Working With the Managing Agent
Many freeholders use managing agents due to the complexities of self-managing anything larger than half a dozen or so flats but their unlicensed status remains a major issue and has done so for many years. In 2007, industry professionals commenting on an article I wrote for News On The Block on this particular subject said:
“These problems are present in any business, but it is a concern in ours and that is why we are continually calling for the government to regulate our sector so that new entrants can be stopped unless they are competent and capable people. However recent ARMA research found that the government has no plans to carry out these much needed changes in the foreseeable future.”
David Hewett, Chief Executive, ARMA
“The only effective answer is regulation, with cowboys being disbarred. Yes, there’s plenty of law. But resident management companies don’t have extensive resources to pursue rogues through the courts, after which the offenders may simply crop up elsewhere. Managing agents already handle £1.5 billion in service charges yearly and thousands more flats are being built. It’s time the government stopped saying manãna to regulation.”
Jane Barry, Property Correspondent for The Evening Standard
“For all the legislation that the government seeks to introduce it is normally only more red tape to the good guys. Without a truly effective regulation of managing agents how can the public know wheat from chaff? Clear guidance on good practice and benchmarking are a means to demonstrate ability.”
Roger Southam, Chairman, Chainbow
So Where Are We Now?
I contacted the Communities and Local Government in 2008 and I was advised managing agents couldn’t be licensed because any scheme would be run by the trade bodies which would be a conflict of interest! We have moved some way forward from this in that from 1st October 2014 anyone who is engaged in property management work is legally required to belong to one of the following government redress schemes:
This means leaseholders and freeholders dealing with property managers will be able to complain to an independent body about the service they have received but exemptions to this are:
- Landlords who whilst not explicitly excluded are not generally covered by the definitions as they are not acting on instructions from someone else (in other words freeholders);
- Local authorities;
- Right to Manage companies, a right that enables leaseholders to remove the current managing agent and replace them with one of their own choosing;
- Those authorised/licenced to carry out regulated activities under the Legal Services Act 2007.
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 who state that “block management is a complex business. It requires a full understanding of the structure and meaning of leases and a thorough knowledge of the statutory requirements of the landlord and tenant legislation along with compliance with the recognised Codes of Practice. Not to mention proper accounting procedures, an understanding of building requirements in terms of maintenance and insurance and a good grounding in all relevant Health and Safety and employment legislation“.
Note: The Codes of Practice that must be adhered to: 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
Another best practice guide that must be abided by is that of the ICAEW Tech 03/11 Residential Service Charge Accounts.
Ultimately the aim of ARMA is to promote high standards of leasehold management and professionalism through advice, training and guidance. They don’t however represent individual property managers.
All ARMA managing agents must 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.
It important to note the neither Codes are legally binding and so breaching themis 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.
The management agreement is the contract between the managing agent and 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.
Because the services managing agents supply varies according to the size and type of development, they 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.
Because we got our first managing agent through attending a leaseholder meeting, we gotthe agreement issued to all the blocks that were being managed by this agent at that time. Later on, when we were sold to another managing agent, the same thing applied. This was despite the fact that we really needed an agreement tailored to our own requirements due to the complexites of our block. This was never granted from either agent.
Another issue over the years, (certainly with second managing agent) has been that of the lack of continuity of property managers. We have experienced a new one at least every year or so, along with a number of changes to their administrators. Added to this, the placing a problem block in a general portfolio that is too large to provide a proper service has futher compounded the problems.
Freeholders don’t pay for the services of the managing agents, leaseholders do, through the payment of service charges. These monies pay for all the requirements of an office (including staff) and also allows for an element of profit. This is why leaseholders have every right to expect a tip-top service, not just from ARMA members but also any other company that sets itself up as a managing agent.
Having said that, because there is no barrier to entry, anyone can set themselve up in the industry. This includes those with criminal tendancies and the downright useless. So calls for them to be licensed are still being raised, 12 years after I wrote one of my first articles.
Getting rid of an existing bad managing agent is not easy but ways on how to do it can be read in the article written by guest contributor James Cooke, Director of Your Home Property Management and entitled ‘Changing Your Managing Agent’.