Our call for new high standard of management for blocks of flats and protection of services charges returns to the House of Lords this week.
The Federation of Private Residents Association (FPRA) has today welcomed news that Conservative Peer Baroness Gardner of Parkes has one again taken up the FPRA campaign calling on the Coalition Government to introduce a minimum standard for private sector property management for blocks of flats and protection for leaseholder’s service charge monies.
Baroness Gardner of Parkes is to ask Her Majesty’s Government what proposals they have with regard to residential service charges during a 1 hour in Grand Committee of the House of Lords.
The link to the ‘live’ debate is http://www.parliamentlive.tv/Main/Player.aspx?meetingId=10654
Earlier this year Baroness Gardner asked a question calling for a new statutory code of practice for all those carrying out property services in the flat management sector and today’s debate build on the FPRA campaign for far greater transparency and protection for leaseholders.
Under the last Government the FPRA and a wide section of property professionals took part in a Department of Communities & Local Government (DCLG) task and finish group to look at the issue and the group reached the general consensus that some form of independent redress was required for long-leasehold home owners to raise the standard of the property management industry.
FPRA Chairman Bob Smytherman said,
“The Coalition Government’s policy to rely on self-regulation has resulted in a very patchy level of service to us flat owners with the sector relying heavily on the vested interests of trade associations such as ARMA (Association of Residential Property Management) and the Royal Institute of Chartered Surveyors (RICS) who both tend to put the interests of their members before the flat owners that they are supposed to serve, equally there are some excellent property managers who see little or no value in being a member of a trade association choosing instead to concentrate on excellent customer service.”
“The RICS Code of Practice is not only voluntary for property management companies it is virtually unheard of by most flat owners, equally there are around 50% of property managers who don’t even belong to any trade association despite collecting and holding large amounts of service charge funds often amounting to millions of pounds and not covered by any code of practice or regulation.”
“We believe the only way to get the ‘rogues’ out of the sector is to have a compulsory independent licensing scheme with a high minimum standard, along with severe penalties for breaches of those required standards. There are over 2 Million flat owners who need proper protection from the loopholes in the present arrangements and we welcome Baroness Gardener’s debate on residential services charges.
“A major concern to us is the insurance commissions that many Freeholders & their Managing Agents make at the expense of flat owners who are usually required to pay for insurance of the structure of the building via the service charge, added Bob.”
“Many freeholders and managing agents see this as a profit-making opportunity and the whole insurance market for blocks of flats is, as a result, distorted by the payment of excessively high commissions and quasi- commissions in various guises to brokers, intermediaries and others, often amounting to 30%, 40%, 50% or even higher percentages; thus, the premium charged to the flat owner is substantially higher than it should be.”
“Although legislation requires that service charges, including insurance, must be ‘reasonable’ and if not, is referable to a Leasehold Valuation Tribunal; however, unlike other charges, such as maintenance, cleaning, etc. in the case of insurance, the protection afforded by the law is ineffective.’
The FPRA have proposed to Government a similar regulation such as in the Life and Pension market so that unfair commissions are banned altogether to protect leasehold flat owners from inflated insurance premiums. We believe the earning capacity of legitimate and responsible insurance brokers and others would not be affected as transparent fees at a reasonable level could still be charged and fully visible to flat owners on their service charge account.”
It is often claimed by some professionals that commissions are already transparent and this may well be the case with good property managers, however we are aware that this is not always the case for all flat owners as ‘hidden’ commissions are frequently paid direct to freeholders without the knowledge of the flat owner concerned.
Many property professionals’ only disclose commissions on request as required by the RICS code and not automatically therefore the vast majority of flat owners would not even know of this abuse or their right to challenge it.
Another concern we have in the current unregulated system is for the majority of flat owners who are obliged to pay advance payments and contributions to sinking/reserve funds.
The House of Lords debate will be available to watch on-line and a number of Hon Consultants will be in the committee room to hear the debate.
Thousands of residential leaseholders could face hefty backdated energy bills despite a new Code of Practice that is supposed to protect them, a trade association for managing agents has warned. 
