address repair and maintenance in a way that people can afford. So as long as people know when they buy somewhere it has a factor, and then what the factor does and plans is shared with them, it can make a huge difference.’

One factor explained:

“There has been a deterioration of property condition and one of the main issues is the lack of factoring. If you don't have a factor there is no one there to organise the repairs, unless you have really proactive owners. The role of factoring has to in some way be made mandatory unless you can demonstrate you are able to self-factor.”

Factors shared that they used a combination of floats and maintenance accounts as set out under the Tenement Management Scheme.^[35] Although requested, we were not provided with any breakdowns of how fees contribute to maintenance and repair. We did gain some examples through public focus groups:

“My factor fee is roughly £1,000 per year and that includes a sinking fund, building insurance, cleaning, maintenance of the garden and a parking space. Each bill has a breakdown of how much money goes to each item, however I don’t know how this is calculated and it varies each quarter.” (owner occupier)

“£70 in each quarter and there are 180 flats in this estate which are factored.” (owner occupier who pays sinking fund through a factor)

Similarly, to requests for contribution amounts, we were unable to obtain the logic for any exact amounts from factors. However, it should be noted that these will vary.

Within our focus groups with tenement owners, concerns were raised by those already paying factoring fees that a BRF could be another regular outlay on top of this, potentially covering the same type of work:

‘I think we already put aside money per quarter for a rolling scheme of works- does that cover it?’ (owner occupier)

Participants did connect the need to raise, hold and spend funds to extra resource. One landlord suggested: "If you're going to make the fund mandatory you might as well go the whole hog and have factors."

Reasons which prevent owners paying into a BRF, including cost, coverage, attitudes, absent landlords (5)

Earlier, the report (see Section 5) listed reasons given at an individual, community and societal level why tenement owners do not put provisions in place. In addition to these we uncovered more barriers relating to arranging maintenance and repairs of various cost.

A major blockage for repairs and improvements was identified as gaining approval from a majority of owners. Our research included speaking directly to two Local Authority employees involved in missing shares schemes. One explained:

‘quite often people can’t get a majority, so we can’t help them, it’s really difficult for them…Missing shares can work really well, but only when there is a majority. And say if you have six different owners, you might not get it. And within missing shares you need a lead owner, and that might put people off, because they have to do more’.

One owner responded to the TWG’s consultation with their take on disagreements concerning their tenement block:

‘Most of the problem in our tenement was that there were 13 flats. Only three owners were occupiers, and it proved impossible to get everyone to listen to me and one of the other owners who knew that these works were un-necessary. This bully boy pushed through all the works to the building, telling everyone how much more valuable the properties would become once the works were finished, and issuing warnings about not doing the work. We all ended up with bills for tens of thousands of pounds for shoddy, bad workmanship. To this day, slates fall off the roof - this never happened before.’

Especially when large amounts of money are involved, this can create tensions between owners. Indeed, a lack of one contribution can have consequences for the rest of the owners. Glasgow Factoring Commission’s report previously explained,

‘the problem of individuals who refuse to pay their fair share of reasonable common repairs, charges and insurance premiums is significant. This is perhaps the biggest single threat to the stability of the factoring and property maintenance systems across all of the factored stock categories. and property management.’^[36]

Earlier, a consultation response to the Tenement Working Group by a landlord pointed out the changing nature of collective discussion and decision making:

‘The days of majority owner-occupier are long gone, yet the Tenement Act and Missing Share provision is based around “stair meetings”, notices and minutes. In my experience, the majority of communication is via group e-mail, co-ordinated by one of the owners.’

In our discussion groups, an employee of a Local Authority administering a Missing Shares scheme reflected:

‘the difficulty with any joint accounts comes when some owners refuse to make a regular contribution or miss a payment – this then becomes a contentious issue as there is no way of forcing payments.’

Therefore, learnings can be taken from the current situation which are relevant for implementation of BRFs:

• Heightened tension when money involved, people are striving for ‘fairness’.
• There are instances of owners withholding contributions on the basis of costs being too high, or perceived to be for non-quality work.
• Owners not contributing to repairs and maintenance regarded as a large issue.
• Missing shares schemes already a large undertaking for Local Authorities.

Where BRFs in place, investigate occasions where maintenance or major construction work has been required, how the work was undertaken and whether through legal enforcement (8)

In the course of our research, we did not uncover any instances of tenements with BRFs in place but requiring legal enforcement. No Local Authority we spoke to could think of any examples where this has been the case. However, we reiterate that BRF arrangements are very rare, they are non-mandatory so only adopted by particularly pro-active owners.

Speaking to the public, owners reflected any smooth arrangements for maintenance and repair were down to:

• Pro-active owners.
• Tenement blocks with long established tenure, where neighbours knew each other well.
• Owners with relatively high savings/ the ability to pay towards new repairs,
• A lot of time to ensure agreement and organise contractors.
• In some cases, a factor in place, utilising floats for maintenance and repair works.

One owner explained: ‘There are no long-term works that are going a miss. The factor undertakes regular maintenance within the estate which prevents large repairs being necessary.’

Capture the concerns of those already contributing to a BRF about potential scenarios (10)

As we did not speak to owners with BRFs in place we were unable to capture any of their concerns. However, speaking with owners with less formal repair and maintenance arrangements, or charges through factors or Registered Social Landlords we did gain helpful insight on their concerns:

• Financial management- where are the funds held and who is responsible.
• Unequal burden- feeling that people who are most active may be more open to risk.
• Level of costs- uncertainty on level or regular contribution through a BRF, with recognition that this might be preferable to larger, surprise costs should a major repair be unforeseen.
• Complication- desire that any extra mandatory commitment should make things easier for owners and not introduce more bureaucracy, time and effort.
• Assistance- desire for help from Local Authorities, but understanding that post-pandemic they would not have resources in place to provide hands-on-help or grants.
• Quality of work- owners pointed out that building up a fund would not ensure automatically that the money was spent well.

Indeed, the Traditional Building Health Check in Stirling found that there were ‘significant levels of accelerated and hidden disrepair from poor quality or inappropriate interventions.’ There was an appetite for a list of reputable contractors for traditional buildings.^[37] Therefore, there is also the need for any work to be funded through a BRF to be of a high standard, and not to intensify disrepair.

In addition, stakeholders explained many potential scenarios surrounding a BRF. Importantly, there was overall support for the mandatory introduction of BRFs. However, there were many practical concerns and highlighting of the proposal’s pitfalls. In the next section of this report, we move to how BRFs could be implemented. This draws heavily on potential practical issues raised in qualitative research, and suggestions for overcoming these.

Reception of the public was seen as a large barrier to mandatory introduction. Professionals perceived that the general public would see BRFs as a form of fee, or even tax on property ownership. This coming at a time when disposable incomes, and savings may be depleted because of the pandemic.

In addition, the need not to penalise owners who had existing arrangements in place was previous raised by a property management firm responding to TWG’s consultation:

‘Where the equivalent of a sinking fund is already provided for through, for example, service charges in property management contracts, we trust that appropriate protections will be put in place to prevent owners being overcharged.’

Indeed, one owner explained to us:

‘we've recently paid £20,000 to re-roof the building for the first time in over 100 years. If I was required to pay in the same amount as those owners in neighbouring buildings who have not been so proactive about ongoing maintenance in recent years then I would feel that I'm being penalised financially for being proactive about the maintenance of our building. I'd therefore like to see the amount owners are required to pay into a sinking fund being assessed based on the state of repair of the building.’

A landlord responding to TWG’s recommendations pointed out earlier:

‘I do support the efforts being made to move the onus for the property maintenance back to owners. but it must be done is a way that does not push all the costs onto the few owners who already pay for more than their share to cover the owners who don’t pay at all.’

Stakeholders, even those very invested in the built environment, were mainly concerned with the effects on people, over and above the implications for buildings. People were very sensitive to the needs and perceptions of tenement owners to any new regulations. One interviewee explained: ‘The purpose has got to be explained and the reasoning behind it is crucial. There has to be a concerted effort to highlight the benefits of this.’