Receiving all money back

Hello, 

I am still fairly new to dealing with empty properties so I just wanted to check something please. 

We are looking to complete a large amount of works on an EDMO property, however based on the rent that was within the management plan, at the end of the 7 years we will still have a large deficit. From my understanding, the remainder of that money cannot be left as a land charge without the freeholders consent. Is our only option to extend the EDMO for another 7 years in order to receive all of the money back through rent? 

Any advice on this would be greatly appreciated. 

Kind regards

Lowri 

Forums: 
EDMOs

Lowri

This is one for your Solicitors as the legislation is not very well drafted.

You need to look at Housing Act 2004, Schedule 7, para 23 (4) to (7)

(4) Sub-paragraphs (5) and (6) apply where, on the termination date for an interim EDMO or final EDMO, the total amount of rent or other payments collected or recovered as mentioned in paragraph 5(3) is less than the total amount of the authority’s relevant expenditure togethe............ above.

(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..................

It is the meaning of the above wording, with particular reference to  " or otherwise",. Could it be construed as -  if there is a shortfall then you are entilted to recover it and  by virtue of (8) to (11) can then secure a charge against the property and potentially enforce the sale.

The other interpretation is the "or otherwise" is linked to the agreed in writing.

I am not aware of any caselaw that has been decided on this point.

However, there is no problem in extending the final EDMO with another final EDMO, just be careful that they run concurrently, so there is no gap between them.

When your dealing with EDMOs you need to be very practical and take a view as to whether the property is a suitable candidate.

If the cost of work are so significant that it will take well in excess of 7 years, then you need to consider whether an EDMO is the most appropriate course of action.

You need to take into account management fees, voids, on going repairs, decoration, gas safe landlord certificates, tenants damage, non payment of rent as part of the mix.

In most of the EDMOs that I have done. On paper the money was recoverable within 7 years, but most of them have had to be rolled into a further Final EDMO.

An approach that LAs may wish to consider is the service of Housing Act 2004 Improvement Notices, then follow it up with an EDMO. One of the risks with an EDMO is that the money is only recoverable through the rental income, as opposed to being able to secure a charge against the property.

Consequently,  if the property is in negative equity or highly leveraged, the risk is that the LA does the work on the property and the mortgage company steps in, repossess and sells the property ro recover their monies.

As the mortgage company has first charge, they get the money first, including legal costs, auction fees, any outstanding payments and any interest due. Which potentially causes a loss for the LA.

So my suggestion would be to pursue Improvement Notices and then follow it up with an EDMO, but sell it as a joint course of action to the Owner and Tribunal.

The benefit of an Improvment Notice (IN), then doing the works in default,  allows a a financial charge to be registered against the title. There is a formal demand procedure with a right of appeal.

However, as the charge is created under the Housing Act 2004, the case law such as (Paddington v Finuance 1928), supports the position that the charge should take priority over any existing mortgage.

So the vast majority of the LA monies will be secure, then the LA can follow it up with an EDMO.

All monies collected under the EDMO could be prioritised towards paying non Improvement Notice works ie  decoration, carpets, furniture, garden works in the first instance.

You still have the IN charge as your securty for the main costs. Then following it up with an EDMO, which ensures you can control the property, management and  more importantly the collection of the rent.

Carmarthenshire CC wanted to pursue an EDMO on a property that was in negative equity. The owner was willing to work with the LA, knowing that failure to do so would result in her probably losing the property in the longer term.

So they adopted the above approach to minimise the risk to the LA monies.

I have put the Carmarthenshire Tribunal decision in the library as I cannot find away to attach the document to this post.

It is only a first tier tribunal decision (so not binding), but they were very supportive of the approach taken.

It has quite a detailed explanation of the rational adopted.

Overall, if you are in any doubt run conseecutive Final EDMOs

If your Solicitors or any other members have a view on the ability to recover the EDMOs monies on lapse of the Final EDMO, then please do add to this post.

As with everything in law, it is seldom black or white , just shades of grey.

Hope that helps,

Regards

Andrew Lavender

Housing Training and Consultancy Ltd

This is not legal advice and is only for general information, please ensure that you seek your own advice from your Solcitors