How are landlords and investors addressing asset management issues?

Sponsored by Anthony Collins Solicitors

Damp and mould, retrofitting and tenant engagement are examples of a number of priorities landlords are wrestling with when it comes to asset management, says Jonathan Cox of Anthony Collins Solicitors

Factors such as tenant voice, energy efficiency targets and cost increases are combining to “shift the asset management landscape” (picture: Alamy)

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A number of new factors are impacting asset management programmes and strategies, explains Jonathan Cox @ACSLLP and tells @insidehousing what landlords and investors need to consider along the way (sponsored) #UKhousing

“Tenants are also taking a more proactive approach to challenging and complaining about issues – particularly relating to damp and mould – which means landlords are giving more attention to asset management,” says Jonathan Cox @ACSLLP (sponsored) UKhousing

Efforts to improve damp and mould across the UK’s social housing stock and a continued drive to increase the energy efficiency standards of homes are shifting the landscape of asset management across the sector. Inside Housing speaks to Jonathan Cox, partner at Anthony Collins Solicitors, to discuss how landlords and investors are responding to the changes and what things need to be considered along the way.

A number of new factors are impacting asset management programmes and strategies. Firstly, a renewed focus on the tenant voice means landlords are viewing asset management differently than they did before. Tenants are also taking a more proactive approach to challenging and complaining about issues relating to their property – particularly relating to damp and mould – which means landlords are giving far more attention to asset management as a result. There’s the drive to reach Energy Performance Certificate Band C by 2030, as well as a post-Brexit increase to the cost of work to homes. So, all of these things combined are really shifting the asset management landscape.

How are these changes impacting the sector?

One of the biggest changes is that asset management is featuring much higher on registered providers’ agendas than ever before. It’s almost exclusionary of everything else – particularly when it comes to development. We’re seeing landlords scaling back development to focus on asset management, with our procurement teams focused much more on this space compared with development contracts.

Another big change is the amount of time that clients are dedicating to dealing with damp, mould and condensation complaints, and claims as a result. Many landlords have introduced urgent response teams for these complaints, whether through the usual repairs reporting channels or through disrepair letters of claim. They then inspect and/or carry out mould washes and leak repairs urgently, rather than waiting to tackle the issues with other works. Advice is often needed on access refusals arising from tenants’ solicitors’ advice.

Linked to this is an increased focus on data within asset management, with landlords recognising how data can help to flag issues before they become a problem. For example, if you’re familiar with component failure in one type of property, you could anticipate it happening in others and get ahead of the game.

Tell us some of the innovative ways social landlords are bringing stock up to energy efficiency standards.

There are a couple of lesser-known innovations that are being explored. The first is around understanding the performance of a product and building in specific requirements within the procurement process to optimise its performance. For example, organisations are not only thinking about the procurement of heaters, they are also considering the whole service linked to this. So, they’re thinking about how that heater will operate in the future and how they and manufacturers can engage in receiving data back from appliances to help their ongoing maintenance, given this will directly impact their energy efficiency in the future.

Elsewhere, we’ve been doing quite a bit of work around microgeneration and storage of electricity, such as battery storage or local energy networks. This won’t work for all homes, but for estates this could play a big part in reducing a resident’s bills after improved insulation has been installed. We worked on a couple of Midlands-based schemes which had European funding a few years ago, and it is a shame that smart and localised power networks are not making the progress hoped to tackle fuel poverty and fuel efficiency.

Jonathan Cox is a partner and housing sector lead at Anthony Collins Solicitors. He applies the teams’ skills to bring solutions to the issues faced in social housing. He has acted for housing associations for more than 25 years across property, housing management, supported housing and finance fields.

How are investors helping social landlords in the delivery of their asset management programmes?

There are three key ways they are doing this. The first is sustainable finance frameworks, which have been a big benefit for the sector. Investors want to have environmental, social and governance (ESG) outcomes and the social housing sector is a good way of achieving that. One of the KPIs for accessing funds for asset management is a focus on improving the energy efficiency standards of resident homes. So this is having a direct impact on programmes and strategies.

The second is around loan covenants, which we’ve been doing a lot of work on for clients. If they have Earnings Before Interest, Tax, Depreciation, Amortisation, Major Repairs Included (EBITDA MRI) measured [as part of their financial covenant], then as they are spending a lot more money in this area, this has an impact on the surpluses that are being generated (and measured in the financial covenant). Investors are generally understanding about this and in some instances moving to EBITDA-only covenants, or agreeing waivers on loan covenants in respect to energy efficiency or decarbonisation spend.

Finally, there’s an interest among certain investors in taking some form of legal interest in properties to help providers get additional forms of finance into doing repairs on the most difficult properties. Overall, they are being far more supportive and flexible because they see mutual benefits of working with the sector.

What are the main considerations for social landlords when looking to sell poor-quality stock?

Generally, when a housing provider sells stock, they will commission a stock condition survey or the purchasing landlord will commission their own. This survey is a fundamental component in the purchase price and is an important consideration when assessing the ability of the purchasing landlord to do any required work on the properties, as well as maintaining and managing the properties to ensure the sale is in the best interest of the tenant – who is the charitable beneficiary of the housing association. Providers have been downgraded by the regulator for failing to demonstrate consideration of their charitable duties in the past, so it’s important.

Should landlords be engaging differently with their tenants on issues surrounding asset management?

It’s likely landlords will be engaging differently with their tenants now there is a renewed focus on the tenant voice. This will factor into asset management strategies through things like tenant satisfaction surveys, to ensure tenants have a good understanding of what improvements need to be made to their homes.

Elsewhere, if landlords are investing significant amounts of money to improve the energy efficiency of their stock, then tenants will need to properly understand how best to operate them to ensure they are maximising the benefits. Tenant engagement will play a key part in this and will require landlords to engage differently with their tenants after an upgrade or repair has been made. At the end of the day, everyone wants to make this work and get the best results, obviously from the landlord perspective given the regulatory targets they have to hit, but also from the tenant perspective, given this will reduce their bills and make their homes warmer and more efficient in the long run.