The management fees paid to the managing agent by leaseholders as part of the service charges pays for their offices, staff salaries, insurance, pensions and training and all the equipment an office requires such as computers, telephones, post, and stationery.
The fees also provide an element of profit.
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 “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: It is also important to be aware that this also applies to some degree to the Directors of Resident Management Companies (whether they are freehold-owning or not) as it is they who employ the managing agents.
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.
The use of managing agents remains a major issue and has done so for many years as they remain unlicensed and
industry professionals commenting on an article I wrote for News On The Block in 2007 on this issue 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
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;
- Those authorised/licenced to carry out regulated activities under the Legal Services Act 2007.
So, despite controlling billions of pounds of leaseholder’s service charges there is still not even a basic barrier to entry to meet to become a managing agent.There is no prior knowledge or experience required and anyone with a criminal background (or tendencies), can operate as such.
Freeholders can however complain about the level of service they receive from the managing agents!. In the words of ‘Tears for Fears’ leasehold overall is indeed ‘a mad world!’