The 'Right to Manage' - not the only answer?

Search it on the web and you might be forgiven for thinking that Right to Manage (RTM) is the new panacea for resolving property management issues. Numerous new businesses advertise RTM as the quickest way to rid your development of bad management practice and reduce costs. But look closely at the small print and you may find that the only beneficiaries are the managing agents who will either charge on a per unit basis for the service or expect a management contract in return.

On paper it seems sensible to take control of management but do not under-estimate the value of having a third party landlord to bash; the dynamics become very different when it is your neighbours who have the control. Do not also be fooled into thinking that RTM is simple - it can be complex and is rarely achieved without costly legal assistance.

So let’s look at the facts. RTM requires 50% or more of the occupants to sign up. On larger schemes, particularly those with absentee owners, this is not always easy and can be exceptionally time consuming. Those who choose not to sign up will still benefit from any efficiencies, but bear none of the costs. Flat Living Magazine estimates the costs to be £100-£300 per flat and in addition, the freeholder/landlord can recharge his reasonable costs. How are the costs of RTM contained, particularly if the landlord resists and pushes the matter to a LVT?

Some owners will be required to become directors of the new company. These responsibilities should not be taken lightly.  Even if there are individuals with the appropriate knowledge and experience, it will still require their time and commitment. You will not necessarily know whether these individuals are qualified and genuine or whether they have their own agenda until it is too late.

Using RTM to control the services will potentially result in a freeholder/landlord who is forever uncooperative or at very least unhappy. Remember the freeholder/landlord will be entitled to a vote as well.

I would advocate that reaching agreement in partnership with the freeholder to change your managing agent is most likely to be the quickest and most effective way of bringing about a change in the quality of services received. Your freeholder/landlord does not generally wish to deal with RTM actions and will almost always prefer to address the threat of RTM by enforcing improvements in the service received or agreeing to a change of managing agent. Equally leasehold owners do not always wish to inherit the attendant responsibilities and liabilities that come with RTM.

Because RTM is a ‘no fault’ right, it represents a powerful threat to achieve the standards that you require and to create a partnership. The point is that you don’t need to go through with it to achieve change.

Why do I know this? Because in such circumstances we have worked with residents’ groups at major developments to deliver exceptional services for both landlords and owners without the need for Leaseholders to go to the time and expense of completing the RTM process . In each case, rather than RTM, we approached the landlord with a proposal on behalf of residents to end existing arrangements. Our experience is that both parties are usually happy to do this and to address the concerns of each. A beneficial relationship is established and the pain of RTM is avoided.

Of course the handover from the old agent is not always easy – but that part does not change regardless of the method used to get there.

No Regulation – so what next?

The case for regulation of the leasehold block management sector has never been stronger and yet it has never has it seemed further away. Quite clearly the Coalition does not see this as a priority and the lack of barriers to entry means that new entrants appear weekly. Sometimes these are ex-managers taking the opportunity to branch out on their own but, more often, they are developers taking management in house or estate agents diversifying in tough times. The importance therefore of finding qualified, expert managers with track records who are members of the Association of Residential Managing Agents (ARMA) must be paramount.

The case for regulating residential managing agents may remain strong but it could only ever have succeeded if operated in conjunction with landlords, developers and the intermediaries involved in the transactional elements of residential property. Set out below is a list of areas that also need attention if any form of regulation is really to have an impact:

·         LVTs The Leasehold Valuation Tribunals serve an immensely important role in ensuring that standards continue to improve by providing consumer protection. But they do need to ensure consistent decision making across the regions and that they do not become regarded as ‘punishment forums’ for landlords and their agents. Finally, it can take18 months to appeal to the Lands Tribunal (if you are allowed, if you can afford it and if your client is supportive). This is unfair on all parties and needs revision. Let us hope that the consolidation of tribunal services now underway brings about long overdue improvements.

·         We operate in a leasehold system where landlords influence far exceeds their stake and they can and do take advantage of a captive customer. That will not change whilst management and freehold ownership are intrinsically tied together. Agents (the word itself implies independence) should not be tied to the developer, landlord nor indeed the residents’ management company or tenants’ association. Landlords are beginning to recognise that, actually, independent managing agents who don’t own property are offering them a much quieter life.

·         Developer contributions to empty/unsold units or ‘void’ costs. At what point did someone decide that customers should pay for the empty units on an uncompleted scheme? I have worked with the most ethical and customer focussed developers who have a blind spot when it comes to paying their way for empty unsold units! We work hard to make these costs as transparent as possible and do not yield to tricks utilised to reduce them – but the reality is that your customers should not be paying for more than their fair share. The agent should not have to shoulder the blame for shortfalls that inevitably arise as the consequences of low-balling the service charge and failure to pay the full void costs.  Inevitably agents want to work with their developer clients in the future so they do as they are told. That doesn’t make it right.

There are solutions: Work with your manager to develop honest budgets with phased variances built in, agree the voids procedure, commit to making payments in the same manner as you would expect your customers to. Support your manager’s credit control activities. It is a partnership – if you want to beat them up then very soon there will only be one type of manager who will do new build work – those tied to the man who buys your freeholds.

Landlords and developers must ask who will give their customers the best service in this new world of longer term association with the product and the brand?

And, surely agreeing to be open, honest and clear about voids policy, agreeing to subsidise if necessary and not obfuscating and muddying everything is a real selling point? Customers, most of whom will have had some experience of this or will have heard stories, will recognise a clear selling point when they see one.

·         To this day leasehold owners are not appraised of their contractual undertaking when they buy a lease. The lease is rarely reviewed in any detail, these are, after all, the days of cheap conveyancing – what do you expect for £300? The solution to this is to ensure a minimum process and standardised approach to leasehold conveyancing.

·         Why is it that the sale of the freehold dictates so often who you get as your manager? Why is it that some investors were paying 23 years purchase for a freehold? Could it be that the value of management was being depressed? Could it be that the value of insurance was included? You do need to ask these questions if you do not want to be associated with this sort of practice.

·         Yes - there needs to be more transparency on insurance commissions and on this we are all agreed. However it is worth noting that agents are required to be fully authorised by the FSA (we pay a consultant to ensure that we are) and often deal with all claims handling. We have a department dealing exclusively with insurance matters. It costs real time and money.

·         Any threat to the continued existence of the Leasehold Advisory Service (LEASE) in the current round of cost cutting is a further threat to driving up standards and providing an essential service to customers that is not driven by a profit motive. We should all be rallying to ensure its continued and highly valued existence.

·         In residential management the needs of the community should normally take priority over the needs of individuals.  In today’s selfish society we allow individuals to delay and prevaricate at the expense of others, often putting buildings back by months or years and in the worst cases depressing asset value. It really is time that the wider implication of selfish or bullying behaviour was recognised by the courts, LVTs and bodies representing residents.

·         As the only form of regulation relevant to this sector, ARMA must continue to take the lead role in ensuring that standards are set at the highest levels and remain a source of education and unequivocal information to all parties.

The residential management industry is crying out for regulation that would create a barrier of entry to new unqualified managers and allow agents to charge a fair, single and completely transparent price for providing a professional service. It would level the playing field and the better agents would quickly emerge. Those not prepared to meet standards would quickly fail. Customers deserve service excellence at a price consistent with delivery.

Do we get the management we deserve?

At a BPF Conference more than ten years ago I heard an argument made by senior industry figures in a lecture entitled ‘Do we get the Management we Deserve?’, that build to rent would never take off.

The argument was, essentially, that whilst residential management was a cottage industry largely populated by lesser beings, there was little or no chance of getting expert management of the quality that institutional investors require. Considerable consolidation and modernisation of the industry would need to take place before this could be seriously contemplated. The reluctance of institutions to invest in quality rented stock could be, in part, attributed to these factors.

Imagine my surprise then to hear the exact same arguments being trotted out last year at various conferences as one of the explanations for the slow start to the build to rent revolution promised the year before! 

The headlines in our industry have been dominated by service failures and concerns about transparency. But don’t be fooled into believing that there are not huge changes that have taken place and continue to take place in residential management.

I am aware of a good number of expert, transparent, cost effective, national and local providers of just such services who would have no difficulty meeting the complex requirements and cost constraints of such portfolios. Indeed some are already doing it for the student sector, for private owner landlords and for letting agents who only wish to provide front of shop retail services. Many work to highly incentivised contracts that reward the best returns and lowest costs.

So what has changed in the last ten years? Well, more legislation and regulation of course, but also recognition of the real opportunity that the provision of high quality services can offer.  The growth of new, independent, professional, customer focussed agents and an increase in the private rented and purpose built student sectors, creating with it some real portfolio management expertise.  Perhaps we are even witnessing the lifting of the miserable, backwater image of management in this sector? Well maybe.

Mostly however there has been recognition of the need to provide better, more accountable and performance driven services. This has resulted in portable specialist qualifications (there are over 2000 qualified leasehold managers for example), a massive increase in corporate members of ARMA (the residential block management trade body) and huge investment in technology and specialist management systems.  In our business we can now provide, at the touch of a button, instant snapshot balancing accounts, aged debt reports, property inspection reports, responsiveness and complaints measures and complaints procedures giving customers proper redress through independent mediation.

All this wrapped in 24/7 service with a smile, not given grudgingly, because volume management in the residential sector can be genuinely rewarding.

So what is it that portfolio managers want from their agents? Here is my list of essentials:

1. Expertise – dealing with residential leasehold and portfolio rented is not like other property management and the amount and variety of statute and regulation applicable is significant.
2. Systemisation – dependable, flexible, technologically driven reporting and efficient credit control.
3. Compliance – health and safety, regulatory and legal – in house is more efficient.
4. Flexibility – things change fast and managers need the ability to adapt. Clients’ priorities change.
5. Responsiveness – if you can’t answer the phones and emails then give up now.  You need to be first and foremost experts in customer service and then property experts. If you do not want your team dealing with constant calls and high volume email, then this is not your sector.
6. Reporting – clear, simple, accurate and regular, with the agent’s recommendations appended.
7. Access to the senior people in the organisation and regular communication from them.
8. Track record - What do they do, for whom and for how long? Are they independent and debt free? What is their story?
9. Transparency
10. Results – Good practice almost always means better returns.

Not perhaps as difficult as we like to imagine.

Regulation of Managing Agents - why we want it now!

At Mainstay we pride ourselves in acting fully in accordance with the myriad statute and regulation that goes with management of property in our sector. This does not always make us popular. We are ruthless in applying the rules, we are positively harsh in our application of the debt collection process and we remain committed at all times to following the letter of the law when it comes to health and safety matters and risk assessments.

For many years members of ARMA, including ourselves, have called for formal regulation of their industry but, whilst met with a good deal of sympathy, the Government department with responsibility for housing has chosen to avoid regulation, leaving the industry and ARMA to self regulate.

Of course this means that anyone can set up as a managing agent. You do not have to be a member of ARMA, you do not need previous experience and you might not choose to pay for PI insurance and you might even offer your services for £25 a unit.

In the current climate our ‘cottage industry’ has seen a raft of new players. Some of them are estate agents who are struggling in the current market, some are entrepreneurs who can see an opportunity in an area that has grown rapidly in the last ten years and others are former managers looking to go it alone.

We do not seek to discourage this but remain concerned that, as an industry, we hold some hundreds of millions of pounds on behalf of leaseholders and are responsible to freeholders or resident directors for the health and safety and quiet enjoyment of their schemes.

Ask yourself these questions when appointing a new agent:

• Are they members of ARMA? Our trade body is the only body in England and Wales to deal exclusively with matters relating to the management of residential and mixed estates and buildings.
• Will they undertake the fire risk assessments and other risk assessments required by law or by regulation?
• Will they hold your money in a separate account and in trust as required by statute?
• Do they have a credit control department and a proper procedure for collecting outstanding service charges?
• If they deal in any way with insurance matters are they regulated members of the FSA as they are required to be?
• Will they organise your Directors and Officers insurance and other specialist insurances?
• Do you have a named director, regional manager, manager and assistant for your development?
• Are they properly qualified to manage your block?
• Can you review accounts, insurance documents, lease details and budgets online at their website?
• Are all their contractors approved and correctly insured to work on your scheme?
• Do they have a track record and demonstrable expertise?

Until this industry is properly regulated there are plenty of rogues and plenty of poorly equipped and inexperienced players out there. Make sure your choice is driven by quality and comprehensive service and not simply by price and convenience.

David Clark FIRPM AssocRICS - CV (of sorts)

Twenty five years in leasehold residential and mixed use estate management takes its toll on even the hardiest individual and David is no exception. As a result a catalogue of ailments including a reluctance to take unidentified telephone calls and an irrational fear of scaffolding, have left him in long term counselling. Surprisingly, and despite this, his previous role as MD of Mainstay Group saw him heading a team of some 500 staff nationwide - some of whom recognised him from pictures and look forward to meeting him in person.

His appointment said more about the woeful lack of quality staff in the industry than it did about him. Officially however; “his exceptional knowledge and high industry profile have allowed him to add real strategic value and to raise brand awareness such that Mainstay is well known as one of the most innovative and fastest growing managing agents in the UK, currently managing over 35,000 units.”

Having failed at school, David was forced to bribe his way into a secondary Polytechnic to study Shipbuilding and Mythology. He started his property career in 1985 with East London Housing Association, a corrupt social housing provider and cover for international topsoil smuggling, before moving into the private sector in London, working for legendary leasehold gurus such as Gerry Fox and Michael Page and learned to make tea, file papers and attend LVTs.

In 1996 he took the misguided opportunity to relocate to Birmingham where he joined join James and Lister Lea where the partners still smoked cigars in their wood panelled offices whilst scratching out memos with their quill pens. Here he set up a residential management department, becoming a Partner in 1998 and Head of Management in 2000. Mainstay begged him to join them in October 2003, indicating that the commute from Sutton Coldfield to Worcester was nothing and “many of us do it regularly in under ten minutes.” He became Group MD in December 2007 when all other avenues had been exhausted.

He is an advocate for raising standards in the industry, but then who isn’t? He was closely involved in the formation of IRPM, becoming a Governor before stepping down to take on the Chairmanship of ARMA. He held this role for three years until some other idiot could be persuaded to take over. He remains generally inactive on the Practice Committee and on Council.

David believes that, with better skills and qualifications, managing agents could seek career opportunities elsewhere.

David lives with people and has some hobbies.

Compliance and Credit Control more important than ever!

In property management compliance and credit control are In property management compliance and credit control are more important than ever – choose your agent well!

In tougher times it is to be expected that new businesses will spring up as individuals seek to create there own and as firms diversify to protect themselves. Residential block management is no different and we have seen a positive glut of new players in the last two years. This is generally a good thing I suppose, but residential property management remains a cottage industry and standards continue to vary hugely.

What concerns me most is the message that many new managing agents give on their often highly professional websites. They usually go like this:

We are open and transparent

We are cost effective and will save you lots of money

We will inform and discuss with you all changes

We will provide on-line services

We are local people

All other agents are cowboys (or veiled hints at this)

Doubtless these are all honourable and well meant messages. But they are aimed at leasehold customers and play on the understandable fear that they are being ripped off by unscrupulous invisible landlords and their agent henchmen.

What though of ‘experience’, ‘expertise’, ‘compliance’, ‘probity’ and ‘who are we’? Usually there is very little on these topics because they set up last week, have little real experience and no track record.  If you are looking for a new agent, choices are myriad. So here is my guide to what you really need to ask, whether you are a developer, a landlord or a residents’ management company:

• What is your experience, qualification and track record?
• Who are your directors and key staff and what is their experience and how do I contact them? Oh, and why aren’t your names on your website?
• What are your key compliance activities – how do you ensure the health and safety of my customers and absolute compliance with statute and regulation? Show me some key reports in this area, not the actual fire report but how you track that such reports are being done and then acted upon?
• What systems and technology do you use? Have you got a proprietary management system? Your not using a spreadsheet for all this are you!?
• Demonstrate to me how you control service charge costs – what are your budgeting and periodic reporting capabilities?
• Are you members of ARMA and thus following RICS guidance and members of an Ombudsman?
• Can I see your complaints procedure, your insurances and last set of accounts?
• Tell me about your credit control activities. What are your procedures in this respect? How effective are they?
• Tell me how you will add value to our asset?
• Are you FSA registered in some way (if not then you can’t deal with any insurance matters - including claims handling)?
• Show me around some buildings you manage please.

Three things remain absolutely essential in residential property management: First is that health and safety compliance requirements cannot be ignored - and yes, I still take on large established managements where no fire risk or general risk assessments or other activities have been undertaken, where emergency lights and AOVs have not been checked or fire alarms serviced, where dry risers, lightning strips and man-safes are untested. Where water tests are not completed, lift reports not acted upon etc. etc. Terrifying isn’t it?

Secondly controlling arrears of service charges is key to running buildings successfully. If you don’t do it effectively then there is an inevitable spiral downwards that is unfair on those who pay on time and ultimately impacts asset values. Make sure your agent has a clear and sophisticated policy for dealing with late payers as a priority.

Finally this is a service sector industry – if it doesn’t act like a customer service driven company then it probably isn’t for you.

Sadly, until something goes horribly wrong for an agent who has not delivered a fully compliant service, the industry will continue to be price driven. You get what you pay for though. Watch this space as some of the new entrants find it very much tougher than expected – I know some already are.  You can’t do all this for a fee of £100 per unit – I promise.

This remains a complex business that requires real experience and expertise - especially in an unanticipated crisis.  Make sure you pick a winner.

Managing Agents must avoid a 'Race to the Bottom'

I have always believed that you get what you pay for in life. This applies to property management and the management of your apartment development as much as it does anywhere else. In property management I have witnessed increasing pressure on price, both as a consequence of increased consumer involvement and of a growing number of new businesses who are prepared to buy opportunities. However, the practical outcomes of such activity need to be considered very carefully when dealing with customer’s homes and their well-being within those homes.

Many would argue that property management in the residential sector is long overdue a regulatory framework within which to operate and there are many good arguments to support this. But operating is this sector is not without regulation and I can think of few sectors that are required to act in accordance with so much legislation and regulation already – particularly relating to fiduciary duties and to health and safety. This in itself is part of the problem. If you choose to bypass sections of regulation that have cost implications, then you can. Until there is a resultant tragedy (or indeed a large number of people loose their money) no one sits up and takes any real notice.

Consequently today you can get quotations to manage a complex block of flats that range hugely in price for the overall service. The agent’s fee itself may vary even more widely. Why? Because you are not comparing like for like. I have turned down management opportunities where the customers do not accept that it is prudent to ensure that risk assessments are carried out periodically, where they do not accept it is important to revalue for insurance purposes and where significant payment to the residents’ management company directors is not seen as ‘unusual’.  I have had to withdraw from advising a group of residents who wished to manage a major works project themselves and avoid all that nasty, costly consultation and supervision.

Statutory requirements and regulations do not exist to be bypassed – they are rarely advisory. They exist to protect us all from poor or criminal practice and improve our chances of survival. Seeking best value is one thing, cutting out costs altogether is another.

A ‘race to the bottom’ is normally defined as a competitive situation between countries or states that leads to dismantling of regulatory practice in order to seek ever better competitive advantage.  We are seeing the same thing happen in property management and it is to the ultimate detriment of our client’s assets.

Of course, it is also to the detriment of the workforce and the customer who bear the brunt of such a race as standards and pay rates are eroded in order to ensure that more business is won. How this effects the standard of management can already be seen on schemes that have had little or no credit control activity, poor health and safety records and constant turnover of on site staff.  It leads to a downhill spiral that normally takes two to three years to reveal itself. How do I know? Because we are in the process of rescuing a number of schemes that have chosen their managers entirely on price and are now trying desperately to collect outstanding sums, raise budgets and get their asset back on track.

Consumer pressure has good case to exist in the residential sector. Cases of mismanagement and overcharging are myriad. But beware! There are many who are now seeking to take advantage of such misfortune who have neither the track record nor the expertise to undertake what remains a highly skilled role.

Cheapness and good value are not the same thing. Get the best value by opting for those who can do a proper job at a fair price, check their qualifications and track record, ask for examples of similar properties and visit them and speak to customers.  Who owns them, what are their unique aspects and what is their mission? Speak to the manager on the ground. Finally, compare them with others on a like for like basis. This may mean creating a unique tender document that all parties have to complete. The public sector gets this right with pre qualification questionnaires (are you qualified to put a price in?) and then a tender document that all successful applicants must complete. I have just seen the first one of these issued for a large management – it is a wonderful thing!

Finally, I cannot stress enough that if you are seeking a new manager then protecting the value of your asset now and into the future is paramount. Saving money by cutting corners is just plain stupid.