Owner trying to sell his property which has a Final EDMO

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First, and as a matter of urgency,apply for a restriction to be placed on the property. (if not done already) See the Housing Act 2004, Schedule 7 Para 10 (9) and (10). The amount, releveant expenditure less any rental income received. Your LA has the right to possession, see Sched 7 para 5. 

A Final EDMO is registerable as a local land charge (make sure it is registered)

The LA does have the ability to register a restriction at the Land Registry, but all this does is prevent an interest being created (ie lease), this does very little other than to put potential purchasers on notice that the LA is involved in the property. It does not prevent the owner from selling the property

While you cannot prevent the client from selling their property, if they do sell it and the FEDMO is a local land charge, then it should be binding on any subsequent owner.

Consequently, anyone buying a property through a Solicitor (reasonable due diligence - local land charges search), will be appraised that a Final EDMO is in place. Even if they do not do a search a local land charge is binding as they will have had constructive notice whether they did the search or not.

I would expect a competent Solicitor to advise the purchaser not to proceed unless the FEDMO has been resolved and the local land charge has been removed. As the liability will run with the land.

In addition, you are unlikely to achieve best market value without achieving vacant possession.

The risk is that the owner sells the property privately and not through a Solicitor. Generally, to an uninformed party or via auction. In such cases the new owner may not be fully aware of the implications of buying the property.

In relation to revoking the FEDMO -  Schedule 7 Housing Act 2004 (16) – the Local Authority may revoke

16 (1) The local housing authority may revoke a final EDMO in the following cases

(a) where the authority conclude that there are no steps which they could appropriately take as mentioned in section 137(4)(b) or that keeping the order in force is not necessary as mentioned in section 137(4)(c);

(b) where the authority are satisfied that—

(i) the dwelling will either become or continue to be occupied, despite the order being revoked, or

(ii) that the dwelling is to be sold;

……………………………….

In addition, (5) Where a relevant person applies to the authority for the revocation of an order under this paragraph, the authority may refuse to revoke the order unless the relevant proprietor (or some other person) agrees to pay to the authority any deficit such as is mentioned in paragraph 23(4).

(6) In this paragraph “relevant person” means any person who has an estate or interest in the dwelling (other than a person who is a tenant under a lease granted under paragraph 2(3)(c) or 10(3)(c)).

The client has been less than communicative and has made no application to the LA to revoke the FEDMO. So, unless you want to revoke the order, then you can continue to run with the existing FEDMO and rent the property out.

If the client wants the LA to revoke the FEDMO and you refuse, then he can make an application to the First-tier tribunal for them to consider the matter. If you have a new tenant then the tenancy will run for a minimum of 6 months, so not a lot the owner can do about it.

It may be worth being a bit more bullish with the owner, better for you to drive the approach rather than being dictated or directed by the owner or his Solicitor.

The reason you did the EDMO in the first place was because the owner was not engaging and would not bring the property back into use.

He is not working with the LA, but working against - putting it on the market without your knowledge, not responding to letters for months, putting it on with another agent but not informing you, raising issues over the financial position (the latter he is entitled to do via the Tribunal).

In addition, there has been no interest from potential buyers, so if you revoke the FEDMO and it doesn’t sell then you are back in the same place.  You could give an undertaking to any  new owner, that the LA will revoke the FEDMO on completion and payment of the outstanding funds.

I would suggest that you do not revoke the order until such time. This approach allows the owner to sell the property but protects the LAs position.

“However since advising the owner we would do this, the owner has disputed the amount to be recharged, disputed the condition the property was returned to them in (we haven't returned it to them yet as the EDMO is still in place) and are preventing us from entering the property by withholding access to the property even though we have requested access

Your Final EDMO will have had a management scheme

This would have specified the capital works, revenue costs such as management and likely rental income. The full requirements are set out Housing Act 2004 Schedule 7(13): Management scheme and accounts.

This section specifically states “estimates” not actuals.

The reality is that when you manage a property there are always additional items that need attention, damage by tenants, painting, annual gas safety certificates and void periods will also alter based on the time of year and current market conditions”

As long as the costs incurred fall with the terms of the management scheme, then they should be recoverable under the terms of the FEDMO.

It is open to the relevant proprietor under Housing Act 2004 Schedule 7(14): Application to residential property tribunal in respect of breach of management scheme

14 (1) An affected person may apply to the appropriate tribunal for an order requiring the local housing authority to manage a dwelling in accordance with the management scheme contained in a final EDMO made in respect of the dwelling.

(2) On such an application the tribunal may, if it considers it appropriate to do so, make an order—

(a) requiring the authority to manage the dwelling in accordance with the management scheme, or

(b) revoking the final EDMO as from a date specified in the tribunal’s order.

…………………………………….

So, you can advise their Solicitor that if they have a grievance, then make an application to the Tribunal and let them sort it out.

You are obliged to produce accounts showing income and costs associated with the FEDMO and you can make these available to the owner Schedule 7 (13) Management Scheme and Accounts.

(5) The authority must—

(a) keep full accounts of their income and expenditure in respect of the dwelling; and

(b) afford to the relevant proprietor, and to any other person who has an estate or interest in the dwelling, all reasonable facilities for inspecting, taking copies of and verifying those accounts.

So, it should be clear from the accounts what income was achieved and costs incurred. Therefore, the amount outstanding to the LA. I am assuming that the rental income is less than originally envisaged due to greater void period or additional works. This is not a problem if you have taken steps to manage the property with a reasonable level of care and skill (Ie the same you would expect from a competent agent)

If a previous tenant has damaged the property resulting in additional works, greater voids or non-payment of rent. Then I would expect the LA to have taken active step to manage the tenancy and pursue any losses through any deposit scheme or bond scheme or pursuing a money claims (if reasonable prospect of success). If they were falling into rent arrears, then seeking prompt possession under the accelerated procedure Section 21, if appropriate.

If the property is still under a FEDMO then you don’t need the owner’s permission to have the keys and sort a tenant out, you have already stepped into the owner’s shoes.

So just get a lock smith to change the lock and proceed with a tenancy if you wish. I would advise him of your intentions.

I would be loath to give them keys while the EDMO is running as you do not know what mischief they may cause (theft, damage or arson). You are required to insure the property during the term of the FEDMO and therefore have a responsibility to protect the building and its contents. If there is a tenant in place, then the tenant has exclusive possession and is entitled to allow access to anyone this wish including the previous owner and any potential viewers.

You can be frank with the owner that unless they pay your outstanding debt, then you do not intend to withdraw the FEDMO. If they want to argue they can pursue the matter with the Tribunal. I am not even sure you are required to provide the property back to the owner in good condition.

It depends on the terms of the FEDMO, if the works were done to a good standard and has been rented out for a couple of years, then the condition will be less than perfect. That does not mean that you have to surrender the property back to the owner in pristine condition. As long as the property was managed in line with your management scheme and you managed the property with reasonable care and skill, then any issues may be considered part and parcel of managing property.

You could carry out any remedial works necessary under the existing management scheme or vary the scheme or request the owner consent to the works to put it in good condition. However, these costs would be part of the FEDMO and therefore recoverable from the rent.

So, lets assume that you want to withdraw the FEDMO, create a charge and allow the owner to sell the property and hopefully recover the outstanding debt.

(5) The authority may recover from the relevant proprietor—

(a) the amount of any relevant expenditure (not exceeding the deficit mentioned in sub-paragraph (4)) which he has agreed in writing to pay either as a condition of revocation of the order or otherwise, and

(b) where the relevant proprietor is a tenant under a lease in respect of the dwelling, the amount of any outstanding service charges payable under the lease.

(6) In the case of an interim EDMO ceasing to have effect, the authority may recover the deficit mentioned in sub-paragraph (4) from the relevant proprietor if, in their opinion, he unreasonably refused to consent to the creation of an interest or right as mentioned in paragraph 2(3)(c) while the order was in force.

(7) The provisions of any of sub-paragraphs (2) to (6) do not, however, apply in relation to the order if—

(a) the order is followed by a final EDMO, and

(b) the management scheme contained in that final EDMO provides for those sub-paragraphs not to apply in relation to the order (see paragraph 13(4)(c) and (d)).

(8) Any sum recoverable by the authority under sub-paragraph (5) or (6) is, until recovered, a charge on the dwelling.

(9) The charge takes effect on the termination date for the order as a legal charge which is a local land charge.

(10) For the purpose of enforcing the charge the authority have the same powers and remedies under the Law of Property Act 1925 (c. 20) and otherwise as if they were mortgagees by deed having powers of sale and lease, of accepting surrenders of leases and of appointing a receiver.

(11) The power of appointing a receiver is exercisable at any time after the end of the period of one month beginning with the date on which the charge takes effect.

So, you will have to withdraw the FEDMO and you can then put a financial charge as a local land charge (Section 7 Local Land Charges Act 1975). Again, this would be binding on subsequent owners but would not in itself result in payment of the debt if the property was sold.

To achieve this and place the LA in the best position to recover the debt, I would suggest that you register the charge with the District Land Registry, the owner could challenge such an application.

There are two school of thoughts:

  • By virtue of the case law the charge would still take priority over any mortgage and is binding even if the charge has not been registered with the Land Registry. However, without is being registered at the Land Registry there is the practical issue of enforcing the right.
    The second school of thought is that by virtue of Section 55 Land Registration Act 2002, (relates to local land charges) all enforceable rights should be on the face of the title. The second option I would suggest is the most effective at ensuring any monies are repaid but both are technically correct (practical vs legal)

There is no correct approach to this problem and I do not know the full facts of the case or the personalities involved.

You raised the issue of the HCA monies. It does depend on what you have included in the management Scheme, but where the money comes from to fund the work is immaterial.

The question is whether the costs incurred are covered by the management scheme and if so recoverable from the rent.

Unless you have specifically stated that the money would be “free” / “non recoverable”  as long as the property was available for 7 years. From memory the funding from HCA was via a loan mechanism so would be repayable to LA.

However, set your stall out to owner in clear terms including specified timescale to ensure the matter progresses in a timely manner

For the LA to revoke the FEDMO we will require the repayment of £XXXXXX,  which is the outstanding debt as a result of the operation of the FEDMO. Please find attached a copy of the current accounts.

If you do not provide written confirmation of your willingness to repay the debt within the next 14 days and make full and final payment to the account below by the XXXXX.

Then please be advised that it the Council intention to secure another tenant in line with the management scheme. Please be advised that we intend to change the locks to ensure that any new tenant has exclusive occupation.

I hope the above information gives some food for thought.

The above does not constitute legal advice, it is a matter for you to seek independent legal advice based on individual circumstances of the case.

Regards

Andrew Lavender

www.htlc.co.uk

 

 

 

 

 

 

 

 

 

A Final EDMO is registerable as a local land charge (make sure it is registered)

The LA does have the ability to register a restriction at the Land Registry, but all this does is prevent an interest being created (ie lease), this does very little other than to put potential purchasers on notice that the LA is involved in the property. It does not prevent the owner from selling the property

While you cannot prevent the client from selling their property, if they do sell it and the FEDMO is a local land charge, then it should be binding on any subsequent owner.

Consequently, anyone buying a property through a Solicitor (reasonable due diligence - local land charges search), will be appraised that a Final EDMO is in place. Even if they do not do a search a local land charge is binding as they will have had constructive notice whether they did the search or not.

I would expect a competent Solicitor to advise the purchaser not to proceed unless the FEDMO has been resolved and the local land charge has been removed. As the liability will run with the land.

In addition, you are unlikely to achieve best market value without achieving vacant possession.

The risk is that the owner sells the property privately and not through a Solicitor. Generally, to an uninformed party or via auction. In such cases the new owner may not be fully aware of the implications of buying the property.

In relation to revoking the FEDMO -  Schedule 7 Housing Act 2004 (16) – the Local Authority may revoke

16 (1) The local housing authority may revoke a final EDMO in the following cases

(a) where the authority conclude that there are no steps which they could appropriately take as mentioned in section 137(4)(b) or that keeping the order in force is not necessary as mentioned in section 137(4)(c);

(b) where the authority are satisfied that—

(i) the dwelling will either become or continue to be occupied, despite the order being revoked, or

(ii) that the dwelling is to be sold;

……………………………….

In addition, (5) Where a relevant person applies to the authority for the revocation of an order under this paragraph, the authority may refuse to revoke the order unless the relevant proprietor (or some other person) agrees to pay to the authority any deficit such as is mentioned in paragraph 23(4).

(6) In this paragraph “relevant person” means any person who has an estate or interest in the dwelling (other than a person who is a tenant under a lease granted under paragraph 2(3)(c) or 10(3)(c)).

The client has been less than communicative and has made no application to the LA to revoke the FEDMO. So, unless you want to revoke the order, then you can continue to run with the existing FEDMO and rent the property out.

If the client wants the LA to revoke the FEDMO and you refuse, then he can make an application to the First-tier tribunal for them to consider the matter. If you have a new tenant then the tenancy will run for a minimum of 6 months, so not a lot the owner can do about it.

It may be worth being a bit more bullish with the owner, better for you to drive the approach rather than being dictated or directed by the owner or his Solicitor.

The reason you did the EDMO in the first place was because the owner was not engaging and would not bring the property back into use.

He is not working with the LA, but working against - putting it on the market without your knowledge, not responding to letters for months, putting it on with another agent but not informing you, raising issues over the financial position (the latter he is entitled to do via the Tribunal).

In addition, there has been no interest from potential buyers, so if you revoke the FEDMO and it doesn’t sell then you are back in the same place.  You could give an undertaking to any  new owner, that the LA will revoke the FEDMO on completion and payment of the outstanding funds.

I would suggest that you do not revoke the order until such time. This approach allows the owner to sell the property but protects the LAs position.

“However since advising the owner we would do this, the owner has disputed the amount to be recharged, disputed the condition the property was returned to them in (we haven't returned it to them yet as the EDMO is still in place) and are preventing us from entering the property by withholding access to the property even though we have requested access

Your Final EDMO will have had a management scheme

This would have specified the capital works, revenue costs such as management and likely rental income. The full requirements are set out Housing Act 2004 Schedule 7(13): Management scheme and accounts.

This section specifically states “estimates” not actuals.

The reality is that when you manage a property there are always additional items that need attention, damage by tenants, painting, annual gas safety certificates and void periods will also alter based on the time of year and current market conditions”

As long as the costs incurred fall with the terms of the management scheme, then they should be recoverable under the terms of the FEDMO.

It is open to the relevant proprietor under Housing Act 2004 Schedule 7(14): Application to residential property tribunal in respect of breach of management scheme

14 (1) An affected person may apply to the appropriate tribunal for an order requiring the local housing authority to manage a dwelling in accordance with the management scheme contained in a final EDMO made in respect of the dwelling.

(2) On such an application the tribunal may, if it considers it appropriate to do so, make an order—

(a) requiring the authority to manage the dwelling in accordance with the management scheme, or

(b) revoking the final EDMO as from a date specified in the tribunal’s order.

…………………………………….

So, you can advise their Solicitor that if they have a grievance, then make an application to the Tribunal and let them sort it out.

You are obliged to produce accounts showing income and costs associated with the FEDMO and you can make these available to the owner Schedule 7 (13) Management Scheme and Accounts.

(5) The authority must—

(a) keep full accounts of their income and expenditure in respect of the dwelling; and

(b) afford to the relevant proprietor, and to any other person who has an estate or interest in the dwelling, all reasonable facilities for inspecting, taking copies of and verifying those accounts.

So, it should be clear from the accounts what income was achieved and costs incurred. Therefore, the amount outstanding to the LA. I am assuming that the rental income is less than originally envisaged due to greater void period or additional works. This is not a problem if you have taken steps to manage the property with a reasonable level of care and skill (Ie the same you would expect from a competent agent)

If a previous tenant has damaged the property resulting in additional works, greater voids or non-payment of rent. Then I would expect the LA to have taken active step to manage the tenancy and pursue any losses through any deposit scheme or bond scheme or pursuing a money claims (if reasonable prospect of success). If they were falling into rent arrears, then seeking prompt possession under the accelerated procedure Section 21, if appropriate.

If the property is still under a FEDMO then you don’t need the owner’s permission to have the keys and sort a tenant out, you have already stepped into the owner’s shoes.

So just get a lock smith to change the lock and proceed with a tenancy if you wish. I would advise him of your intentions.

I would be loath to give them keys while the EDMO is running as you do not know what mischief they may cause (theft, damage or arson). You are required to insure the property during the term of the FEDMO and therefore have a responsibility to protect the building and its contents. If there is a tenant in place, then the tenant has exclusive possession and is entitled to allow access to anyone this wish including the previous owner and any potential viewers.

You can be frank with the owner that unless they pay your outstanding debt, then you do not intend to withdraw the FEDMO. If they want to argue they can pursue the matter with the Tribunal. I am not even sure you are required to provide the property back to the owner in good condition.

It depends on the terms of the FEDMO, if the works were done to a good standard and has been rented out for a couple of years, then the condition will be less than perfect. That does not mean that you have to surrender the property back to the owner in pristine condition. As long as the property was managed in line with your management scheme and you managed the property with reasonable care and skill, then any issues may be considered part and parcel of managing property.

You could carry out any remedial works necessary under the existing management scheme or vary the scheme or request the owner consent to the works to put it in good condition. However, these costs would be part of the FEDMO and therefore recoverable from the rent.

So, lets assume that you want to withdraw the FEDMO, create a charge and allow the owner to sell the property and hopefully recover the outstanding debt.

(5) The authority may recover from the relevant proprietor—

(a) the amount of any relevant expenditure (not exceeding the deficit mentioned in sub-paragraph (4)) which he has agreed in writing to pay either as a condition of revocation of the order or otherwise, and

(b) where the relevant proprietor is a tenant under a lease in respect of the dwelling, the amount of any outstanding service charges payable under the lease.

(6) In the case of an interim EDMO ceasing to have effect, the authority may recover the deficit mentioned in sub-paragraph (4) from the relevant proprietor if, in their opinion, he unreasonably refused to consent to the creation of an interest or right as mentioned in paragraph 2(3)(c) while the order was in force.

(7) The provisions of any of sub-paragraphs (2) to (6) do not, however, apply in relation to the order if—

(a) the order is followed by a final EDMO, and

(b) the management scheme contained in that final EDMO provides for those sub-paragraphs not to apply in relation to the order (see paragraph 13(4)(c) and (d)).

(8) Any sum recoverable by the authority under sub-paragraph (5) or (6) is, until recovered, a charge on the dwelling.

(9) The charge takes effect on the termination date for the order as a legal charge which is a local land charge.

(10) For the purpose of enforcing the charge the authority have the same powers and remedies under the Law of Property Act 1925 (c. 20) and otherwise as if they were mortgagees by deed having powers of sale and lease, of accepting surrenders of leases and of appointing a receiver.

(11) The power of appointing a receiver is exercisable at any time after the end of the period of one month beginning with the date on which the charge takes effect.

So, you will have to withdraw the FEDMO and you can then put a financial charge as a local land charge (Section 7 Local Land Charges Act 1975). Again, this would be binding on subsequent owners but would not in itself result in payment of the debt if the property was sold.

To achieve this and place the LA in the best position to recover the debt, I would suggest that you register the charge with the District Land Registry, the owner could challenge such an application.

There are two school of thoughts:

  • By virtue of the case law the charge would still take priority over any mortgage and is binding even if the charge has not been registered with the Land Registry. However, without is being registered at the Land Registry there is the practical issue of enforcing the right.
    The second school of thought is that by virtue of Section 55 Land Registration Act 2002, (relates to local land charges) all enforceable rights should be on the face of the title. The second option I would suggest is the most effective at ensuring any monies are repaid but both are technically correct (practical vs legal)

There is no correct approach to this problem and I do not know the full facts of the case or the personalities involved.

You raised the issue of the HCA monies. It does depend on what you have included in the management Scheme, but where the money comes from to fund the work is immaterial.

The question is whether the costs incurred are covered by the management scheme and if so recoverable from the rent.

Unless you have specifically stated that the money would be “free” / “non recoverable”  as long as the property was available for 7 years. From memory the funding from HCA was via a loan mechanism so would be repayable to LA.

However, set your stall out to owner in clear terms including specified timescale to ensure the matter progresses in a timely manner

For the LA to revoke the FEDMO we will require the repayment of £XXXXXX,  which is the outstanding debt as a result of the operation of the FEDMO. Please find attached a copy of the current accounts.

If you do not provide written confirmation of your willingness to repay the debt within the next 14 days and make full and final payment to the account below by the XXXXX.

Then please be advised that it the Council intention to secure another tenant in line with the management scheme. Please be advised that we intend to change the locks to ensure that any new tenant has exclusive occupation.

I hope the above information gives some food for thought.

The above does not constitute legal advice, it is a matter for you to seek independent legal advice based on individual circumstances of the case.

Regards

Andrew Lavender

www.htlc.co.uk

 

 

 

 

 

 

 

 

 

Thank you for a very detailed reply regarding this matter. It has certainly brought some additional ideas to how to manage this situation.  I believe that we will try one further discussion with the legal representative of the owner regarding the costs but then advise them that if they still wish to dispute the amount then they should apply to the tribunal as you suggest.

In regards to the condition of the property, we agree with your definition and note in the EDMO order it states it should be returned in good order subject to wear and tear. The EDMO has been running for 5 years so whilst ongoing maintenance has been occurring, there is some wear and tear to the property and we will be meeting the owners separately to discuss this.

In setting up the EDMO the owner did not object and was happy for it to proceed as they had no funding to turn the property around. As it was a small refurbishment cost to the authority in the scheme of things the owners were able to receive a small yearly payment. However I believe their circumstances changed and this is what has caused their desire to sell the property. Though I think they have found that the valuation of the property has not increased as significantly as they had expected and with the costs, they will lose money on the sale as they purchased it at a relatively high point in the housing market before the crash.

Once again thank you for the information