Taking extra precaution

As companies slash maintenance budgets FMs are at a higher risk of claims – so it’s crucial to keep records, monitor performance and ensure that lines of responsibility are clear.

by Alexandra Anderson

17 June 2010

 

In the current economic climate, the main focus for claims against surveyors is on valuation work. However, surveyors who undertake property management may be just as at risk to claims, as on the one hand landlords are forced to cut capital expenditure, requiring property managers to maintain buildings on substantially reduced budgets, while on the other, tenants try to find ways to avoid paying rent and service charges.

The tragic case of Katarzyna Woja, killed when the lift cable at Broadgate Health Club snapped, exemplifies how important it is to ensure that the plant for any premises is fully maintained. But as the recession deepens, and commercial enterprises are forced to cut their capital expenditure (the recent announcement from M&S that it will be slashing its budget from £652m to £400m over the next year is a typical example of how commercial businesses are reacting to the downturn), it will become even harder for surveyors employed to manage properties to ensure that buildings continue to run safely and smoothly.

Health and safety
Of course, the focus for expenditure will always be on ensuring that the premises are safe for use by tenants and their visitors. Any failure to ensure safety could expose not just the landlord but also the managing agent to prosecution. For example, section 36 of the Health and Safety at Work Act provides that, where the commission by a landlord of an offence under any relevant statutory provisions is due to the act or default of some other person, such as their managing agent, that person shall be guilty of the same offence, and may be charged with and convicted of the same offence, whether or not proceedings are taken against the landlord. For extreme cases, conviction can bring with it a prison sentence, and therefore the need to focus expenditure on ensuring health and safety measures are met in full is obvious.

What about the maintenance of plant and services that are not necessary for health and safety but are nevertheless important for the tenant’s comfort and enjoyment of the premises? Shutting down lifts will prevent accidents but will also prevent tenants from having easy access to and around the premises.

Cutting back on the maintenance of air conditioning plant may not have health and safety implications (although it can) but tenants are not going to be happy if the premises are consistently too hot or too cold. And as tenants also face the financial pressures of the recession, they can use any problems with the premises to argue that, in failing to maintain the services, the landlord is in breach of the terms of the lease, in order to seek rent rebates or discounts on service charges.

Check the lease
There is already an increase in tenants using this type of argument against landlords, relying on the case of Clarke & Others v Lloyds TSB Bank plc [2002] EWHC 1025 (TCC), in which a court found that the tenants were entitled to a 33 per cent discount on the rent paid for the entire period during which the air conditioning in their office building was defective. A tenant who has paid an annual rent of £1m over three years could therefore be looking to recover £1m if they can show that the building has not been fit for use, or that the services provided fall short of the level they are entitled to expect, for a prolonged period of the lease.

Claims and complaints

So what should a managing agent do in the event that a tenant makes allegations that the premises have not been properly maintained, in order to withhold rent or service charge payments?
The first step to take is to check the lease, for two reasons. First, it will usually provide that the tenant cannot offset any claims against rent, which means that the landlord or managing agent can secure full payment from the tenant and then argue about any problems with service separately.
Second, the lease will show who is responsible for maintaining what parts of the building and it may be that maintenance of the part of the premises or the services about which the tenant complains is actually the tenant’s responsibility.

Final steps
The second step is to ensure that any recommendations for maintenance are properly documented and discussed with the landlord, and, where applicable, the tenant. Finally, the agent should ensure that any performance failures are addressed immediately. If a maintenance contractor is not performing properly, it is important to ensure that they are replaced immediately, so that the agent is not exposed to a liability due to the contractor’s failure to undertake proper maintenance. Following these three steps should help minimise the risk of a claim relating to the management of a property.

In brief: Claim risks
• As landlords cut back on capital expenditure, property/facilities managers are at risk of claims
• Any maintenance failures may give rise not just to claims but also to the risk of prosecutions, if the health and safety of people using the building is affected
• To protect against the risk of claims, property managers should:
» Check the lease, to see who is responsible for specific maintenance
» Keep full records of any complaints, and all steps taken to address those complaints
» Address any underperformance by contractors without delay

Alexandra Anderson is a partner with law firm Reynolds Porter Chamberlain