Useful Tips for Local Authorities Managing Residential Properties 

If you are an asset manager or an in-house property lawyer at a local authority, you will likely have come across a range of Council-owned properties, managed by third party operators and providers, often with sensitive or vulnerable users in occupation, underpinned by a mix of leases, licences and tenancy agreements, management contracts, nominations arrangements and more.

To help with what is often a complicated process, Trowers & Hamlins LLP have put together a list of some useful tips for local authorities which own or manage residential properties to consider, whether as part of any new lettings, renewal proceedings or portfolio reviews.

1. Vacant Possession

1. As part of redevelopment or regeneration, you might be wanting to obtain vacant possession of a particular premises to undertake refurbishment works. If a company or individual currently occupying the premises, there are different processes and procedures that you must comply with depending on the nature of occupation. In particular, you may have leased premises to a registered provider of social housing or other local organisation for the purposes of short-term accommodation, and so it will be important to check whether any of those agreements have expired or are coming to an end. In addition, if secure tenants have been occupying as public sector tenants for at least 3 years, it is possible that the tenant has a right to buy or acquire the property. All of these considerations can delay development and also cause concern among residents, so we suggest confirming the position before any development plans are commenced to avoid interruptions to timetables or schedules.
2. You should also ensure that the exit arrangements when any operator/occupier arrangements end are clear. For instance, where appropriate, yield up provisions in any operator leases/licences/agreements ought to contain a suitable timeframe and procedure for recovering possession, particularly where secure tenancies or vulnerable occupiers are involved.

2. Step-In Rights

1. The history of the property and the Council's objectives for the future of the property are key. Why was the operator brought in to manage the property in the first place? Is the operator responsible for compliance with changes in statute (particularly energy efficiency)? Who is responsible for keeping utilities appliances in working order and condition? Are the arrangements for repair and maintenance still appropriate and capable of enforcement? Does the lease have security of tenure under the Landlord and Tenant Act 1954 (LTA 1954) and, if so, does that constrain you from re-negotiating any historic terms?
2. Whatever the scenario, as the Council's main priority is ensuring that its property portfolio is fit for habitation, you should ensure that the Council's rights of self-help (e.g., rights to inspect, defects remediation, breach notice procedures, landlord step-in rights for non-performance, forfeiture for breach) are robust in all documents. This will mean that, irrespective of what the documents say on repair and maintenance, the Council can always exercise step-in rights to resolve an issue if they need to, and ideally backed up by costs indemnities for breach non-performance or non-observance.

3. Procurement

1. Where the Council is receiving services such as repairs and maintenance, rent collection or debt enforcement, these works or services may constitute a "public contract" that needs to go through a procurement process. As such, you will need to consider whether the Public Procurement Regime applies where a Council's property is managed on its behalf by a third party.
2. Also, while there is a "land exemption" from the procurement regime for arrangements that are genuinely structured as property transactions, the precise terms of the occupational interest which the Council's operator has will have a bearing on whether this exemption can be relied on or not.

4. Insurance

1. In most circumstances, the Council expects that their buildings are insured under the usual block policy and expect to retain the reinstatement obligations, together with the usual insurance rent from the tenant. If the letting structure is non-standard or passes unfunded liability back to the Council – do you require approval from your insurers to the structure before agreeing it? Is liability for malicious or accidental damage passed on under the letting documents, or fully insured? If not, who is liable in the event of tenant or occupier vitiation? If in doubt – speak to the Council's insurance officers.
2.  Also, where the Council is entering into a rather "non-standard" lease structure, it is important that all the documents talk to each other properly, and to check that the necessary "severability" clauses work if there are conflicts in the repair and maintenance obligations in an operator lease, management and maintenance contract, occupier residential licence, etc. Also ensuring that any insurance provisions are modernized to cover uninsured damage and reinstatement requirements, particularly with vulnerable residents, is also something to be mindful of on any renewals.

5. Data Protection

1. Have you considered whether the Council is a data controller in the proposed structure – with its managing agent a data processor acting on the Council's instructions? Or has decision-making control of occupants' personal data been given to the managing agent (more likely where the agent takes a lease and grants tenancies in its own name) making them the data controller?
2. The different arrangements that Councils can put in place to manage their property portfolio give rise to different Data Protection implications in respect of the occupants. Each arrangement will be different and need analysis, particularly in the underlying licences and/or tenancy agreements between the operators and the occupants, and the Council will then need to make sure the letting pack contains appropriate contract clauses to ensure Data Protection compliance.

Services that we offer

Trowers & Hamlins offer a "health check" style review for our local authority and public sector clients to assess existing or future letting structures and service arrangements for their residential properties.

Please contact us for further details and we would be happy to discuss them with you.