My Residential Management Predictions for 2018

AI, AI, meet your new Property Manager...

1. Full overarching regulation is coming, but slowly. Expect another two years before any primary legislation arrives, it is a long process and, frankly, only primary legislation will go anywhere near the type of regulatory oversight, consolidation, simplification and improvement of existing leasehold principles that is required for any changes to be meaningful.

No one will be surprised at the outcome of the recent consultation; consumers call for an end to feudal leasehold, managing agents welcome more regulation. Yawn.

The real solution lies in pushing professional managing agents, removing a small number of rogues by creating some strict membership requirements and increasing barriers to entry. Add to this some real education and information for all stakeholders.

For every story of mismanagement, rip-off fees and criminality there are many thousands of success stories, added value and risk mitigation. As an industry our PR is appalling - start telling the good stories and shouting them loud. Many built environments are positively enhanced by the activities of managing agents. Why are we scared to shout about it?

2. More leasehold flats will be built - leasehold is not going away anytime soon (we have seen the back of houses though). Multi- tenure developments are difficult for HAs without the leasehold system. This is because leasehold works well with shared ownership and we all know that shared ownership is growing exponentially. Whether or not that is a good thing, I will visit in a later blog.

Additionally, look at who is investing in freeholds. Pension funds (benefiting a large swathe of the population) with a long term interest in looking after their assets and protecting their reputation. This is resulting in a sea change in the way that property is be managed - more accountable, more transparent, more community driven and therefore more valued. High quality oversight has arrived already, regardless of any future additional regulation.

3. Your clients are changing. Many of them are local authorities or housing associations or hybrid niche developers working with the aforementioned. They have very different ambitions for their customers. They see themselves as placemakers and want to remain embedded in their communities for many years. Managing agents need to be changing too. Some are.

4. Disruptors to leasehold management - it's not just pressure groups, all party parliamentary groups or negative press coverage - its the new approaches to management that will be driven by new entrants into PRS, student and multi tenure housing including hoteliers, venture capitalists, pension funds, US multi family providers. They are not like traditional landlords. They will not behave in the received way. This is a good thing.

5. Community Engagement is the new buzzword! But actions speak louder than words. Expect to be asked to evidence your actual, real, community activities.

6. Housing Associations - work with them? Ignore them? Watch them fill your space? They are better funded and more sophistcated than you ever imagined and will represent a significant part of the future residential management market/opportunity. Get to understand them. How can managing agents improve their relationships with HAs?

7. Commonhold Mark II - A revisit to the original Commonhold and Leasehold reform act is long overdue. Some straightforward amendments could make Commonhold more workable. But, without an element of compulsion or reward, it will remain a distant second to the established system for decades to come.

8. The price for fully compliant, transparent and responsive management is going up... customers will pay for accountable and expert management if they can see measured results.

9. PRS - it's big, it's here, it needs expert property managers - expect owner/developers to come raiding your team for the best soon.

10. Artificial Intelligence - we operate in a people dependent sector. How much do you think could be done by AI? Have a good think about this - a huge percentage of what we do relies on accurate input and output. Robots do processing better, they are always correct and can work 24/7.

Early adopters will steal the market.

11. Grenfell - When I was a kid my Nan lived on 21st floor of Stebbing House, just down the road from Grenfell Tower.  I spent my summers living there and working as a City foot messenger throughout my teens. I was also at school and in the same year as Eddie Daffarn, the blogger who warned of an impending disaster at Grenfell and was, allegedly, ignored.  I am also a property manager and so, like many, I feel a connection to this tragedy, the saddest and most significant residential tragedy in my lifetime.

Have I ever brushed off a cry for help from a resident because it seems to be absurd, exaggerated or unlikely to transpire? Would I do so in the future? No. We must ask ourselves the Grenfell question every time someone suggests something unlikely is possible.

In future agents must be appointed principally not only because of their professionalism and expertise but also because they demonstrably listen to and reflect upon comments and concerns from within the communities whose homes they manage. Sadly this has been the worst way to have to recognise the importance of professional property management and its impact on our built environment.

I would hope that this industry's destructive race to the bottom has now concluded. A more thoughtful, intelligent future beckons.

DCLG Update

Just after I make my predictions along come the DCLG with a statement that includes: making certain that ground rents on new long leases – for both houses and flats – are set at zero.  I had been told that this might happen (by someone close to discussions) but found it hard to believe - after all this will potentially impact the value of the existing leasehold market and has damaging consequences around risk and costs. However the detail is a long way from complete and the statement includes reference to exceptions that are being discussed with the industry. Surely controlling starting ground rent values and reviews, along with promoting a workable commonhold solution as an alternative route is the way forward? 

Managing Agents and Housing Associations - Working Together

Hi Everyone

Many of you will be aware of the work we are doing trying to address the issues that Housing Associations have working with Managing Agents and vice versa.

The attached report is the initial draft of a document which will provide the foundation for subsequent work on:

 ·         A New Development checklist (July 2017)

 ·         Final Report (August 2017)

 ·         NLG Good Practice Guide (September 2017)

 ·         Joint Code of Conduct (November 2017)

I hope you can find the time to review the report and give feedback by Friday 4^th August please?

NB - We are looking for the final report to include Case Studies and other examples of existing Good and Poor Practice in this area. What has worked in such relationships and what is the impact when arrangements are particularly bad? Please let me have any such examples which will be helpful in promoting sign up to the final Code of Practice

Happy of course to answer any queries.

Regards

Alan Wake FIRPM and David Clark FIRPM

              

alan@castmediagroup.com

davidclark@mainstaygroup.co.uk

A guide to ensuring the best results for all stakeholders when working on leasehold and multi tenure schemes with Managing Agent and Housing Association input.

Executive Summary

There is no avoiding the fact that Managing agents (MAs) and Housing Associations (HAs) are increasingly working together on multi tenure schemes to deliver service charge management to their respective customers. HAs are often the largest single investor in a scheme and see MAs as a 'one size fits all' approach to a complex problem.

Often the MA will have overarching responsibility for the collection and expenditure of the service charges in accordance with statutory and regulatory requirements. HAs will either pass these costs on to their customers or make payment themselves. The cost of service charges for HAs is significant with many HAs now paying out £millions per annum in variable residential service charges and variable estate rent charges.

Too often there has been little communication between those who will directly manage the properties and no training or understanding of how these charges arise. The first communication is therefore a MA chasing payment or the HA asking for detail.

MAs cannot operate effective management without prompt payment of what is often a large proportion of the service charge contribution. HAs cannot pass these charges on to their customers or accounts teams effectively without a detailed understanding of how they arise. Service charges need to demonstrably represent value for both parties.

This report aims to pull together the thoughts of both parties and come up with some helpful pointers to working together to improve outcomes. Typically, the issues outlined in this paper will tend to occur on larger and more complex developments, but understanding them will improve relationships at every level and on all types of mixed tenure development.

The need to work together

Managing agents have been managing service charges for many years but have poor understanding of the aims and purpose of HAs. They simply carry on doing it “by the book” which can mean they will chase hard when there are outstanding charges.

HAs though, do not necessarily pass on service charge information to their customers who want to understand what it is they are paying for. There is also a disconnection in both organisations between property managers delivering frontline services and those in development departments doing the initial deals.

However it is clear that MAs and HAs are working together on many thousands of schemes ranging from small housing developments through to multi tenure mixed use schemes with many hundreds of units and a high degree of complexity.

There is willingness and an opportunity for both sides to work more closely, to benefit greatly themselves and to importantly improve services to customers. HAs have also become significant developers of new housing stock of all tenures. They can be profitable customers and allies for MAs.

·         Double charging

Managing agents charge a management fee, normally on a per unit per annum basis (questionable use of a percentage of expenditure does occasional resurface but is thankfully rare and is definitely contrary to RICS and ARMA guidance). This fee can start to look unreasonable when the HA is also recovering a management fee or admin fee from its customers. HAs need to be there at the outset when these fees are being agreed.

Managing agents need to ensure that they do not load all of their management fee onto, for example, the estate charges, when there are also heads of charge for blocks and parking. The net result of this is that the HA receives a charge that does not allow for the fact that they are managing the common areas of their own block. Management fees need to be allocated to each expenditure head to ensure fairness at every level and reduce the possibility of double charging. This requires good use of service charge schedules and careful drafting of lease terms.

There is some further useful comment on these issues within RICS Guide to Managing Mixed Use Developments.

·         RMCs and HAs

Residents' Management Companies (RMCs) allow developers to pass the responsibility for service charge management to a company whose members are fundamentally the leaseholders. This is a perennial problem for HAs who often hold head leases but in some cases are only granted one vote or who grant leases and have a vote for each, allowing them to control the RMC with potential for confusion and friction. Very careful consideration needs to be given to this element of the corporate set up. Conversely, HAs must engage with RMCs and not take a back seat.

If the HA is purchasing a significant number of dwellings does it make more sense for HA to be appointed manager within the lease or to take a headlease of the whole estate? Or should the HA consider taking informed control of the RMC?

·         Education

There is a requirement to ensure that HA customers are advised in detail about how charges will arise and be recharged. The more information on how charges are derived and how the lease allows for recovery should be provided by the MA and shared by the HA. Service charges can be complicated and the associated services opaque. There is a duty on all parties to ensure absolute transparency and plenty of advice and education in their delivery.

By way of example, Average service charges on new build in London now exceed £2,700 per unit. This means that an average wage earner will be paying around 10% of their pre-tax income contributing to services that remain largely invisible. (Guardian Money March 2016)  It is essential that MAs and HAs combine their services to ensure that customers receive high quality information about how services are paid for and delivered and how they benefit the asset value and the community.

Development departments need to understand the relationship between good design and management costs.

Collaboration and partnership

·         Understanding each other's position

Too often the relationship starts when the first demands for service charges are sent to the HA by the MA. Often this will be a demand for each and every lease held by the Association. Modern leases normally demand in advance so the charge can often be significant and prior to receiving any services.

In order to avoid misunderstandings there needs to be a constructive discussion prior to completion so that each party has clear lines of communication and details of how costs are decided and collected are both understood and agreed. It is not unreasonable to provide a summary of the costs in advance and to total the demand for the period. However this requires an agreement to work closely together at the outset.

·         Have senior level interaction

Managers and directors need to set the standard. This requires discussions agreeing what is to be reasonably expected.

For example: MAs should not load all of their fee onto estate charges if these are the only charges met by the HA or its' leaseholders. Charges can reasonably be split between different schedules. Building charges and estate charges should share appropriate proportions of the management fee - thus avoiding double charging when the HA add their fee for managing the building.

·         Working together, joint approaches, partnership, collaboration

Developers really want this too. The best managed schemes are notably partnerships between the main stakeholders. Collaborative approaches deliver much better outcomes and protect and enhance asset values which in turn benefits the community.

·         Training at handover

Generally MAs will be happy to meet with HAs and provide some basic understandings of the specific construction of service charges on a scheme and how this links in to the leases and collection of funds.

Starting early

·         Be in the room!

Developers generally want an early exit. They will set the service charge with a managing agent that allows them to sell units, minimise their voids contribution and exit smoothly. This will not necessarily always be in the interests of the HA or Good Practice. Solicitors for the developer will set up a corporate structure that allows easy handover to an RMC and/or a potential sale of the reversionary interest.

Does this represent an opportunity for the HA? Developers generally want rid of the freehold and want to sell affordable units – why not make it a package deal (subject to available funds)?

What are the HA rights to be? Will the HA be shareholders and/or directors of a RMC? How will your vote or votes be allocated? Will the freehold be sold without your consent, what is the ground rent clause - does it create a future issue?

Is the scheme manageable cost effectively? Does the HA really want 24/7 concierge services for example? Are the proposed systems the most cost effective in the long term? Are the replacement costs and life spans of plant reasonable? Who has the responsibility for insurance - does it sit with the landlord or with a RMC?

·         Bring your experts to the table

If you are investing in a significant number of units then be at the table to influence the lease terms, the corporate structure and the service charges and to maximise opportunities. This means coming to pre sales meetings with your experts, including your lawyer and property manager.

·         Understand what outcome you desire

What do you anticipate to be a fair and reasonable level of charges? Work closely with the managing agent to achieve this. If there are to be separate blocks/entrances is there a costs benefit to delivering services internally or will you benefit from any economies of scale delivered by the MA?

·         Work with any appointed MA.

It is likely that they have experience of setting up management services with the developer and will welcome your input and make adjustments and offer advice. The future success of the scheme is, at least in part, dependent on this relationship.

Leases, corporate structures and voting rights

·         Must suit all parties - RMCs, headleases, commercial elements, Special Purpose Vehicles etc., can all lead to complex corporate structures that will impact how you can interact with the overarching development plan.

·         RMC or no RMC - who shoulders the risk? Is this an opportunity being missed by HAs? RMCs give leaseholders control of budgets and of how management is undertaken but it can be difficult to find directors without a degree of compulsion. Will the RMC properly represent all occupiers including fair rented and private rented tenants and shared owners? In multi tenure schemes will all parties have a balanced influence?

·         Residents' Association - Consider not having a RMC where this is likely to create risks as above or where a golden vote will allow one party to overrule any decision. Residents' Associations can be formally granted by the landlord to give all parties a fair right to consultation and transparency.

·         Voting Rights - one size does not fit all. Where there are HA customers and the HA takes a headlease to a specific block it is quite possible that they will have sufficient voting rights to overrule any decision of the RMC on the broader scheme. Understandably MAs will look to avoid the creation of such voting rights although this can avoid inertia and issues such as a lack of volunteer directors. Certainly it is worth a discussion between the parties at the outset..

In complex schemes service charges can be a significant element of disposable income and clear informative advice on service charge structures, budget management and ongoing controls need to be clear for purchasers. For new purchasers, avoiding cost rises in early years requires an honest appraisal of the management costs from the outset. It is important for parties to recognise and discuss 'commercial challenges' particularly around the point of sale.

Service charge heads and allocation

·         Understanding the matrix and the schedules is key.

How are the charges to be split? Is there an equal estate charge? Are the units split by floor area? What does the lease say? What will be easiest to explain to leaseholders and what is equitable? It is very difficult to row back from the position created once the service charge matrix is completed - one party will always be disadvantaged.

If the matrix is not fixed within the lease there is always potential for challenge and the F-tT imposing alternative apportionments. Juggling certainty with flexibility, to take account of things changing in the longer term, is a delicate balance. This can be particularly tricky where the development also includes commercial units.

·         Why do we contribute to some things and not others? Who decides?

Generally the managing agent will work with the developers' lawyers to come up with a service charge framework that is as equitable as possible for all parties. This means ensuring that everyone makes a contribution to those services from which they will benefit. These will normally be wrapped up in an estate charge that will be apportioned in accordance with the agreed percentages in each lease. There may be charges made equally - such as a parking charge to those with a space. There may be charges for those that benefit from communal services. These may be apportioned in a way that reflects the availability and amount of benefit received (3 pronged - Availability benefit and use is a common expression in case law and particularly within commercial leases). The opportunity for creating complexity is myriad and unless HAs are at the table when these decisions are made they will be stuck with them and probably will never fully understand them.

·         Avoiding complexity

Creating a service charge matrix and budget can be a balancing act between over complexity and the creation of a fair allocation of costs. Simplicity is always easier to explain but there are many mixed schemes running with 20 plus heads of charge and significantly more line items.

·         Understanding Heads

Service charges on complex blocks can have several schedules for example:

o   Estate Charges - All parties including commercial tenants and houses are likely to contribute

o   Buildings Charges, internal - those leasing units in managed buildings on the estate will contribute if they use the internal common areas

o   Buildings charges, external - all building users including those such as commercial using their own entrance

o   Parking Charges - those with the benefit of parking only

o   Staff costs - who benefits from onsite staffing?

o   Commercial units - don’t benefit from much of the internal buildings charges but may cause more wear and tear to the estate as a whole

o   Insurances

There can be many others where costs are allocated to those who have availability, benefit and use. Understanding how the service charge is created and allocated is key to understanding how charges arise.

·         Capped charges

Capped charges are unusual but not uncommon in some regions and still surface from time to time as part of the planning requirement. Effectively this can result in the wider community subsidising the service charges for HA customers in perpetuity. A clear message around this needs to be agreed in advance and lease terms need to be very explicit about recovering additional costs from the wider community.

·         Voids collection policy

It is essential that there is an agreed voids policy. Where units are completed but unsold charges will arise. Developers often agree how void charges will arise and when they will be paid, whether they will include sinking fund costs and how they will be recovered - particularly where a lease has yet to be granted.

Demanding Service Charges

·         Understanding demand requirements

Demands are raised in accordance with the lease. There is no alternative available without undermining the ability to ensure collection of essential funds. This means that you will get a demand for service charge for each and every lease granted unless you agree sensible alternatives. Whilst individual demands may be a requirement to meet lease terms, no one is barred from creating a summary invoice where required and MAs should take a pragmatic role to assist the HA in collecting from their customers.

·         MAs understanding HAs requirement for simplicity

Nothing is less likely to meet with prompt payment than a pile of unexplained demands for 6 months service charge money up front! MAs must work with HAs to agree appropriate and sensible ways of billing. Whilst it is unusual to step outside of the lease terms (this risks collection of bad debts), there is nothing to stop payment in advance followed by monthly instalments by standing order. It requires a dialogue between the parties.

·       

           Service charge funding is critical

MAs cannot always wait for service charges to be paid in the next payment run. The terms of payment are dictated by the leases and these are designed to ensure that services can run smoothly on a day to day basis. All service charge monies are ring fenced in trust for the particular scheme/schedule. MAs cannot commit expenditure until and unless adequate funds are available for the scheme.

Where HAs are passing on the charges for recovery from leaseholders or shared owners then the delay may prove critical for funding:

o   Is there a requirement for the HA to fund charges up front?

o   Can the MA deliver demands earlier?

o   Can demands be made directly to leaseholders by MA?

o   Is it appropriate to share that information with the MA?

o   What are the credit control arrangements for late payers?

Payment for major items, such as insurances and annual contracts benefit from single payments rather than periodic. Cash requirements are not generally smooth. Consequently failure to pay service charges on demand can result in higher costs or cessation of critical services. Generally the HA has an important role in ensuring the smooth running of a scheme since they often have the most units. Lease terms commonly provide for annual or half yearly payments to ensure funds are available at the start of the year. This is in contrast to the typical HA leases / procedures of collecting service charges monthly and HAs often need to understand how they are going to forward fund when offering their own tenants more generous payment terms.

MAs need to be aware that generally HAs are happy to pay, often funding the charges themselves prior to collection from their customers.

·         S.20 consultation

Under the Landlord and Tenant Act 1985 (as amended by S151 of the Commonhold and Leasehold Reform Act 2002) Landlords must consult over qualifying works and long term agreements. This is an essential tenet of residential leasehold management and it is important that parties to a lease understand the importance of consultation and reading and responding appropriately. Details can be found here: http://www.lease-advice.org/advice-guide/section-20-consultation-for-private-landlords-resident-management-companies-and-their-agents/

Since that guidance was written, the upper Tribunal has determined, in the case of Leaseholders of Foundling Court and O’Donnell Court v London borough of Camden, Allied London (Brunswick) Limited and others [2016] UKUT 0366 (LC), that it is for the party which is originating the works to consult with the party who is ultimately responsible for payment of the service charge.

This will most commonly mean that the MA will need to consult with the HA’s service charge payers as well as with the HA themselves. This presents practical difficulties for the MA who is unlikely to have any direct contact with the HA’s sub-tenants and most likely will not even know who they are. The Upper Tribunal suggested that the most appropriate practical solution is for the MA (on behalf of the superior landlord) to request the information be provided by the HA (as intermediate landlord). If the HA  does not assist it may face difficulties in recovering contributions in excess of the triviality threshold (£250 or £100 p.a.) from its own tenants even though its own contributions may not be capped at that level.

Both parties therefore, need to work together to ensure that all tenants are fully consulted and all observations/nominations are received, and had regard to, by the party originating the works.

Communication

Agree lines of communications - Each party should establish named individuals with whom they can discuss processes and iron out problems.

That means finance teams and property managers on both sides need to have a dialogue.

People come and go - there needs to be processes to ensure that lines of communication remain open.

Most of all, both parties need to demonstrate accountability, transparency and good governance. These things only come by regular communication and agreed processes.

Use technology - the increasing use of portals, social media and texting give us new ways to communicate messages to our customers.

There is evidence of success in larger organisations when HAs and MAs have appointed specialist officers to deal solely with the other party on all MA/HA issues. Of course this needs a certain level of scale.

Conclusion

·         Managing agents and housing associations generally want the same thing - to deliver excellent value for money services to their customers

·         HAs must be in the room to influence the developer and the managing agent

·         Agree other avenues of engagement and processes and communicate regularly

·         The development department must talk to management department when looking to invest in large schemes - cost of management must be factored in to appraisals

·         Be pragmatic and flexible but ensure a fair deal for your customers

·         Build trust and look to create real lasting partnerships

·         Information is key

This is a growing opportunity for both parties - not a threat. HAs are growing and a significant proportion of that growth will be through leasehold flats and freehold houses with an estate charge. This represents an opportunity for those managing agents prepared to work closely with HAs, and for HAs who are prepared to put time in to ensuring that their investment is properly considered by the MA and the developer from the outset.

MAs are much more likely to be the developer moving forward and where they are not managing themselves they need to make informed decisions about the MAs that they engage.

Thanks to Alan Wake, Jeff Platt, Caroline Millington, Abbie Gregory, Graham Bennet and others who have lent a hand along the way including LEASE who held the initial roundtable discussions that led to this paper.

Definitions:

HAs - Housing Associations, Social Landlords and any charitable provider of low cost housing

MAs - Managing Agents, generally in the private sector who specialise in collection of service charges for long leasehold properties or estate charges on freehold houses with common areas.

RMC - Residents' Management Company

TA - Tenants' Association

F-tT - First-tier Tribunal

Reversionary Interest - An interest in the freehold or head leasehold held by a landlord that crystalises on the expiration of a lease or leases. Normally this will generate an annual rent or ground rent.

Other Useful documents/websites:

ARMA Guide to working on mixed tenure developments - www.arma.org.uk

Lease Guide to S.20 Consultation for Private Landlords, RMCs and their Agents www.lease-advice.gov.uk

 RICS Guide to Managing Mixed Use Developments 1st Edition 2012. www.rics.org.uk

www.irpm.org.uk

What Three Words?

Technology still has the power to add efficiency and improve the 'right first time' delivery of property management services. I am always on the look out for interesting new innovation and the latest find is an app called What3Words.

Pumps at table.forest.sense

Essentially this simple idea splits the world into trillions of three metre squares that are allocated a unique, random three word description. In any language.

Suddenly accurate postal delivery services are available worldwide, accurate locations for people, assets and basically anything is easily possible. It has massive implications for countries that don't have effective addressing systems and is already making an impact in paces like Brazil and Mongolia.

More locally I think it could have great implications for property management. Imaging being able to ensure that the engineer goes straight to the right piece of engineering, via the correct entrance in your massive and complex building.

Imagine as well being able to find you car easily, find your friends at a concert, send a distress signal from the middle of the ocean and so on. For property asset managers I think this app could prove invaluable.

Have a look at http://what3words.com/ 

What can we learn from the USA?

It is conference season and, as always, I have been catching up with old friends and new stories at several of them. I have come away with some interesting updates and some new enlightened thinking. Best of all I have filled in my CPD for the year.

On Wednesday I attended a PRS Conference to hear delegates from the US trade association, the National Apartment Association (NAA) and big multi-family apartment managers tell us about their experience. I learnt a great deal:

• Apartment Managers are not scared of charging for good service and of installing additional revenue earning activities (even including 'doggy day care' centres - one of the fastest growing facilities) to ensure that they keep their customers happy. Unashamedly, profit is a measure of success and comes as a result of getting it right for customers.

• Managers have found a sensible way to ensure that they share important data through their trade body and rents are set hourly by revenue management technology that collates demand and rent details to ensure no one is ever prejudiced or undercut. Turnover has dropped as a consequence of everyone knowing that rents are set fairly.

• Occupancy is around 96% - any more and the rents would be too low. Average stay is 18 months and growing fast. Their is a massive growth in 'Millennials' looking to rent and it is no longer considered the 'poor' option.

• There are no inclusives, every thing is an extra. Nowadays tenant's meet their own utility costs - this has resulted in significant reductions in usage.

• The agents love technology and are constantly searching for new ways to keep ahead of the market and improve their customer experience. Apps to control everything, including heating, lighting, deliveries and even door access, are the next big thing.

• However, by far the most interesting aspect of what I heard was the employee transformation that has taken place. Managers do not poach staff or teams from each other. About ten years ago the NAA decided that it would support larger members to start a programme of eduction that would attract new people from colleges and universities and put them through a thorough 6 months training for a career in multi-family apartment management. In return poaching and recirculation of existing staff and teams would have to stop. Ten years later this has been a huge success, bringing new blood into the industry and opening the door to partnerships and welcoming new levels of success for apartment managers.

All of this works because the possibilities of a career in management are marketed in a genuinely exciting way to school and college leavers. Principally they aim to attract the undecided - those who are not sure what they want to do. After all,  no day is ever the same in apartment management is it? You can try accountancy, maintenance, customer care, hospitality, landscaping, marketing, communications, technology and many other things. It seems to work and many stay for long and fulfilling careers.

Clearly we have much to learn from over the pond. Perhaps we should learn it before they come and do it for us - after all they weren't just here to talk to delegates at a half day conference. Look out for the UK branch of the NAA very soon.


PS For you valuers - residential property in the US is valued by its occupational value! Surely it is time we followed suit?

Residential Management is changing fast.

Late last year I was invited to the grand opening of a large retirement village in the Midlands. We all imagine we know what retirement living might be like in our minds and perhaps we allow this to colour our opinion sometimes. I must admit to thinking I knew what to expect. I couldn't have been further from the truth.

Firstly the quality of the accommodation and the luxurious feel to the common areas far surpassed that of most blocks I have seen recently. There were marble floors, high spec. reception facilities and an excellent cafe, bar, gym and hairdresser.

I was taken on the grand tour by a resident. She told me of the fears she had before moving in and how these had all proved to be false. She talked enthusiastically about the gym and about how her fitness and mobility had improved so much since arriving. She told me of the sense of community and the pride taken by residents and of many new friends.

Standing under the giant atrium lights the CEO of the housing association responsible told me that there was a mix of owners, shared owners and renters, many paying more the £5k per year service charges. The flats were fully occupied within a few months. He pointed out the benefits to local businesses that ran the hairdresser, gym and cafe. He reminded me that 25% of the population would be over 70 in ten years time and that this type of accommodation was important and represented a huge opportunity - particularly if we could overcome some of the irrational local resistance they had unexpectedly faced.

The scheme is managed almost entirely on site with its own office and full time staff. Families come and go and if it was not for the wheelchair access doors and wider corridors you would never know that this facility was aimed entirely at the over 55s.

Like all new developments the concerns of those that had them were the typical concerns we see everywhere, parking, broadband, noise and a recently cancelled local bus route. Unlike most developments the community spirit and interest in the development was tangible.

Go and see a new retirement village and be as pleasantly surprised as I was. Both these and institutional PRS are going to change the way that we design, build and manage communities of the future. Who says we don't do community? Who says that management isn't collaborative? In the United States this type of development has been around for more than 30 years and we laughed at their "Sunshine" condos. Is it now time to take notice? Can we learn from them?

first published in RPM Jan 2015

Why clients and customers value accredited and regulated services.

You get what you pay for is often cited in property management - which is great - until something goes wrong that is.

I am asked all the time why we expect all our sub contractors to be Safe Contractor Approved and CHAS Accredited and why we use a preferred contractor list. I am asked what the benefit of our Quality Assurance accreditations are and why bother with Investors in People.

The simple answer is we want to be the best. The more complex response is around the provision of the most effective, safe, value for money services in what remains an industry of widely differing service offerings in an increasingly competitive and highly complex environment.

Mainstay's clients want assurances relating to the safe operation and protection of their assets. Our customers want assurances about the safety and security of their homes and our responsiveness. That is why we are RICS members and ARMA Q accredited and why we are ISO 9001 and OHSAS 18001. It is why we employ engineers, compliance experts and procurement officers.

Our customers and clients want to know that our staff are also valued; so we are currently working from our Silver award for Investors in People to achieve Gold. We have developed our own in house training framework and staff are trained in health and safety, encouraged to take IRPM qualifications and have access to courses such as Leadership, Customer Service and Diversity.

In these areas Mainstay clearly leads the way and none of these badges are easily won or easily retained. We continue to be unique in this critical area.

At Mainstay we believe that property management is an important element in creating happy, stable communities and improving their relationships with the built environment. We believe we have something important to contribute and to do that we must move beyond traditional property management and become thought leaders and change makers in what remains a conservative village industry. Our clients are now demanding this of the new breed of property managers and the starting point is to be fully accredited and properly regulated.

Is it time for legislation for freehold houses with estate rent charges?

In the last ten years there has been a massive increase in developments that rely on estate rent charge deeds to collect funds to maintain public open spaces, gates, gutters, play areas and more. Why the increase? Principally because local authorities no longer adopt roads on new developments nor pick up responsibility for play areas, grassed areas, woodland and other amenity and public spaces.

A number of factors resulted in this change. Firstly LA's required roads to be to adoptable standards - and these were often set at impractically high standards for developers. Secondly commuted sums were no longer made available to LA's so that they could manage these areas.

Of course we could argue that new home owners will already be paying a local taxation that should cover such services, but somehow this has been shrouded over time. What we are left with is an additional charge to maintain and insure public amenity space and this management opportunity has been embraced, not only by traditional property management agents but by highly specialised amenity management companies. Neither are not bound by any specific landlord and tenant legislation that would apply to, for example, management of a leasehold block of flats.

Charges tend to be modest and relate to grounds maintenance, road and gutter maintenance and public liability insurances. However they may also include pumps, water purification, water features, play areas, gates etc. Basically anything that cannot be red-lined to a specific property is picked up. There must be a fee for this activity so it is easy to see how costs can quickly move from modest to quite significant.

Sometimes there is an amenity company created to ensure these matters are dealt with that is held by the agent. Sometimes there is simply a deed requiring a payment calculated by an agent. Either way there is nothing that might control the behavior of the service provider and in many cases no way of removing them from office or of ensuring value for money is always achieved. There is no need for the incumbent provider to evidence any price testing or to develop any performance indicators although the Rentcharge Act 1977 does require charges to be reasonable and this is not just limited to the provision of services.

There are no trade bodies, qualifications or regulation in this sector but because costs are generally fairly low the topic does not often reach the headlines. Collection of charges is usually straightforward and covered by s.121 Law of Property Act 1925 which could allow distraint of goods or even re-entry under certain circumstances, leaving the freehold house owner with little choice but to pay regardless of the quality of services (EDIT I am subsequently advised by my learned Twitter friends that this abolished in April2014).

Isn't it time that freehold home owners who contribute to amenity land or estate charges were given the same protections as leaseholders? After all there are a very significant number of large regeneration schemes now underway that will rely on collection of such charges to maintain significant infrastructure on village sized and often mixed use/tenure developments.

For more information look at the Rentcharge Act 1977 http://www.legislation.gov.uk/ukpga/1977/30/part/1

My Predictions for 2015

Now in it's legendary 4th year and fashionably late.

Did I get 2014 right? Did I lose 10Kgs? Well yes and then no. It went. It came back.

As for the other predictions I think I got some right and some wrong as ever. Who could have predicted that Law and Lease blog winning a prize at the NOTB Resi Awards? Well deserved I think. I am going to enter this year. I love prizes.

More than 11,000 independent views of my blog now and only 65 comments. My first prediction therefore is that I am going to have to be much more controversial.

1. I am going to be much more controversial.

I predict forests in the sky. Not.

2. ARMA Q is live. I am predicting that it has been a success in terms of the numbers signing up - follow ARMA's Twitter feed if you want to hear who is through the stiff requirements so far. Next stage will be to demonstrate that it has teeth.

3. Reducing energy costs. This is good news for those of us that work in a one year contract market and for our customers. Real savings in gas supplies are only slowly feeding through now. Who knows what this will mean for biomass costs?

4. CMA. Carry on as before.

5. The rise of PRS at last....no really. Look out for genuine attempts to deliver a fully integrated management service.

6. LKP will this year become a real force for leasehold advocacy and generally a force for good. Their opinions have become more balanced and measured - they have real influence and this must be used with care if they are to influence the future of the sector. We should all embrace them.

7. The appointment of Roger Southam to chair LEASE is bound to be controversial. Roger has strong opinions and will undoubtedly shake things up - he knows property management inside out. He is a genuine consumer champion and should be welcomed as a breath of fresh air.

6. After a couple of years, where no one really knew if they were behaving correctly in accordance with S.20, I predict a year of quiet reflection and a return to the old fashioned values pre Phillips v Francis. Actually that's nonsense, I expect the next new thing to be [fill in your own concern here]. (Mine is fees for underletting, I am still unclear as to what is reasonable. I am personally being charged annually for a letting that is holding over on the initial terms. Can that be right? Proxima would suggest not.) 

7. Deflation - could it happen? All the pointers are there.... 3-4 years of low oil prices to come, decreasing demand for goods from ageing population, historically low interest rates, supermarket price wars etc. etc.

8. House prices could go down or remain stubbornly static. No-one is going to get any meaningful capital growth and service costs continue to rise on complex schemes. There is a reckoning coming and it will have a big impact across the sector. As ever London will lead.

9. Insurance costs for leaseholders continue to rise and flooding of leasehold flats will remain outside the government's Flood Re arrangements - they still see block costs as a commercial insurance risk.

10. No one imminently is revisiting S.20 thresholds despite many voices asking for a review. Expect more and more requests for dispensation under S.20za.

11. IRPM will make some important announcements at their annual seminar. They will have some great speakers too and I will be lucky enough to speak (for the one and only time) in the round theatre of the Royal Institution where both Faraday and that smiley chap from D:Ream have spoken.

Errr, and that's it really. Another year flies by and the new one is now well underway. I would like to express more optimism but the economics do worry me greatly. Residential managers continue to do a brilliant and entirely necessary job in increasingly complex and pressurised environments,  keeping us safe secure and watertight in our homes. They really need a big hoorah! from time to time.

ESOS Regulations are here - Are you caught?

No avoiding the obvious...

In December 2015 the Energy Savings Opportunity Scheme comes into force and is mandatory. This is a European regulation that will require all firms employing more than 250 staff and/or with a turnover of more than 50m Euros to identify cost effective savings measures and carry out ESOS assessments every four years.

Crucially for most managing agents you will qualify if there are more than 250 employees within your wider corporate group - so if you are a subsidiary of a large organisation you will need to act now or ensure that your parent is acting.

Also, importantly for some, ISO14001 will not qualify you for ESOS. For this you will need to undertake ISO50001.

In essence ESOS will require you to do three things:

1. Measure your total energy consumption.

2. Conduct energy audits and identify efficiencies.

3. Report compliance to the Environment Agency.

The scheme is estimated to bring £1.6billion of energy saving to UK firms by 2030.

Full details can be found here:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/351158/ESOS_Guide_FINAL.pdf

Why providing good information upfront to your customers is not enough.

"Blah blah blah" said the fourth previous owner as he handed over the keys to my Triumph Spitfire 1500 in signal red. I was 23, it was my first sports car. It was shiny, the sun was out, the hood was down.

Trunnion Bearing - How interesting is that?

Had I chose to listen to what he was saying I would have learnt something very useful; "Remember to periodically remove the front wheels and hubs and then the steerer trunnions. These must be refilled with EP90 oil, no other. Otherwise your front wheels will fall off."

Of course I sort of heard, but then I almost instantly forgot as the romance of powering over the A13 flyover at Canning Town in the sunshine took over.

Two months later I was on my way home from work (East London Housing Association back then) when I noticed a wheel rolling off down a side street. That's odd I thought...

Anyway, I do love my laboured analogies but it has to be said. Providing lots of information about the complexity of leases, the service charge structure etc. at the point of sale, does not really work does it? The recent CMA report suggests that more comprehensive information should be provided by estate agents and conveyancers. My view is that much of this is available, much has been trialled and nothing much has changed.  It is the worst time to try and introduce a complex proposition and it needs a significant investment in time from both sides.  Buying a flat is stressful enough without understanding the lease and your rights and obligations. It is also an emotional time taking the keys of what will possibly be your biggest ever investment. The subject of leasehold is quite frankly dull and complex to all but those of us who work in it and make a living from it. This fact never changes and whilst leasehold owners may appear to be interested, most want to get home for tea as soon as possible - and that's if they turn up. I can't blame them.

You see these days we can drive out of a car showroom in one of the most complex machines known to man without a clue how it works or how to change a flat tyre or how not fill it with the wrong fuel. Such is the reliability of the machinery, and the rarely called emergency breakdown services, that we do not chose to know how it works. It is the same in leasehold property. Does anyone really read the owners manual - or do we just press all the buttons to find out what they do? I didn't realise my current car has an automatic parking system until 6 months had passed. Replace 'owners manual' with 'lease' and you understand where I am going with this.

The difference with motor vehicles is that the industry thrives on high quality products backed up by responsive support when there is an issue. Think how much servicing has changed - they tell me when it needs doing and come and take the car from home and bring it back. This costs the same as if I take it myself. We need to aspire to this level of service if we are to give consumers in our sphere what they get elsewhere and now expect routinely - they do not want to be bothered with the detail.

When things go wrong or when costs are more than your customer thinks reasonable, then there is a great deal of explaining to do. In virtually every other type of transaction there are very clear consumer rights, servicing schedules, care instructions. When buying a flat we do not think that we are purchasing the right to pay service charges over a fixed period, demanded with little explanation and then chased hard to ensure that the wider community is not inconvenienced.

So what is the solution? Well it is up to you - whatever initiatives follow the CMA report, you will still be explaining service charges and lease terms to your customers. So, firstly, we must make the subject more engaging. One way to do this is to ensure that the community is involved in all aspects of your service delivery and can debate it - advise what you are doing and why, advise what you would like to do and why. Send out newsletters that are entertaining and informative not just dry and preachy. Get your customers involved in the discussion and demonstrate your expertise. Consider having consumer champions, consider inviting leaseholders to review your procedures and your proposals.

Secondly, the service you offer must be one of genuine excellence, recorded clearly and delivered on time. What we do is essential and therefore I contend that it must be possible to demonstrate its value by doing it well and taking pictures, if you follow. We have never been better equipped, technologically speaking, to keep our customers fully informed and drip fed with the right messages.

I am a leaseholder as well as a property manager. On one property I was promised the earth when the new agents took over. That was more than 18 months ago. Since then I have had three pieces of correspondence. Two were demands, one a set of accounts. I simply have no idea what they have been doing day to day because they don't feel the need to tell me anything. Now if I imagine what it is like to know nothing of the complexities of leasehold I will already be quite annoyed and maybe even suspicious. Come my first interaction with the agent....

I still hear the plaintive cry of the overworked manager; "We are just doing our job, but leaseholders simply do not understand leasehold and their obligations..." Sorry but this just does not cut it anymore. It is your duty to do everything possible to ensure that your customers are well informed. Believe me, it becomes a virtuous circle.

CMA conclusion: Carry on everyone.

Goodness there are loads of CMAs. When looking for a picture I could have used the real one, but the Country Music Association seemed so much more, well, entertaining. I could have gone for Certified Management Accountants, Canadian Medical Association or the Christian Motorcyclists Association. None of this is relevant however.

It is a peculiarly human trait that we love administrating, regulating, rule making and have whole public services based around the notion that we need to be controlled and that oversight of our activities, in whatever form, is important. And, of course, it is. Except that we now live in a world where the actual cost of statutory regulation with real enforcement is prohibitive so we have to self regulate - which means the market decides.  I suppose therefore the CMA were never likely to come to any other conclusion. 

If you like CMAs there are many...

Moving on then to the CMA's final report on Residential Property Management - we can see that X experts were used over X months to come to the conclusion that the market for residential leasehold management works pretty well  - although there are a small minority of landlords and agents who have historically abused their position and potentially continue to do so. No shit Sherlock!

The report recommends a number of improvements to be made through the existing codes including the RICS and ARMA Q and two pieces of potential primary legislation.

Dealing with the legislation. The first would require legislation that would allow leaseholders to force landlords to retender management if 50% of leaseholders agree. This is a good thing as its adds to the powers given by RTM and I suspect would be a 'no fault' right as well. It would be another reason to ensure agents put customers at the centre of their activities and would be much easier to trigger than RTM I suspect.

Secondly in a change to the 1985 Act, they suggest that S.20 is reviewed. No one will argue with that (well I do know of one!) and I have blogged about this previously.

However, don't hold your breath:

Work on new legislation to give leaseholders the right to
trigger re-tendering and rights to veto landlords’ choice of property manager is
unlikely to commence in less than 12 months. The timescale for
implementation would then depend on preparatory scoping and feasibility
work and the Government’s legislative priorities. 

So 2-3 years minimum then.

The remaining report is best summed up by the following extract:

1.51 In considering what remedies would be appropriate, we noted that for many
leaseholders, overall the market works reasonably well, but that particular
problems can and do occur where existing safeguards fail to provide
adequate protection. We consider that the problems that exist in the market
are best dealt with through targeted measures to improve the working of the
current model, rather than through a fundamental reform of the regulatory
framework. We note the existence of redress systems and/or safeguards,
which provide a degree of protection in many cases and whose performance,
where shortfalls are identified, can be enhanced. 

Pretty clear then that there will be no attempt to tidy up the complex statutory framework in which managers operate or to add some compulsion to the use of regulatory codes. We continue with a two tier market in the vaguely stated hope that the market will sort out the rogues over time as consumers chose agents on their reputation, accreditations and membership of the appropriate bodies.

I have heard this before, in 1985, 87, 96, 2003 etc.etc. The industry is improving but sadly new players with no rules or governance and existing bad practice continue in some areas. The changes have, by and large, been glacial but the CMA believe that the market will resolve itself and consumers will make the right choices without a fully regulated industry. Sadly there is no previous evidence of that.

So what is good then?

• It is great news that the CMA has recognised the efforts of the industry to improve its reputation and that ARMA Q is given full recognition. 
• I am pleased to see that the public sector was not excluded from the report - why should leaseholders of local authorities and housing associations be excluded? 
• Disclosure of fees and corporate links is a good thing and is already covered by ARMA Q.
• Standardising pre purchase questions would be useful although it has been tried before. Unfortunately conveyancing is a highly competitive market driven by price and not prone to adding to its workload. Not compulsion - no success. 
• The proposed additional fact sheets - they do already exist though.
• Efforts to improve the availability of alternative dispute resolution (ADR), neutral evaluation, or mediation services rather than FTT should be applauded.

We recommend that property managers have a plan and strategy for regular
communication and engagement with leaseholders to explain and discuss the
decisions affecting them. 

This one is so obvious it shames me that it needs to be said at all.

Overall then not much real change other than an endorsement of activities that are largely already underway and with a couple of helpful, albeit distant, legislative recommendations. Sadly, without some compulsion to move to regulation we will still see most of the behaviours highlighted continue from those who remain outside of the accredited routes. Despite my naturally cynical approach I do feel that the CMA have summed things up pretty well. Sadly, like others before them, they have not really found a solution and can only reinforce all that is going on and hope, vainly in my view, that the market will sort itself out.

It remains my belief that until we have compulsory regulation that is backed by statute we will continue to entertain the chancers, opportunists and the downright criminal hiding in the shadows of leasehold - where so much money is now sloshing around - that only real legal enforcement will finally clear it up.



Here is a link to the full report:
https://www.gov.uk/cma-cases/residential-property-management-services
If you are a property manager you should read it in full (about 3 hours) - I reckon it is worth it.