Tenement dwellings - provision of Building Reserve Funds: report

Additional Findings on Application of BRF

Roles and Responsibilities

Public sector and private sector stakeholders raised concerns for implications of any new legislation and who the responsibility to organise and enforce would fall to in practice.

One practicing property lawyer responding the recommendations asked about the BRF asked:

‘Who has the right, or the duty, to set up the fund? Will any sanction apply if the fund is not set up? If the owners’ association is not run by a professional manager/factor, what support will be available to help owners establish their fund? I was not sure what was meant by “underpayment in a Sinking Fund share is carried forward to a subsequent sale” – that the other owners will be able to recoup missing funds from the proceeds of a sale by a non-paying owner? This is legally complex.’

Notably no professionals, with the exception of surveyors, regarded the introduction of BRF as a boost to their own business and income. Instead, they raised extra requirement, extra bureaucracy and extra costs.

Indeed, a public body responding to the Tenement Working Group explained:

‘arrangements for setting up, monitoring and protecting sinking funds require careful consideration as the costs involved may be significant and could be disproportionate to the benefits.’

One Housing Association raised their experience of coordinating repairs within tenements of mixed ownership:

‘If we can't get basic repairs done because people won't contribute it's really hard to see how they will contribute to a reserve fund - for something they don't know what's going to happen.’

Communication

There was consensus amongst all research participants that the reasons for any change in legislation, and the ultimate aims and beneficiaries would have to be communicated well in advance.

There was a feeling amongst professionals that different types of owners were not going to see short-term benefits from any form of sinking fund:

‘Someone selling up might not see any return for their money and that's going to be a huge challenge to get across the benefit of paying into the fund.’ (Housing Association Representative).

The sense of ‘a stitch in time’ was suggested by one professional specialist in historic buildings. And professionals suggested the best advocates for encouraging owners to make long-term provisions for repairs, and to organise regular maintenance were owners themselves. Testaments such as:

‘We get roof repairs done regularly and have an annual inspection because it's much better to have annual inspections with minor repairs than to need a new roof.’ (owner occupier)

Beyond communicating the purpose of any BRF introduction, stakeholders emphasised that all the details would have to be communicated. Firstly, what common areas consist of.

A professional body of finance responded to TWG’s consultation:

‘There should be clarity about the type of works that could be undertaken with sinking funds. In our view, such works should relate to the fabric and main elements of the external envelope, specifically external walls, foundations, roof, common parts including stair windows and rooflights.’

Secondly, communication by professionals on what repair priorities would be, and what they could cost.

The previous consultation by TWG included a response by an umbrella body as follows:

‘We recommend that ballpark costings be a mandatory element of the report. Experience in working on church buildings with quinquennial inspection reports suggests that lay people – those not engaged in the built environment in a professional capacity – find the language of such reports intimidating and difficult to engage with, to the point of taking no action. The terminology of such reports can conjure images of significant works programmes, which, if not costed, can cause considerable anxiety. An inspection report should empower tenement owners to take action through the provision of detailed, accessible and accurate information, and ballpark costs are an essential part of this. Without costs, the report has the potential to become an overly negative harbinger of decay that does not allow tenement owners to plan their repairs appropriately in accordance with their finances.’

Thirdly, communication about any BRF itself. One tenement owner asked during a focus group:

‘on an individual stair basis should there be a cap on how much is required in a sinking fund? Obviously, money will always be required for day-to-day expenses such as cleaning, garden maintenance, small repairs, but how much should there be sitting in a sinking fund and for how long? For example, in our stair we would hope not to have any big expenses for another 5+ years so how much should we accrue?’

Phasing

There was no consensus on whether a BRF should be introduced as a blanket measure or phased. Our interview questions tried to probe further into this consideration.

It was pointed out that for modern development:

• Warranties are usually in place for new builds, of up to ten years to cover structural problems.^[52]
• Depending on build quality, these will likely need repairs over long-term.
• These usually have factors in place and requirements such as common buildings insurance.
• Floats and maintenance funds in place.

Indeed, grey literature from the Tenement Working Group found for 'modern title deeds' just over 10% of title deeds for the developments sampled, made provision for contributions into a non-repayable sinking fund although almost 60% included a provision that when a house was bought, a one-off contribution was made into a float.

A consultation response to TWG contained:

‘if the planning laws were amended to force developers to have a compulsory sinking fund written into the title deeds and if they contributed, e.g. Half a percentage point of the sales price to each property to prime the maintenance account the proposal might have a chance of working as the monthly owners’ contribution would be lower. There should be no, or few, withdrawals from the fund for many years, giving time for the fund to accumulate enough for major works such as roof replacement. People buying these homes would be made aware of this condition of ownership from day one and it would be their choice as to buying or not.’

A professional group of housing associations responded to TWG that:

‘On the assumption that there is a general consensus that the three interim recommendations do indeed represent best practice they should be made mandatory for all new flatted developments with common repairing obligations. This would serve to demonstrate the effectiveness of the approach and ensure that newer buildings in common and shared ownership are properly maintained in the longer term. The legislation should include a mechanism for existing properties to migrate to the revised arrangements with the collective agreement of owners; Owners should be encouraged to move to the new arrangements by demonstrating the advantages of the approach both in terms of improved maintenance of their home and the impact this will have on its value and saleability.’

One local authority employee who has been paying attention to the work of the Tenement Working group and discussing it within their networks explained during our interview:

‘I had it in my mind that BRF would be at the purchase phase. But I hadn’t thought about what we do about everyone that’s already in a tenement. That’s a huge undertaking. But it is necessary I think given the amount of tenements in Scotland and their current levels of repair’.

Timing of Introduction

A formal response from another local authority to the Tenement Working Group consultation reflected:

‘Experience from the Republic of Ireland suggests that this can be done successfully in new build developments, however enforcement in a complex existing title in an older property is another proposition altogether.’

In our discussions, the point of sale was seen as the main opportunity for:

• Explaining responsibilities,
• Sharing repair and maintenance needs of building,
• Introducing fee,
• Requiring start of payments into an BRF,
• Raising taxes.

A public body responding to the TWG consultation explained: ‘The transition into such a scheme will need careful consideration. Homeowners may have budgeted for outgoings in relation to their property which is unlikely to have included payment towards a sinking fund.’

Incentives

During our primary research nobody advanced specific incentives that could encourage owners to pay into a BRF. However, a few general ideas were suggested on ways to encourage maintenance and repairs. These included ‘tax breaks’, ‘grants’, ‘no interest loans’. No specifics were shared on how this could be achieved, especially in the context of recovery from the Covid-19 pandemic.

A body of Housing Officers explained:

‘What is needed is a longer term approach to embedding a more engaged and active maintenance culture amongst flat owners, one that puts a cash value and a marketing advantage on effective maintenance arrangements within a block and provides a clear incentive to owners to agree to participate fully in such arrangements.’