Fees and Services
The area of third party management, that of managing agents has been a thorn in the side of leaseholders ever since the creation of the long lease.
There is still no criteria to meet to become one so anyone (even the criminal or those with criminal tendencies) can enter the market without any qualifications and set up shop. So what is the best way for leaseholders to get a professional and qualified agent who belongs to one of the three Ombudsman Schemes, (the Property Ombudsman, Ombudsman Services: Property and the Property Redress Scheme)?
Note: Membership of one of these schemes became a legal requirement for managing agents on 1st October 2014
There are two schools of thought on this so I am starting with the trade body for leasehold managing agents: the Association of Residential Managing Agents (ARMA).
The role of the managing agent is wide-ranging and depends on the type and size of the property. The management agreement is the contract between the managing agent and the leaseholders and all managing agents make their money from the fees they charge for their services. These are paid for by the leaseholders and any management fee charged under a long residential lease is subject to s19 of the Landlord and Tenant Act 1985 (limitation of service charges: reasonableness). The RICS Service Charge Residential Management Code states the basis of fee charging.
They can provide some or all of the services listed below:
Common Area Maintenance, Repairs & Health & Safety
- Preparing programmes of planned maintenance and redecorations;
- Establishing required repairs and obtaining quotations for the work;
- Appointing/supervise contractors;
- Inspecting the completed repairs,
- Preparing specifications for landscape maintenance, cleaning etc;
- Placing maintenance/service contracts for equipment (lifts, fire equipment, automatic gates, water pumps etc).
- Advising on the use of specialist professionals and contractors for plant and machinery.
- Administration of Direct Debit payments;
- Setting the service charge budget;
- Collection of service charges;
- Using external solicitors/debt collectors when their in-house service charge recovery process is exhausted;
- Preparation and production of the year-end service charge accounts, (including dealing with any year-end surplus or deficits);
- Maintaining estate ‘trust status’ bank accounts;
- Paying suppliers and contractors;
- Maintaining financial records;
- Dealing with independent accountants concerning audits and reports on factual findings;
- Providing a periodic budget report of income/expenditure and cash flow (quarterly reports);
- Adhering to the requirements of s20 major works (and qualifying long term agreements).
Negotiating and arranging buildings insurance and Directors and Officers Liability Insurance.
- Instructing solicitors in relation to lease breaches;
- Representing the landlord at County Court level, arbitration and First Tier Property Tribunals;
- Providing Company Secretary work (note that not all managing agents will be willing to offer this service);
Visits & Communication
- Estate inspections on a regular cycle;
- Meetings with residents upon request during office hours;
- Meetings with residents’ associations/management co. directors as necessary during office hours;
- Meetings with contractors, developers and other agencies on site as necessary;
- Preparing and distribute notices for the AGM/EGMs and arrange attendance at such meetings;
- Ensuring compliance with the terms of leases and policy agreed with the Board and, where necessary, subject to landlord authorisation;
- Regulating the use of the flats with regard to sub-letting;
- Enforcing the lessees rights to quiet enjoyment (peaceable occupation) in the event of disturbance by other residents.
Note: when the word ‘tenant’ is used, it refers to leaseholders, not renting tenants.
TWO LISTS OF SERVICES
Ideally the agent should agree two lists of services/duties with the client, the first being the standard management fee, which is normally stated as an annual fee for the whole development in total, with increases fixed against the RPI (Retail Price Index). This method is considered preferable so that tenants can budget for the,ir annual expenditure rather than setting it per unit. However, where the lease specifies a different form of charging, this is what will be used by the managing agents.
The second should be for additional fees if carried out such as the handling of major works and qualifying long term agreements under s20 of the Landlord and Tenant Act 1985 (limitation of service charges: consultation requirements) which requires the sending of consultation documents. It is important to note that only the fees for this and those of the standard fee for the provision of services will fall within the definition of management fees used by the First Tier Property Tribunal.
Other areas where fees can be charged occur during the conveyancing process (but are paid by the parties concerned, not from the service charges) are:
- Answering pre‐contract enquiries;
- Ensuring consent is required/granted before sale;
- Deeds of covenant upon sale;
- Registration of the assignment‐the change of lessee after a sale;
- Mortgage registration after a sale;
- Certified copy of a Share Certificate/Membership Certificate;
- Transfer following sale (including issue of Share/Membership Certificate);
- Supply and/or administration of Deed of Covenant;
- Supplying information packs (to answer leasehold enquiries);
- Remortgage Notice of Charge (including service charge & insurance information);
- Remortgage Notice of Charge (receipting only).
So what is the second school of thought?
The Leasehold Knowledge Partnership is a registered charity and their role in accrediting leasehold managing agents in a good governance scheme is recognised by the Charity Commission. Their aim is to identify the managing agents approach to residential property management and those agents who sign up with LKP want to work with leaseholder managed blocks, either through resident management companies, RTMs or enfranchisement.
There is a marked difference between LKP and ARMA in that with LKP the managing agents can’t also be freeholders and LKP is not a trade body, or involved in property management.