Block Management Case Study

We were approached by the owner of a restaurant on Old Compton Street. They had taken on the leasehold of a building for the ground floor and basement as their restaurant. However the lease was for the whole building, which included 20 residential units, all rented on periodic tenancies.

It soon became clear to them that they did not have the necessary knowledge to run the rent areas. The majority of the tenants had lived in the building for many years, rents were not reviewed or increased. In addition, the communal areas were in a very poor condition and required a lot of repairs and redecoration. On this basis it became clear that the cost of repairs against the rent income resulted in a very low profit for the company. In addition, many of the tenants wanted to pay their rent in cash, and so would constantly come into the restaurant to pay. No system was in place to keep track of who had paid.

We took over the management of the building in March 2010. Straight away we needed to organise repairs and ensure that health and safety procedures were in place. We arranged for the fire alarm system to be checked, fire extinguishers and smoke detectors to be installed, conducted a fire risk assessment and set up a routine to have all of these checked with a engineer as requested by the London Fire Brigade and current legislation.

The local council had also attended the building and listed various repairs that were required in order to comply with the HMO (House of Multiple Occupation) license. We arranged a plan and listed all works in order of priority and worked with the council over the next two years to rectify all the issues highlighted.

As tenants left, we advertised the rooms for the amounts correct for the area, almost always achieving the amounts advertised. As repairs were completed and rooms redecorated we began to achieve much better rents, which aided the repairs and made the building a much more pleasant place. Over a period of three years, we had begun to tip the balance so repairs were no longer costing more than the rent that were incoming. In three years rental income had increase by £57,826.95, while expenses had remained at around £30,000 per year. Net income had risen from £55,000 in 2010 to £103,000 in 2013.

Had the owners not come to us, without expert knowledge of how to run HMO buildings it was likely that the scales would have tipped and the rents would no longer have been enough to even cover the cost of the repairs, let alone the owners rent and the utility bills for the building. If the repairs were not done it is likely that the council would have closed down the residential areas, and the owners may even have been prosecuted for not complying with safety legislation.

Many leases that companies take on buildings in central London come with additional flats/bedsits above offices and restaurants. The natural conclusion by the owners is to run these themselves, as they believe it would save money that managing agents would charge. However, from the above story we hope it is clear that in fact, managing agents can not only pay for themselves in the increased income, but increase income for the owners, while at the same time giving them the peace of mind that all legislation and procedures are in place, allowing them to run their business much more effectively.

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