Half knowledge is a dangerous thing

Friday 01st December 2017 06:05 EST

In business and life, we are often reliant on experts’ opinion and advice.  This is because we cannot know everything about everything.  We are limited in our knowledge and perception; after all, according to science, we can only see less than 1% of what actually exists. 

Fundamentally, we are flawed, even within the 1% in our range of perception there are many contradictory opinions, not always fueled by the right intentions. 

Currently, we are in a live situation where one planner’s opinion is contradicting another.  An investor who is reliant upon the instruction of others, will often be led totally by their opinion.

This is an unwise stance to take, many professionals are not commercially minded.  They often do not know how to quantify and take risks.  This is why they do what they do.  More often than not, they take the more conservative option, which is if there is any element of risk then to advise the client not to do the deal.  This way they protect themselves from any future liability.  In principle, inaction is better than action; it’s the safer option. 

A few years ago, when we were purchasing a block in Kilburn consisting of 23 units, an hour before the exchange deadline the lawyer pointed out a flaw in the building.  There were some illegal works that had been done to the property, which would affect the ability of a lender to lend.  Also, this meant we were risking action both from the council and the freeholder. 

We had to take a call as we were in a contract race, and we expected if the deal was not exchanged on the Friday evening, over the weekend the competing party will have lined up their ducks and would be in a position to exchange first thing on Monday morning.  Often having another party in the race makes One laser focused, despite dragging One’s feet previously for several months.  Our investor, understanding the risk involved, took the call to do the deal, and consequently made 40% per annum on their investment.  Not all calls have been successful in recent years, there have been some losses as well.  This is the nature of investment.

Going back to our live situation, our planner and team who have been involved in this site are extremely confident of getting planning for over one hundred units.  The investor considering the deal has got his planner to double check the conclusion.  His planner has done a very prima facie analysis and concluded not to do the deal. 

This advice, if incorrect, will cause the investor to potentially lose about £12m in profit.  There are many flaws in his planner’s analysis.  Firstly, he is not qualified in terms of his experience, his experience seems to be focused in London, the piece of land in question is well outside London.  Secondly, he has not taken the time to look into the detail, choosing instead to ride off headlines.  When the deal is this lucrative One needs to get into the nitty gritty, or be confident someone else has done so on One’s behalf.  

So, what’s the conclusion?  Professionals are there to give their advice and opinions, keeping in mind they will always be looking to cover their behinds.  One needs to ensure they are holding the reins to take the final decision, and that the decision is not clouded by fear. 


Agony Agent Is Here To Help!

Q:  My tenant signed an agreement for six months, and paid a two month deposit.  However, I forgot to register the deposit.  He then signed another agreement for 12 months, but then changed his mind and served notice to vacate.  In that notice, he asks for me to use the deposit to pay for the last two months.  He now wants to claim back the deposit plus council tax as otherwise his solicitor will take me to court for 3 times the deposit.  Would you please advise me in this matter?

A:  I’m afraid I have bad news for you; not protecting the deposit makes you liable for the penalty for noncompliance with the regulations.  Under the Housing Act 2004, a judge has to make an order for the penalty payment if the tenant applies to the court requesting this, if you have failed to protect the deposit within the 30 day period.  The thing which triggers the liability for the penalty is failing to protect a deposit within 30 days of payment.  Even if the deposit ‘did not exist’ at a later date, this does not cancel your liability.  As soon as the 30th day after the deposit payment has passed, you are liable to having the order to pay the penalty made against you – there is NOTHING you can do to change this.  NO exceptions.

The judge does not have the legal power to refuse to order the penalty, all she or he can do is decide whether the penalty should be 1, 2 or 3 x the deposit sum.  Many landlords find this hard to accept, but that is the law and there are no exceptions.

It may get worse in your scenario, as if the deposit carried over to the second fixed term it is possible that the tenant may be entitled to TWO awards, if you did not protect the deposit within 30 days of the start of the second tenancy and serve the prescribed information.  This may make you liable for up to six times the deposit sum, however, this would be at the discretion of the judge.

The Act also says that the judge should order the landlord to refund the deposit money (or pay it into a scheme), but if you can prove that the deposit was offset against the arrears with the tenant’s consent, this should not apply to you.  However, in the circumstances, it may be best to let this tenant go as he wishes, and make sure that all deposits taken in future are protected promptly within the time limit.

If you had a Non-Housing Act tenancy, you would not have a requirement to protect the deposit, but you may wish to anyway, so you can sleep tight should any change come into effect in the distant future. 

For further advice on such matters please feel free to get in touch.

Richard Bond

Lettings Manager

Sow & Reap

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