Is a new regulatory approach required for property management agents?

At the ARMA Conference on the 18th October 2017, Communities Secretary Sajid Javid announced plans for new measures to help create a fairer property management system that works for everyone.  You can get the full story on this in an article from Mark Chick in our previous issue.   

A government call for evidence was announced giving everyone the opportunity to have their say by 29th November 2017.  

Katie Kendrick a leaseholder and founder of the National Leasehold Campaign said: 

”Self-regulation is never going to work.  There are far too many loopholes in the system that self-proclaimed management agent professionals exploit for their own financial gain.  They know how to “work the system” and have been doing so for many many years.  

 It is very clear management agents are in place ultimately to serve the freeholders, with very little interest in the leaseholders.  There is a complete imbalance of power that seriously needs addressing.”

”The government must implement robust regulation that is supported with legislation.” 

”We are supposed to live in the age of the “empowered consumer”, as a leaseholder this couldn’t be further from the truth.  Implementing the commonhold system would be a much fairer way forward.

The process of Right To Manage needs to be simplified so that leaseholders feel able and confident to use this option. There are too many barriers in place for Right To Manage in its current form.

Over the past decade new build housing estates are charging management fees for the upkeep of communal areas.  Not all Leaseholders are eligible for Right To Manage of these areas as management agents are often written into the lease and are hard or impossible to remove.  Thus, disempowering leaseholders who currently have little or no influence over quality, price and service received.  Leaseholders need to be given back control over these management companies.

Challenging management agents is enormously off putting due to the incredibly high tribunal costs.  There needs to be a simple process to hold management agents accountable when they abuse their positions.

I do not think simply signing up to standards of practice through membership of a trade body is going to work.  One has to question the “Trade” that got us leaseholders into this position in the first place.

Utilising any regulatory body that is currently in place such as ARMA is also questionable. Running the National Leasehold Campaign, the general consensus from leaseholder is that conflict of interests run very deep in this sector.  It’s going to take much more than “tweaking” the current system to sort out this mess.

However the government tackle this issue, Leaseholders must have TRUE representation on any government body implemented.  Complete transparency is essential.

This industry needs to stop trying to tie leaseholders up in knots.”

Andrew Bulmer CEO of the Institute of Residential Property Management said: 

"There is an awful lot of noise going on about the tenures of leasehold, commonhold, etc., which is not the subject of this consultation.  That was last month’s consultation.  This is about managing agents and, whatever the tenure, someone has to manage our vertical communities.  So, IRPM applauds DCLG for focussing on managing agents.  The exam question is…

Q.  Should managing agents be regulated and qualified?
A.  Yes.  Duh…

"It is beyond comprehension that the safety, welfare and assets of our people in our vertical communities can legally be managed by an unqualified individual working for an unregulated firm."

However residents are empowered, changing agents is never going to be as easy as switching utilities, and most folk don’t even do that.  In the event, how does a consumer know what a good agent looks like, given most of the work done goes unseen?  The consumer needs some help here, some protection.

Government liked “redress”.  If something goes wrong, pursue a claim.  Redress because your mobile broke is one thing, but redress after a fire doesn’t really cut it.  Redress is “the ambulance down in the valley” (a brilliant little poem – Google it) rather than the fence at the top of the cliff.  Prevention is better than cure.  

Prevention is competence, diligence and accountability.  Which is delivered through qualifications and regulation.

There are already regulators; RICS, ARMA, also Propertymark for lettings.  But they only reach those agents that volunteer to be regulated, the rest beyond reach.  The “self” bit of self-regulation doesn’t reach into the darker corners.  So, make membership of one of those bodies mandatory.  There is a choice, thus competition in the market and new entrants could come.  At a stroke, every managing agent is visible and accountable.  But to what standard?  Consumers want simple, so a single code, borne of the existing RICS, ARMA and ARHM codes.  “The Code” to be held by a new oversight regulator, because bodies that regulate shouldn’t write their own rules.   The oversight regulator, a lean body made up of the regulatory bodies and independent lay people to ensure impartiality, will ensure consistent regulation across the bodies, by…

  1. Holding the codes (one each for leasehold and lettings)
  2. Setting consistent rules on how the regulators regulate
  3. Checking the regulators are doing their job fairly and consistently

In summary, most of the regulatory framework already exists in industry, it just needs making mandatory and consistent.

Competence is maintained by mandatory qualifications and annual CPD (Continued Professional Development).  Again, there are multiple providers giving choice but I’d be failing my duties not to mention IRPM, the leading qualifications professional body in leasehold and build-to-rent.  Who is qualified to what level will be the next debate, but with lives and homes at stake, let’s not be setting the bar too low.

Sally Mills a leaseholder on Facebook said:

"A regulatory approach would prove futile unless it had laws incorporated within it that allow flat owners to have improved powers for all decision making concerning the block they reside in.

The alternative the government could consider would be to devolve leasehold and commit to the tenure of commonhold as was initiated in Scotland. With this system flat owners  would have the option to self manage or employ a managing agent company of their choice…. "

"Nowhere in the world does such a feudal, unfair, archaic and outdated system such as our leasehold tenure operate."

Andrew Kafkaris Director at Bruton Street said: 

"The quality of service and professional advice received from managing agents varies significantly. There are plenty of horror stories. Some of it is poor from unskilled people at rogue companies and some of it criminal. Currently you need no qualifications, or meet any statutory checks or licensing, to become a managing agent or Director of a resident's management company. Our staff and firm is regulated by the RICS but it is not mandatory.

"The law is complex and people's lives at stake.

The government and industry needs to examine whether there is a market failure. The solutions to examine are a "kitemark" assessment for firms and developments (like an EPC) and the level of qualification of those able to practice as a managing agent." 

Consumers and landlords need a clear way of understanding what they are purchasing and the level of professionalism and service they need.  Well-trained staff and well-resourced professional services firms are likely to charge more. The current marketplace means there is financial incentive for many landlords to select the lowest cost option. That doesn't always fit-well with delivering well-managed, compliant and safe homes for people.

The new build sector should be the exemplar yet it is arguably an area where low regard is given to future management. That's changing in the build to rent sector but buyers of new homes are prone to a false sense of security and don’t scrutinise service charge budgets."

Bob Smytherman Hon Chairman of the Federation of Private Residents Association said:

“We are concerned that throughout the call for evidence document there seems to be confusion between the differences in a trade body and a professional body. In many ways we accept that there are good intents on the part of most of the bodies in the sector. We have a concern that some of the bodies that may respond may be looking at this as a commercial opportunity and we wanted to alert Government to this.

“Consumers lack trust in regulation and enforcement by trade or professional bodies and have greater faith in independent regulation.“ 

There is a complete imbalance in the sector between the representation of those that are paid by leaseholders and those that actually are the paying leaseholders. Government and ministers in various forms have shown their willingness to meet with and attend functions put on by trade and professional bodies but not give the same attention to events for leaseholders, the very people paying for all the services and enabling those bodies to exist.

At a recent FPRA event a representative from ARMA spoke and made some excellent points and he threw out some figures that there are around 4-4.5 million leasehold properties in England and Wales: That managing agents who are members of ARMA managed, about 1 million that managing agents and others manage about another 1 million, and this suggests to us that there are 2-2.5 million leaseholders that are not in any contact with a trade or professional body and like most of our members, self-manage.

It is important that the department resists any imposition on people who manage their own leasehold affairs or do this collectively through residents’ associations or the numerous other bodies allowed by the legislation for leaseholds who collectively manage their own affairs and whose officers are democratically accountable to their neighbours.

Directors of RTM and RMC companies etc hold office by reason of having been elected by their leaseholder members and are very often unpaid.   That, rather than passing exams (or being approved of by ARMA or RICS or others), is their qualification for holding office. We feel strongly that any proposal to impose regulation on such directors should be resisted.   It is already often hard to get volunteers in some blocks and it would be totally unrealistic to expect part time volunteers who look after their own homes to take professional exams designed for full time persons working in the sector.

We are concerned that some in the sector may see this as a major opportunity to deter Self-Management and thus achieve business for Managers, who often charge £300+ per unit. Great care must be taken not to inadvertently add a massive cost and burden to Leaseholder. A great many live in converted houses, small blocks etc where there is no great desire or interest for agents to manage because of size in any case. A mistake here could double the Market for Managing agents at massive cost to leaseholder, for little if any benefit.

We are fully aware there is a major gap in protection of leaseholders’ funds and look forward to the department bringing forward ideas for protection of those funds, possibly in conjunction with the Financial Conduct Authority and the Financial Compensation Schemes."

Baz a leaseholder on Twitter said:

"Absolutely. Self regulation will never work when other people’s money is at stake!" 

Hannah Forkan Associate Director at Grosvenor Britain and Ireland said: 

“In most cases buyers don’t know what good property management looks like, so they don’t know what questions to ask. A rating system would improve transparency and safety, drive up standards and educate the public about what they should expect.”

”...buyers don’t know what good property management looks like, so they don’t know what questions to ask.”

91% of respondents on Twitter agreed that YES a new regulatory approach is required for managing agents 

Brad Parker MD of Future Fire said:

"Working in the fire and life safety industry, Future Fire acts as a consultant to a number of clients in the residential blocks sector. The majority of property managers we work with are highly professional. They are fully aware of their obligations regarding compliance with health and safety legislation and are committed to keeping their residents safe in their homes.  

"...in an unregulated industry, there is too much wriggle room for those who do not have the high standards that should be required of those responsible for others’ safety." 

However, in an unregulated industry, there is too much wriggle room for those who do not have the high standards that should be required of those responsible for others’ safety.  We are often shocked by the many - often small but vital - safety issues that are overlooked due to ignorance of the law.  

A new regulatory approach would ensure these grey areas are put under the spotlight and could go a long way towards promoting safer environments for residential blocks across England and Wales."

Ian Hollins Director of Clear Building Management said: 

"Yes, additional protections for leaseholders are always welcome and the managing agents who aren’t working in the best interests of leaseholders need to be rooted out, but reform of managing agents regulation is only one piece of the jigsaw.

At Clear Building Management we only work for leaseholder led RMC/RTM’s and only when this is the norm and leaseholders have the power to hire and fire their agents, will the” bad guys” be rooted out.”

"Leaseholders also need greater powers through reform of Right to Manage legislation and the entire freehold system." 

Sebastian O’Kelly Trustee of Leasehold Knowledge Partnership said: 

"Collectively residential managing agents look after billions of pounds of other people’s money, supposedly in “trust” (although there are no trustees).

They do so on appointment by freehold owners – not leaseholders – and the money is spent on the building at the freeholders’ discretion."

"In no other area are such sums belonging to others so inadequately regulated." 

Those who do the paying, and have perhaps 97 per cent of the capital in a block, are disempowered. So they pay for the insurance, for example, but are not a contracted party and cannot demand evidence of commissions paid to the freeholder.

This is absurd and anomalous: other countries do not sell apartments as vulnerable tenancies – leasehold – but with the security of freehold in common.

The third party parasite – the freeholder – does not exist, let alone appoints management and controls funds."

Michelle Peacock a leaseholder on Facebook said:

"When I first bought my flat the management fees were £900. They steadily increased to £3000. No one would buy the flat because of the extortionate fees. I even offered to pay them for 2 years as an incentive and hoped that they would eventually come down. The management company wanted the extra money to build up a reserve fund.

"What is a fair charge and how should that be worked out?" 

Every time I had a buyer the pack was £400. Same pack I’m sure but I never got to see it or received a copy.

This is the sort of issue that needs regulation. 

What is a fair charge and how should that be worked out? This is one issue that should be regulated. The charge for sellers packs should be stipulated as they charge what they like. There is no way it costs £400 for each flat."

Nigel Glenn CEO of ARMA said

“The devil will be in the detail but ARMA, with its extensive experience gained through ARMA-Q, believes it is well placed to help the Government design and implement the right structure for regulation.

ARMA believes that regulation should not only be for managing agents but, where reasonable, should be extended to any organisation that is holding leaseholder money and involved in building maintenance, including self-managing blocks such as RTMs and RMCs.”

”ARMA has been campaigning for many years to have the residential block management sector regulated and we are delighted to see that this may finally happen.” 

Jamie Willsdon MD of Future Lighting said:

"As suppliers to the residential blocks sector, we work with a broad range of property managers. We are familiar with the considerable variations in knowledge, communication skills and reporting processes that exist across the industry. We work with many extremely professional block managers who are forced to compete for clients in a business environment that does not provide a level playing field.

"Residents are often unaware of the many technical, legal and financial issues with which their property manager should be familiar and they may be tempted to source the cheapest provider, only to find the service they receive is not all they hoped for." 

A strong regulatory framework could provide:

  • transparency for landlords and the end-user;
  • promotion of recognisable qualifications; and
  • enforcement of effective due diligence when appointing contractors and other suppliers.

The Future Group supports effective regulation of residential property management for the benefit of the industry as a whole."

Stephen Tomms a leaseholder on Facebook said:  

"I have a lot to say about these managing agents who abuse us. They create work for the sake of raising an invoice.

"They create work for the sake of raising an invoice." 

They replace security doors when there is nothing wrong with the original doors. They decorate when there is no need. They claim to clean carpets when they do nothing.  They invoice us to gutter cleaning when they do nothing.  

They employ window cleaners from Liverpool when these properties are close to Newcastle upon Tyne. They refuse to give us copies of the insurance documents.

The service charge increases on average by 32% per year, year in year out with no justification for that increase.  The unjustifiable service charge increase have a devastating effect on the resale value."

Dan Johnson Former Chair of Ealing Village Freehold Ltd, said: 

“A simple and straightforward rating system for property managers, much like the Ofsted system for schools, would enable buyers to see whether the property they wish to buy is well managed or not. How does the management company perform in terms of funding, leadership, speed of response and professional support?”

“...much like the Ofsted system for schools“ 

The Association of Leasehold Practitioners (ALEP) said:

"ALEP is ready to work with government and our members - including our managing agent members - to consider the ways in which standards and professionalism in the sector can be increased. We encourage our members to complete the consultations and requests for evidence, and welcome any opportunity to maintain dialogue with government and those within the sector as the debate on the future of leasehold and the wider property market continues.

"We welcome the government’s proposals which could, potentially, lead to the reform of the managing agent market." 

ALEP was set up ten years ago because many people who were looking for advice on leasehold issues were finding poor quality of service from professionals who claimed to be able to deal with these complex issues. ALEP members must have a proven track record of dealing with such cases to join the Association and the public can, therefore, be assured of a consistently high level of service, integrity and professionalism."

Caroline a leaseholder on Twitter said:

"Yes, already been to one tribunal and face more, plus tribunal decisions are not enforceable and require further court action."

"The system is a joke" 

Ben Hume Managing Director of Evolve Block & Estate Management said: 

"Managing Agents play a vital role in managing millions of pounds of property and many thousands of pounds of clients funds. Any miss-management of these can cost leaseholders dear. Despite the rise of organisations such as ARMA and IRPM, they remain voluntary.

"We, as regulated and qualified agents (and the wider industry as a whole), often get the blame for a small number of unregulated agents’ mistakes and bad management." 

There are too many unregulated managing agents out there (and with the letting agency fee ban, probably more to come!) who make these mistakes with no repercussions or membership vetting to ensure the highest standards. You would think this only impacts those leaseholders managed by that firm but it affects the entire industry as a whole.

We, as regulated and qualified agents (and the wider industry as a whole), often get the blame for a small number of unregulated agents’ mistakes and bad management. This cannot be allowed to continue if we are to ever change the tide of public opinion and support for our important role in residential leasehold management in the UK."

Chris Baker Managing Director of McDowells Surveyors said:

"The issue as we see it is that with the proposed broad wording of the term fee, there will need to be close consideration given to what actually you can and cannot charge for. An example of this could be leasehold enquires prepared by a managing agent for the sale of a flat. This is one of those occasions where the buyers solicitors will have numerous questions or an information pack will be required. Under the proposals will this type of time consuming task actually become something that managing agents will no longer be able to charge a fee for as it’s in connection to a tenancy. As always lots of questions and the devil will be in the detail."

"...there will need to be close consideration given to what actually you can and cannot charge for."