About the Budget

By now you should have received the July rentcharge bills along with the budget for the coming year. This budget was discussed with me (as Chairman of the Residents Association) and I agreed to it before it was sent out. I'd like to explain the discussions that went into it and how the numbers were arrived at.

After the budget had been agreed, and just before the bills were to be sent out, FirstPort finally sent the accounts for the year ending 2018 to Daniells Harrison. Copies of this were supposed to be included with the bills, but got forgotten. Daniells Harrison have apologised for this and will be sending out the 2018 accounts shortly.

Insurance

I asked Daniells Harrison to get competitive quotes for the public liability insurance (there is also terrorism insurance; I don't know what kind of terrorism that would be, but as its less than £10 I'm not going to waste time finding out). Daniells Harrison replied that they are acting under instructions from Estates & Management Ltd, and E&M have ordered Daniells Harrison to buy the insurance from them.

E&M are acting as agents for Holdings & Management (Solitaire) Ltd, who actually own the land and are the company legally entitled to collect the rentcharge. When I forced Holdings & Management (Solitaire) Ltd to put the management contract out to tender they instructed E&M to run the bidding, so the fact that Daniells Harrison are receiving instructions from E&M is no surprise. However the fact that E&M insist on handling the insurance seemed very odd.

Daniells Harrison did obtain a quote for the insurance which was about a quarter of the amount that E&M were set to charge. The only difference was the amount of coverage: E&M were purchasing £25 million liability coverage, but Daniells Harrison were only able to get a quote for £10 million.

I wrote to Holdings & Management (Solitaire) Ltd requiring them to account for the money, and duly got an accounting from E&M. The main points were:

1. Hidden in the insurance premium charged by E&M was a charge for "Remuneration payable to Estates & Management Ltd in respect of services rendered". This year it is £248.78. There was also a commission to the insurance agent (£53.48 this year).

2. The £25 million coverage was to match the largest liability awards made by the courts. These were in cases where a young person had suffered catastrophic injury and would spend the rest of their lives needing 24 hour medical care. While I don't like it, I have to admit that their argument is sound. The list I linked above was for medical negligence claims but someone who has a tree fall on their head could suffer similar consequences. Interest rates have been very low over the past decade, so awards have to be bigger to ensure that the interest earned is going to be enough to make the money last a lifetime.

3. Such large coverage is still rather a specialist area. Most liability policies, like the one that Daniells Harrison got a quote for, top out at £10 million. Hence the premium is high. The insurance agent employed by E&M had obtained competitive bids from three providers, and they were all about the same price.

The "remuneration for services rendered" is clearly a disguised addition to the management fees. E&M already collect £5 per household (£410 total) for the fixed rentcharge so they have no business creaming off extra. The total of this hidden charge over the last 6 years has been £928.48, which comes to £11.32 per household.

I want to emphasize that this entirely down to E&M. It is not the responsibility of Daniells Harrison, or even of FirstPort. I will be writing to Holding & Management (Solitaire) Ltd requiring them to tell their agents to stop concealing management charges in the insurance costs, and to refund the past charges.

Management Fees

Daniells Harrison originally wanted to take the last fee charged by FirstPort and add 5%. These fees would also have included the "Accounts Preparation Fee". I responded that the Consumer Price Index (i.e. inflation rate) for last year was 2.1%, that the proper starting price was the quotation in their bid (£4,838) rather than their predecessor's inflated fee, and that not only had the Accounts Preparation Fee been invented out of thin air by FirstPort in 2016, but I have claimed back my share of it. The management fee now reflects the original bid of £4,838 plus 2.1% inflation and 20% VAT, and there is no "Accounts Preparation Fee".

The RA Committee also considered the question of audit fees. Daniells Harrison wanted £500 for an audit. The estate management is required to produce a certificate of the annual rentcharge, so there is no question of liability for previous years, and given the simplicity of the accounts the Committee considered that an external audit was not worth the money.

Works

The tree survey found that 6 large pines needed to be felled. This work was quoted by Acorn Tree Specialist Ltd and was discussed with us before being agreed.

The Grounds Maintenance covers the usual grass cutting and hedge trimming. It does not include the hedge reduction works that will be decided at the AGM, as we can't budget for that until we know exactly what will be done. However the £3,000 contribution to the reserve fund is intended to cover this.

I know it seems unfair that we have to pay such a large amount but the Transfer Document that we all agreed to when we bought our houses is quite plain: if there is any work that must be done on the estate then it is the residents who pay for it. The gardener and tree surgeon are not going to work for free, and Daniells Harrison are not going to pay for it out of their own pockets.

I have heard suggestions that the hedges have got into such a state due to bad management, so therefore FirstPort should pay for the hedge reduction because they were in charge. Unfortunately this isn't feasible. As a Trustee for the estate funds, Holdings & Management (Solitaire) Ltd and their agent FirstPort were supposed to use their professional judgement to make decisions about the management of the estate. Even if hindsight shows that they made the wrong choice about the hedges, that is not enough to trigger liability. We would have to prove professional negligence. That would mean identifying an accepted standard of care (such as this one) and showing that their care of the hedges failed to comply with a specific part of that standard. Even if this could be done, it would be a complicated case requiring solicitors and expert opinions, and would be likely to cost a lot more than the amount that could be recovered. Also the case would have to be bought by one or more residents; the Residents Association can't do it on behalf of everyone because it is not a party to the dispute.

Estate Reserve

After the budget had been agreed with Daniells Harrison they finally got the accounts for the year ending June 2018 from FirstPort. This included £5,635.96 in the reserve fund, which can be put towards the cost of the tree felling and hedge reduction. By the time Daniells Harrison got this information it was too late to change the budget and the bills, but I will ask them to make an adjustment to the second half of the charge in 6 months time.