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.