Many freeholders, Resident Management Companies (RMC’s) and Right to Manage Companies (RTMCO’s) will use managing agents due to the complexities of self-managing anything larger than half a dozen or so flats. The role of the managing agent is wide-ranging and depends on the type and size of the property but in the main it will send out service charge demands, manage the payments, get buildings insurance, and collect ground rent.
The only official body concerned with leasehold block management and representing managing agents is the Association of Residential Managing Agents (ARMA). Members range from those who manage a few blocks to national companies who manage many. Their role is summarised in the words of ARMA as “the role of a managing agent is a complex one and requires a professional approach. To carry out the role requires knowledge of landlord and tenant law, building construction, health and safety regulations, basic accounting and more”
So their aim is to promote high standards of leasehold management and professionalism through advice, training and guidance. They don’t however represent individual property managers.
Whether managing agents are members of ARMA or not they are required to be familiar with the the leases (and hopefully they should be uniform throughout the block) and the legislation specifically concerned with block management:
- The Landlord and Tenant Act 1985 which is the first of the five main Acts of Parliament providing the framework for the rights of leaseholders under the terms of their leases;
- The Landlord and Tenant Act 1987 which is second Act providing the framework for the rights of leaseholders under the terms of their leases and which builds upon the 1985 Act;
- The Leasehold Reform, Housing and Urban Development Act 1993 is the Act which finally gave leaseholders of flats the right to group together to collectively purchase the freehold from the current freeholder, providing both the building and the leaseholder meet certain criteria;
- The Housing Act 1996 wasn’t actually a new Act as it only made amendments to the 1993 Act;
- The Commonhold and Leasehold Reform Act 2002 which introduced Right to Manage (a no-fault process of removing the managing agent and replacing them with one of the leaseholders own choosing) and a third way of purchasing property, that of Commonhold which is being revisited as so far it has failed to take off.
There is also legislation surrounding the health and safety of the common areas.
In addition there are Codes of Practice that must be adhered to such as the RICS Service Charge Residential Management Code and Additional Advice to Landlords, Leaseholders and Agents (3rd Edition). This was initially approved by the Secretary of State under s87(7) of the Leasehold Reform, Housing and Urban Development Act 1993 with the 3rd edition of the Code coming into effect as of 1st June 2016 under The Approval of Code of Management Practice (Residential Management) (Service Charges) (England) Order 2016
The Code is however not legally binding and so breaching it is not a criminal offence, nor does it create any civil liability. There are also no routine checks made on agents to make sure they are abiding by the Code so unless their contents can be used in evidence in court and tribunal proceedings, where freeholders or managers have failed to comply with them, they are really only ‘best practice’ guides.
Another best practice guide that must be abided by is that of the ICAEW Tech 03/11 Residential Service Charge Accounts.
All managing agents must also hold the following certificates:
- Public Liability Insurance Certificate (value of at least £2m);
- Professional Indemnity Insurance Certificate;
- Employers Liability Insurance Certificate;
- Gas Safety Registration Certificate;
- Electrical Safety Registration;
- Fire Risk Assessment Accreditation.
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 (3rd edition effective from 1st June 2016) states the basis of fee charging.
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 development in total, with increases fixed against the RPI (Retail Price Index). This method is considered preferable so that tenants can budget for their annual expenditure instead of it being set 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 extra fees 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.
Managing agents, can offer 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;
- 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.