Massive Backwards step for Managers, Landlords and Consumers

Photo: Cesarastudillo

If you manage residential leasehold property then you cannot have missed the furore that is being generated by the case of Phillips v Francis (No. 2) [2012] EWHC 3650 (Ch) the judgement on this long running case having been handed down in December 2012.

I am not going to dwell on the details of the case - interesting though they are - you can search them and read the full detail easily on line. It is the ruling relating to S.20ZA (2) Landlord and Tenant Act 1985 (this section defines 'relevant' works) that concern us here and in particular what activities require a S.20 consultation notice. The judgement states as follows:

As the contributions are payable on an annual basis then the limit is applied to the proportion of the qualifying works carried out in that year.  Under this legislation there is no ‘triviality threshold’ in relation to qualifying works; all the qualifying works must be entered into the calculation unless the landlord is prepared to carry any excess cost himself. (my emphasis)

Thus we are advised that, for the last 27 years, we have been doing it all wrong and that the existing case law of Martin v Maryland Estates, relaied upon widely, is incorrect in separating out disparate sets of work.

It has always been a concern of the LVTs that landlords do not split up related works in order to avoid consultation. However this case appears, on the face of it, to take that requirement further in that the works do not have to be related in any way. All qualifying works are to be aggregated for the purposes of the consultation and there is no longer any separation within a service charge year of qualifying works. As such works currently regarded as falling below the 'triviality threshold' are now to be included if the aggregate total exceeds £250 pa. Of course this will effect almost every scheme, every year. It will include reactive work such as changing a light bulb or repairing a lock. It will include contingencies, overruns and contract variations. 

In an attempt to stop landlords splitting related works to avoid S.20 (a perfectly honourable intent) the court has created the unintended consequence of generating notices across all qualifying works regardless of how they are to be funded and regardless of whether they are related. 

Let us say that you carry out a repair to lifts that requires consultation because at least one flat will contribute more than £250. You serve notice and proceed in accordance with legislation. Later in the year you redecorate a corridor. In itself it does not require consultation since no lessee is required to pay a contribution of more than £250. However, you have already exceeded the limit elsewhere and thus, now, further consultation is required. And so on and so on. 

This then applies to all qualifying works in year if you are likely to exceed the threshold. What to do? I am not sure. Can you serve a speculative notice? No, I do not think this is possible on the basis of an estimate. Perhaps take all budgets to LVT for pre approval of expenditure? This might give the landlord comfort but would quickly inundate the tribunal and cause delays. This case will increase workloads, will increase costs and will confuse leaseholders. Fact.

We can but hope that a new decision is reached that turns this judgement around or clarifies it further and that in the meanwhile the LVT takes a very loose and pragmatic approach to interpreting it. I am still reading comments and forming a view on what actions to take. I am hopeful that clarity and common sense will prevail and that news guidance will follow.

Fingers crossed everyone, because as it stands the spirit of S.20 consultation is badly broken and the consequences are significant.

My Predictions for 2013

Quite a few of you read my predictions last year so I take it there must be some real interest in predicting what is going to happen in the viscerally exciting world of residential leasehold property, so here goes...

1. ARMA Q will be agreed with all stakeholders, finalised and be ready for lift off before the year end. ARMA membership will continue to increase as non-members take up the opportunity for a genuine arms length regulatory regime. It will become difficult to justify not signing up as membership races past 300 companies.

2. If you can't sell 'em, rent 'em! The private rented sector (PRS) has really started to take off (again) and genuine private sector 'build to rent' properties are actually in development. This must present an opportunity for those managing agents who have added asset management and portfolio management to their existing skills.

3. Dealing with the differing needs of Landlords (or buy to let investors) and their sub-tenants as well as leasehold owners living on site will continue to be a challenge for every managing agent. It is difficult not to have sympathy for owners living on schemes that are increasingly let to tenants with little (or less) interest in maintaining the quality of common areas. Interests are not aligned which always causes dispute.

4. Big regeneration schemes will start to go live, promising a mix of developer, investor and social interests and a mix of tenures. Interesting approaches to management will be flushed out as requirements for Community Interest Statements meet the need for commercial returns. As with large mixed use schemes, quality standardised management plans from the outset will be key to success.

5. I think we will see an even bigger push towards energy saving strategies this year, including the introduction of phased switch over to LED lighting which is fast becoming the quickest way to find real mid term cost savings as well as delivering reduced carbon footprint - win, win then.

6. Gala Unity v Ariadne Road RTM - this Lands tribunal case has an important impact on RTM of single blocks or parts of an estate. It is suggested that the parties will come to some informal 'arrangement' over those areas of management no longer covered by the leases because of grey areas arising when one part of a scheme opts out. I think this will have some serious implications for RTM's, Landlords and their agents. Looking forward to the first test of reasonableness under such circumstances at LVT.

7. Like the one above, a number of cases in the courts currently and some that will arrive at appeal this year seem likely to turn received wisdom on it's head in relation to consultation, interpretation of leases and what is recoverable as a service charge - there appears to be an almost concerted effort to shake up the leasehold  sector - but at the moment it looks like it will not be for the better, simply adding more confusion and opacity. There will be some lawyers winning whatever. I will be writing in detail about this later in the year.

8. Is this to be the year of office to residential conversions? Will it lead to a new revitalisation of our city centres, some of which have been at a standstill since 2008? There is evidence of planning applications rising for this newly encouraged  conversion opportunity. I suspect that these conversions are not cheap and, as ever, banks and liquidity will be key.

9. I anticipate more partnership and collaboration amongst agents, as specialities and regional strengths make working together more likely to 'delight' clients than struggling to do it alone. This opportunity seems to have been taken in many other industries in recent times and I think it will work well in property management.

I round up by stating that the coming year will not be easy for agents, or their clients, or their customers. With no sign of relief from the relentlessly difficult economic climate, agents have to work harder and harder to demonstrate the real value of their services, and leaseholders, understandably, want to extract as much value for the least outlay. I think great new approaches, innovations and pioneering models should and must arise from this scenario - I will go so far as to call it an opportunity. Fingers crossed I will be reporting on one of these later in the year. Watch this space!

Regulation is coming - but it has a cost.

As ARMA Q proceeds through consultation it will be interesting to see who really reads it and makes meaningful comments on its proposals. So far I have heard from no-one outside of other managing agents who broadly support the proposals but have concerns centred around some of the detail.

As it stands, ARMA Q will require every managing agent to detail annually, to its client and all leaseholders, every bit of income derived from its activities on their behalf, including any associated companies. This will, of course, include any insurance commissions. There are well established precedents for what is reasonable for the insurance work that managing agents undertake for their clients, but what of other areas from which many derive an income?

A good proportion of agents provide other services such as cleaning and concierge, health and safety and various maintenance services, not to mention lettings and estate agency services. Will they be required to reveal margins on these services by block? Surely that would make it impossible for them to compete fairly with other external service providers who will not be required to reveal their margin?

I also include in this any national procurement agreements that results in a payment to the agent - even if this is dressed up as a consultancy fee. How is it intended that this is revealed on a block by block basis? How does the agent prove that it represents value for money for each and every block? What if the agreement has a confidentiality clause?

An example would be the sort of agreement that agents have for the purchase of utilities. Because they can buy these for a huge number of blocks they are able to negotiate procurement agreements that give them a fee and benefit their customers because of their buying power.

Clearly for customers who have a poor record with insurance claims or a high level of engineering maintenance issues, national procurement models can provide huge benefits. If agents stop these agreements then there is every possibility that, not only will the contract costs increase universally, but that the agents' management fee will need to go up too.

Bulk purchase, procurement activities and regional/national agreements have a significant benefit to customers, providing additional value and protection of a large syndicate/portfolio. They are universally used throughout the FM industry to achieve best value and they cost time and money to set up and administer. For example: Lift contracts are often set up by the developer as part of the procurement of lift installation. As a consequence the leaseholders may inherit an expensive long term agreement - which effectively compensates for driving down the installation cost. Managing agents with portfolios of lifts to maintain can use their buying power to renegotiate these contracts - sometimes halving the costs. This process requires hard negotiation and agents should not be ashamed of taking a fee for delivering it.

Transparency in the regulation of managing agents will require that all of this activity is undertaken openly and that is a good thing, but not if it leads to agents being unable to take a reward for their efforts. Many agents are uniquely qualified and they work hard to achieve accreditations and compliance standards. They may employ specialist risk assessors, and engineering and asset management specialists. They may have a range of highly specialised skills that add value and are generally only available elsewhere at a cost.

Independent managing agents provide an essential service. Make sure that all income streams are clear in your contractual arrangements with them. That way, and that way only, you will receive best value. There is a wide choice of service levels available at a wide range of prices - chose the one that suits your development and look closely at  what would happen in a genuine emergency.

Most importantly - make sure your agent is going through the ARMA Q accreditation process, it will be the only independent accreditation and that might count for a lot when there is a major issue to be resolved.

Is S.20 consultation achieving best value for leaseholders?

Statutory consultation must be seen as a good thing and S.20 has undoubtedly changed the way that landlords behave - but when the cure becomes more painful than the illness then it is worth having another look at the reasoning behind it. I believe that S.20 is restricting the opportunity for lessees to benefit from the best value available, particularly for utilities, maintenance and engineering contracts.

In the 1970s and '80s a number of landlords used the lack of consultation procedures to give associated building companies extensive and high cost major works projects across long neglected Victorian and Edwardian estates. The quality of the work was often questionable, the value was hard to justify and the contracts were often awarded, without consultation, to associated companies. Since this was before the days of LVTs and S.20, leaseholders were often powerless to resist.

The 1985 Act and the amendments in 1987 sought to shift the balance of power between landlords and leaseholders. It is easy now to forget the changes that these Acts achieved if you were not involved in property management at the time. It was a quantum shift in behaviours that was required to meet the standards laid down in these Acts. (I recall negotiating  an increase in management fees for a block in Battersea in 1987 to £220 per unit specifically to take account of the increased management requirements. Interestingly I doubt this fee has risen much, if at all, since - such is the competitive nature of the industry now.)

I am looking therefore, specifically at the unintended consequences of S.20 legislation which was initially introduced in the landlord and Tenant Act 1985, as amended 1987 and fully revised in the Commonhold and Leasehold reform Act 2002.

Looking at the most obvious problems first:

1. £250 per head for consultation is not much if you are a very small block. You will have to consult on all moderate to major items. Most agents charge for formal consultation adding to management costs which might already be disproportionate for small blocks. 
2. If just one flat in your block exceeds this contribution you must consult - for example if you have a large penthouse (say 3000 sq ft) and the service charge is divided on a floor area basis then you are likely to do proportionatley more consultations. 
3. You must consult on long term contracts in excess of £100 per unit (see number 2 above - still applies). This means there will be no snapping up of a 3 year contract for fuel at a beneficial rate. These deals are usually only available for 24 hours. S.20 has all but stifled this long term value and needs to be rethought.
4. Managing agents are rarely contracted for more than a year because there would have to be full consultation otherwise. This means that best value is not necessarily being achieved - given the risk that you will loose the contract after one year how can you genuinely offer best value? Most agents would be lucky to break even in year one. Longer term contracts offer security to both parties and better value. Contracts still have normal termination rights in the event of a proven breach.
5. You cannot avoid S.20 - even if all lessees agree to circumvent it. The LVT does not take kindly to S.20 avoidance and will always support fully any future claim that consultation was not undertaken correctly. 
6. Residents' Management Companies are not excluded either - even though in the event that they fail to consult and are unable to recover the full sum it is a moot point - in theory only their members can pay the difference anyway.
7. It takes too long. 3 months is the general minimum.
8. It can only be avoided in an emergency (by dispensation under S.20za) and even then you are at the mercy of the LVT if they decide that your interpretation of urgent or an unintended minor breach of the rules is different from theirs. See the Daejan Investments v Benson decision for the full details.
9. That leaves Landlords with a difficult choice in really urgent situations. To get dispensation in advance of undertaking the work which can take 3 to 4 weeks or to gamble that it will be given retrospectively. 

Given all this I have set out below my thoughts on how to improve and modernise consultation. I do not have all the answers and would welcome your thoughts but here goes:

1. Firstly the qualifying sums need to be raised - they have only been changed once since 1985. I would propose £500 and £250 (for long term qualifying agreements) respectively. This would still give a reasonable level of protection whilst reducing the annually increasing administration of notices - most agents, if not all, charge for serving the notices.
2. Allow procurement of long term agreements where these are demonstrably good value. As long as the value can be evidenced thereafter, procurement should be free to take advantage of market opportunities, this is of particular importance to Local Authorities and agents with real buying power. Consultation can be by initial letter describing what the client is endeavouring to achieve with detail being added after.
3. Allow RMCs to opt out of consultation in the event that they have full support of their members. It is, their members who would pay any penalty arising from a breach anyway. This might be achieved by, say, a simple 'cover all' consultation periodically.
4. Dispensation should be given automatically and immediately if it can be demonstrated that any lessee will be disadvantaged were it not. For example if anyone was to be without heating or hot water or suffer a leak or threat to their safety or security.
5. 30 days is more than a sufficient time to consult. 21 days would reduce the timescales and benefit everyone. Technology has significantly speeded up communications since the 1980s.
6. The consultation limits should be divided equally across all units to avoid the issues set out in part 2 of the problems above, a long shot I know.

Consultation is an important tenet of residential block management and has changed the way that landlords and managers behave. But through time it has become less valuable as a tool in its current form and now hinders best value for leaseholders, increases costs and diverts management time. Inflation and improved communication channels mean that in it is no longer fit for purpose and should be carefully reviewed. We live in hope...

In residential management it pays to check carefully

I am Chair of ARMA Practice Committee and a Governor at the IRPM and I have seen it all in my long involvement with residential management. But with few barriers to entry and the impact of regulation still some way off the residential block management industry can still feel like the Wild West to the uninitiated.

All sorts of amazing schemes to reduce costs, increase service and provide the panacea to all your management woes abound as the unregulated utilise the other great unregulated space - the internet - to make bold claims about their service.

For most of us this is now a part of life, negotiating through the noise to find the genuine experienced service provider. But there are plenty of vulnerable people taken in by these claims and we are starting to see the outcomes of those errors of judgement more often in our sector. These include massive loss of value on neglected developments, individuals bullied for standing up and huge costs associated with unravelling poor and misguided attempts to cut costs to the bone instead of looking at the longer term impacts.

However, nothing upsets me more  than individuals and firms pretending to have qualifications and accreditations that they do not possess. Holding oneself or one's company out to be expertly qualified without having worked for those badges and post nominal letters is criminal in my opinion. In these tough times it seems to be more common than ever and efforts to win business in a highly competitive market lead to some giving themselves credibility that they simply have not earned.

There are one or two in our sector doing just that - right now. Holding themselves out to be expertly qualified, to be members of specific bodies and schemes and using the internet to promulgate their views. One of them has been widely quoted. I wouldn't go as far as to name them (although if you call me I may be tempted) - but they are all being investigated and reported to Trading Standards.

Before you utilise the services of a new supplier, do check them out properly. If they purport to have qualifications, or their website has trade logos, they must have at the very least paid a fee, sat an exam and/or agreed to behave in accordance with a code of conduct. For those who have played by the rules, worked hard for their qualifications and accreditations, this is unbelievably unfair. Nearly all bodies list their members. IRPM, ARMA, the various Ombudsman, CIH, RICS, FSA etc. all list members on their websites. They are keen to hear from you if their logo or post nominals are being abused.

This small step will, at the very least, save you some embarrassment later and, at most, might save you a fortune.

Regulation. You in or out?

Regulation of the residential leasehold block management industry is coming. ARMA has recently published a special newsletter with a foreword by Baroness Hayter that outlines the time scales and the format that this industry led initiative will take. This initial outline has been well received by ARMA members but, interestingly, met with a deafening silence by the industries critics who have been asking for regulation for a long time.

Critics will say that industry driven regulation will never have the teeth of a government sponsored scheme. However, and as I have previously written, state regulation remains highly unlikely given the many pressures on government at present and the myriad calls for regulation across a wide number of industries. Advice received has been, for many years, that the preference is for light touch independent regulation through the industry's professional and trade bodies.

Other criticism that will be levelled is just how independent such a scheme could be? I am pleased to report that independence is a fundamental tenet of the ARMA Q proposal which will ensure that both the accreditation process and the complaints process will be overseen by externally appointed chair and panel members.

There are obvious problems with any regulatory scheme. Powers to admonish, fine and ultimately expel businesses that do not or will not comply are significant and must be wielded with care. Expelling businesses can have a significant detrimental effect on their staff and clients, can lead to protracted legal wrangling and huge costs. This is one of the reasons that governments never relish direct regulatory intervention, preferring the industry to come up with its own solution, as many consumer focussed professions have already done.

Any regulation will be 'light touch', in the sense that it is anticipated that the tools will be provided for companies to assess and ensure that they meet the standards without intervention. Periodic inspections will be undertaken and, where there is a need, advice and/or training will be offered. All of this will be underpinned by a consumer charter and a detailed set of standards - publicly available for scrutiny. 

Of course the success of ARMA Q is dependent upon members agreeing to meet the standards and alter their processes where necessary to do so. There will be a cost too, but this will be offset in my opinion by the added value that membership of an accreditation scheme brings. You will also need to be an ARMA member to get the accreditation required. ARMA estimate that just over half of private sector leasehold management is undertaken through its members. 

There are still many firms who do not believe that membership is beneficial, but it will be impossible to say that next year. By then I expect all consumers, developers and landlords to be asking; 'are you in or out'?

Why Commonhold has failed

In the years following the enactment of the Commonhold element of the Commonhold and Leasehold Reform Act 2002, I was lucky enough to be working with many of the UKs major developers advising on the management structures on some very large schemes.

For about 2 years, no more, the Commonhold option was a topic covered at every initial meeting. Often I would be in the room with a development director, architect, solicitor and sales director. It was always a difficult concept to promote because the solicitor had no precedents and would be working from scratch, the development director was simply not empowered to make a radical change to the existing model that worked, and the sales director could not be certain that he/she would be able to sell a new concept.

Those that were brave enough to consider the option in more detail, and there were some, usually niche developers, found difficulties that would only be resolved by trial. Ultimately they could not afford to be the guinea pig for this new concept nor would their financiers let them.

Finally there were insurmountable issues:

1. There was no evidence that selling a freehold unit would achieve a better price to compensate for the freehold value. Although it would be natural to conclude that this should be the case, the reality was that at the point of sale purchasers looked for values matching the local expectations. Fundamentally they did not expect to pay a premium simply because it was a different structure.

2. The legal advisor implied that the costs were likely to be higher because they would have to set up from scratch (despite the fact that in theory all documentation is pretty much standard). They would have to find a way to protect the interests of their client during the development period and they would have to explain in detail to all purchasers solicitors how the structure worked.

3. The Council of Mortgage Lenders stated, eventually, that it would in principal approve mortgages for Commonhold structures. This was no comfort to developers who still could not be certain that potential purchasers would find funding.

4. Commonhold did not appear to work where there was an ultimate freeholder such as the local authority, MOD or a trust. Many of the major mixed developments rely on the developer having a head lease interest.

5. Additionally, structures designed to allocate different levels of service charge, for example, estate charge, residential charges and building charges (all of which may be charged on a different basis) do not work for commonhold in its current form. Most complex schemes have more than one service charge level.

6. Commonhold limits the ability to lease a unit to under 7 years. This was immediately seen as problematic to a number of potential tenures, not least Housing Association rentals. It also gave rise to concerns about how the interests of commercial leaseholders would be met. No one was willing to take a mighty gamble to find out.

7. Despite wanting us to believe the contrary, the building industry is deeply conservative. As far as they are concerned it isn’t broke and doesn’t need fixing. Until they are incentivised or compelled to do so I cannot see them making the change.

So what of converting to Commonhold? The simple answer is; once you have bought the freehold why would you? You have an existing structure that works with the ability to amend leases to suit and to grant them for 999 years. In practice this has proved cheaper then going through conversion.

Finally there are some other interesting points to note: The ability of the Commonhold Association to collect charges are significantly weaker than those currently enshrined within leasehold statutes. There is no legislatory framework to fall back on, nor could you utilise the services of the LVT. The only remaining issues that separate it from leasehold are a diminishing asset and intransigent landlords. The first could be resolved by insisting on 999 year leases, the second is often already resolved by having leases with Residents’ Management Companies built in.

It is also wrong to assume that Commonhold is somehow a panacea for management difficulties and inability to move things forward and protect asset values. There will still be difficult individuals who hold sway over associations and there will still be those who choose not to pay.

In conclusion it seems right that a form of Commonhold should become the preferred form of residential tenure and replace the antiquated feudal system that is now almost unique to England and Wales. It needs to be revisited in significant detail and in consultation with developers, lenders and lawyers. The original legislation was a rush job. A more considered and collaborative approach might just work in these more thoughtful times.

Why is the number of LVT cases increasing?

I keep getting told that the year on year increase in LVT cases is as a result of increasingly poor management. This is a very narrow view of the reasons which are multiple. Here are just some of the reasons why there are more LVT cases:

1. There was massive growth in the leasehold sector from 1998 until 2008. Quite simply there are more leasehold owners.
2. Many of the developments built were complex urban blocks with high running costs. Some of them are poor quality. Many of the purchasers were investors or first time buyers with expectations of good returns or the ability to quickly trade up.
3. Values have stabilised or reduced in the last few years - asset growth is no longer reliable whilst costs of services have risen significantly.
4. Management is dealing with a whole raft of regulatory requirements that commenced in the last 10 years and have a further real cost impact.
5. Buildings of the last property boom are reaching their first round of major works/refurbishments. Many have not made sufficient provision for these costs.
6. Leaseholders now have access to significantly improved and more detailed resources and advice. Consumers are getting educated.
7. We are in the middle of a recession. Non-payers are chased hard, there are more disputes as a consequence.

All of these factors make additional LVT cases as much an inevitability as does poor service. Service standards, I believe, have improved beyond recognition in the last 20 years but so too has consumer awareness. This is a good thing and means that change is happening faster than the rogues will be able to keep up. 

We are reaching a tipping point where service possibilities will meet aspirations of most of the service users - choice has increased, agents are all working hard to improve their image and transparency and leasehold customers are dictating terms. Those who haven't recognised this will miss the opportunity.

How much, how many?

Debated regularly, the formula for calculating what a managing agent should be charging per unit per annum remains an interesting one.

The average management fee, by my calculation, is currently going down due to increased competition, the liquid nature of the market and the vast number of Residents' Management Companies that have been handed over to resident directors in the last few years (specifically as a result of the boom in urban developments up to 2008) and are looking for value.

Let us assume that a qualified manager manages 20 blocks averaging 25 units. A total of 500 units at say £150. This indicates an income of £75,000. Note: All the prices quoted below are modest to say the least.

Given there are 20 blocks he will require some sort of admin support and a service charge accountant.

His/her salary say £30k (he has 5 years experience) plus car say £3K plus benefits etc.
Admin, say £15K
Service charge accountant, say £22k
Overheads: office, IT, PI Insurance, memberships inc. ARMA, FSA, stationery, etc. etc. £20k

Whoops! No profit.

OK let's see, he/she could manage more - but only really if the average block size comes down or the number of units goes up. How about 800 units with average block size of 40?

Now we are talking - but this is still 20 blocks across a possibly wide geographical area.

He/she needs to attend 3 to 4 meetings (mostly evening) a year for each block. That means that in his 48 week year he will average 1.5 evening meetings a week. He will visit each scheme once per month and more if there is an issue. So 5 visits a week average. He will get upwards of 50 emails a day. He/she will need to oversee all health and safety activity, liaise with contractors, issue orders review activity on site, approve payments. He will need to oversee credit controls, appoint debt collection agents, appear at court and LVT and issue 20 budgets and organise 20 sets of accounts every year.  He/she will be on call 24/7. There is a good chance that he or she will be time poor and stressed and consequently not giving of his or her best.

Doubtless there are some out there who will comment that they can manage 10 or 15 schemes without assistance and I have no doubt that given straightforward and local schemes this is possible. I don't know what the right formula is - and I have been looking at these numbers for over 25 years! We have settled on 18-22 blocks dependent on all sorts of factors including size, geographical location, experience of the manager, the size of the support team and total income. Clearly in prime central London management fees are much higher but then so too are staff and office costs (which is why we continue to operate our support team from Worcester).

Understanding why your manager does not respond as promptly as you might like will help you to working out why there is a continual lack of satisfaction with services in leasehold management. Fact is, pricing structures are completely wrong leading to a historic lack of transparency and  increasing risks of using the cheap and cheerful alternatives that are springing up everywhere. Residential property managers are a fairly unique and widely skilled bunch. Not only must they be building and financial experts but they must be good with people and understand and apply huge rafts of legislation and regulation. They should be very highly valued.

Clarity can be provided through good contracts and service agreements with clear pricing and rewards that work for both sides. Experience counts for a great deal when something serious goes wrong, I genuinely believe cheap is not necessarily cheerful in the long term.

Missiles to be sited on residential blocks. What a property manager must know...

Here is my (tongue firmly in cheek) guide to managing a block with a missile silo established on the roof - following the news that the Olympics may have this additional protection:

1. Check the buildings insurance. It is unlikely to cover this under the engineering clause. In fact it is unlikely to cover it under any clause.
2. Don't let them take it up there in the lift.
3. Make sure that the 'No Access To Unauthorised Persons' signs are clear beside the roof access doors and the doors are securely locked (not with a C6 padlock)
4. Do not attempt to carry out repairs yourself. Missile launchers need specialist maintenance, they are highly complex.
5. Do not press any buttons.
6. In the event that missiles are fired it would probably be best to evacuate the building. Stay put policies do not work in retaliatory situations.
7. Extend the building's security contract. Ask LOCOG if they will pay the extra.
8. Advise residents' in writing that there may be some vibration and excessive noise - possibly during anti-social hours.
9. Try not to anger anyone at the scheme excessively. Especially that quiet chap who keeps himself to himself.
10. Get your affairs in order.

Why ARMA Membership is important

Recently I have seen on line comments that imply ARMA is not performing/not suitable/fit for purpose. Some of these comments are written by non member practitioners, some by consumers and others by those seeking to compete as trade bodies. So let me put the record straight. Why would you choose to receive services from a business that has not joined the specialist trade body in their sector and ticked the following boxes?

• You must have been trading for at least 2 years before you can become a corporate member and display the ARMA logo. This is important - ARMA need demonstrable evidence of track record and of trading successfully;
• You must undertake to properly hold and protect your clients money;
• You must provide audited company accounts annually (unless you are separately RICS audited)
• You have to become a member of an approved Ombudsman scheme and have a published complaints procedure;
• You must have a published health and safety statement;
• You must have full professional indemnity insurance and evidence it annually;
• You must agree to abide by the RICS residential management code approved by the Secretary of State;
• You will be given access to training, guidance, free helplines, conferences etc. not available elsewhere.

If your agent is not a member then you need to ask why. The fact that they do not like other ARMA members or cannot meet the membership criteria is insufficient. The fact that they feel that ARMA has not responded to consumer complaints with sufficient rigour is immaterial in this context (and actually untrue - but that story is for another day); since their inception the standard of management has risen immeasurably in the UK - but so too has the number of flats, the complexity and cost of management and the number of agents. In an industry with few barriers to entry this really does provide a degree of assurance.

Most importantly - there are no genuine alternatives to the expertise that ARMA brings and there are certainly none that are in the process of creating a genuinely independent regulatory regime. 

Successful management is about partnerships. The better supported by an expert trade body those partnerships are, the better for all. We all need ARMA more than ever - agents and consumers alike.

What to Believe?

I find it difficult to follow the wide variety of views expressed across the web by those with an interest in leasehold unless I understand the size and type of their block or the precise nature of their interest. It is, after all, possible to make a great deal of noise on the internet about anything you like, if you have the time. To discover then that the protagonist of a particular view lives in a two flat converted house can come as something of a disappointment given that they have claimed the ability to change the industry with their  unique knowledge and experience.

I am, on the other hand, uniquely qualified to comment - having worked in the industry for 27 years, owned several leasehold flats, both in large and small, new and old, blocks, and having chaired ARMA for three years. I was also  instrumental in the formation of IRPM and I have built two successful businesses over the years specialising in property management. I have spoken and written on the subject for years.

Shall I suggest the obvious? Yes, of course I will - its in my nature: If you want good advice ask people who know what they are talking about. There seems to be too much reliance on spurious and unqualified comment by all sorts of vested interests on the web. Some of them, increasingly, have a financial interest.  I do know that most of us see through this, but I am concerned that views espoused by those who invest most in their web presence will prevail if we do not insist on a degree of balance.

Which brings me neatly to bullies. They are same whether expressing their views on the web, in newspapers or elsewhere. They will rarely confront issues directly nor do they canvas opinion before publishing, in case the responses don't suit their views. Often they remain hidden behind a veil of authority and the added threat of publishing parts of any comment you may wish to make in response. I hate bullies.

At Mainstay we have had our fair share of cyber comment, some of it we have deserved, some of it not. Some of it was directed at members of staff and we worked hard to have it removed. We are genuinely working hard to change perceptions and to deliver great service. We have changed and it is clear that the whole industry is changing and fast. But we also deliver full statutory compliance and exceptional credit control and thus, sometimes, it is not possible to delight all parties - but most of our customers agree that these elements are important to ensure smooth and effective management.

At Mainstay we are not landlords, we do not own a broker, we have no negative LVT comment, we have no negative Ombudsman cases. We endeavour to resolve complaints directly. We do not apologise for having rigorous credit control procedures - this is what our clients demand - and most of our clients are RMCs. We are FSA registered, RICS members, ARMA members, ARHM members. We are CHAS registered, members of Safe Contractor. This year we became Investors in People and have recently acheived ISO 9001 and well on the way to achieving ISO 18001. We monitor and track all customer calls and we are currently undertaking customer surveys.

Most of all, we are qualified to manage property assets at the highest level. Remember: You would not trust servicing of your new car to the local mechanic - it goes to the dealer - who may well cost more, but when things go wrong is far more likely to protect your interests and your warranty. Your property is worth even more - do not entrust it to amateurs - however impressive their website is.

There are bad managing agents, developers and landlords out there, but for the most part the industry is populated by decent, honest folk. Make sure you are talking to them.

2012 - What will change in Residential Leasehold Management? My predictions.

Some of the changes in the world of residential property management this year will arise because of wider changes in the way the world operates and the current economic climate, but many more because of increasing consumer pressure and Right to Manage. So here is my list of the top ten predictions for this year in the world of residential leasehold management:

1. ARMA will commence steps towards a real regulatory regime with genuine power and independence. Watch out for ARMA ‘Q’ announcements. All professional bodies need to be putting some distance between their members and their regulators.

2. A noticeable trend towards the separation of residential management from the ownership of freeholds. Developers and Landlords will be thinking carefully about self managing – some are concluding it is better off in house, but most will understand the inherent risk of tainting their brand if they get it wrong.

3. The LVT will continue to improve the consistency of its decisions nationwide - but will also continue to be overwhelmed with new cases.

4. Right to Manage application loopholes allowing landlords to resist otherwise legitimate RTM claims will rise as landlords and their advisors become more savvy - and scams that allow the creation of RTM Co.s by outside agencies will increase. Even the best meaning legislation soon attracts abusers.

5. The IRPM will begin a process of moving towards becoming the intellectual and academic hub for debate surrounding the industry, driven by a rapidly growing and younger membership.

6. Further consolidation of the industry as the myriad of smaller, and barely profitable, operators are subsumed by larger players and large companies and investors, particularly in facilities management, will look to widen their property services offering and include residential block management amongst their options.

7. More performance related management contracts that follow on from very detailed pre tender and tender processes – more like the public sector. Customer service and compliance will be the key measures. Agents will be required to demonstrate their relevant experience and expertise in order to tender.

8. There will be no new legislation, no government sponsored regulation or reviews of existing legislation. There are other pressing matters to deal with at the moment and we remain way down the pecking order.

9. Customer understanding of how leasehold management really works will continue to grow exponentially as detailed information and transparency become the norm. ‘Value’ rather than ‘cost’ will become the driver to getting better service. Most customers really do want to protect the value of their property, not simply to cut costs. This is a real opportunity for the industry.

10. Transparency. I looked closely in 2011 at a number of agents charging just a simple competitive management fee. Most of them were technically insolvent because management fees alone do not cover the cost of management. Being transparent requires a careful look at what it really costs to manage properties. If the cost is right, agreed from the outset and clearly contracted, then there are no hidden extras.

I am convinced that managing agents remain essential in delivering safe, secure and highly valued places to live and work. But we are not in a popularity contest, those who chose not to pay have to be chased, essential works have to undertaken and difficult decisions have to be made. That always makes for uneasy relationships.

Let the debate begin.

Watch out for the Right to Manage scams!

‘Right to Manage’, introduced through the Commonhold and Leasehold Reform Act gives flat owners the right to collectively remove their manager or take on management directly from their landlord. It is in many ways a landmark piece of consumer legislation and somewhat unique in that ‘no fault’ needs to be proved and landlords cannot resist it if it is correctly utilised – even when there is a clear contract in place. As a protection it should be an effective threat to ensure that owners get fair, compliant and transparent property management services.

However, with increased understanding of the legislation and increased use come, inevitably, opportunities to find loopholes and to abuse the process. This legislation is particularly helpful in this respect since for some it offers something that, on the face of it, is attractive, but for most appears complex and difficult to achieve.

Principal opportunity for scammers is that there can only be one RTM Company and anyone can set it up easily. Once created you may have to pay a fee to get ownership back for the leasehold owners or you may be forced to utilise the services of the agent - now registered as director and secretary of your RTM Co. The costs of doing this are low and the agent need not be in a particular hurry once it is set up.

Unscrupulous agents have set about finding any residential development they would like to manage and then creating their RTM Co.s and then just waiting. Others have even actively pursued opportunities by contacting the registered owners directly indicating that they have set up the RTM on behalf of other unspecified owners and that they should sign up to ensure that RTM is possible. Once they have the requisite 50% they can take on management as part of the deal. At this point there will also be a fee. We have seen these charged at up to just below the statutory consultation limit of £250 per unit. They will then expect a management contract as well, after all, they still have control of the RTM Co. The final indignity is that, although they may be a registered director of the RTM, they have no responsibilities for the company since you have to be a qualifying owner to vote and take part.

Notwithstanding, this legislation is designed to be instigated by leasehold owners and not by third parties who are looking to make a quick buck from the process. Assuming your building qualifies it is not difficult to undertake RTM – the difficulty is getting the requisite support from neighbours.

Make certain that residents are in the driving seat. Do the groundwork first – see if you can avoid it altogether by talking to your landlord and, if not, interview and select the right manager first (one with proven track record with similar managements and real expertise in RTM) and then go through the process in control of the costs and outcome. Incidentally – if you select the right manager to manage he may well undertake RTM in exchange for the management – i.e. for nothing.

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 in 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 lose 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 resident controlled 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 silly – we still have a long and difficult road to travel.

A New Approach to Management of Complex Residential and Mixed Use Buildings

If I was asked, ‘what has changed the most in residential management in recent years?’ I would have to say it was the level of complexity that we now see in the construction and mechanical and engineering systems utilised in the delivery of efficient buildings that are able to deal with security, safety, parking, cooling, heating, lighting and green issues amongst other things.  

Larger schemes built in urban environments, often with an element of mixed tenure, need to deliver a whole raft of complex solutions that are driven not only by regulation and the quest for reduced energy use, but also by the need to provide something different that attracts purchasers. The consequence of this has been a huge increase in the level of practical skills and expertise required to undertake management effectively.

Managers are being forced to look very closely at the qualification and background needed to undertake management of schemes where there may be massively complex CHP plants, comfort cooling systems, extraction, smoke vents, fire systems, lifts etc. etc. Pricing for the life cycle replacement and ongoing maintenance and compliance of such plant and the subsequent provision of an asset register may be beyond the capabilities of many managers and is scarcely covered within the available training options for property managers. However, these skills are undoubtedly essential if you are offering to maintain schemes to highest levels of safety and efficiency and in particular to maintain or enhance the overall asset value.

Herein lies the disconnect that all property managers must overcome – maintaining asset values means offering properly thought out strategies over the mid to long term - this is often at odds with operating in a one year contract environment and in an economy that demands cost-cutting for multiple customers as opposed to single business entities. It is possibly the reason that large FM providers do not currently directly service this sector.

It has never been more important to present evidence of value for money and this must be demonstrable around a 5 or 10 year plan and not just about immediate cost savings. After all, it is the very best managed buildings that are still able to find purchasers amongst the very small pool available. Long term planning and high quality maintenance solutions will prove best value in the long term and consideration of this strategy should be predicated on the understanding that ownership of flats is likely to be for somewhat longer than we have seen historically whilst commercial leases are getting shorter. The shift is already here and so the approach to management needs to be refined to suit.

Is Residential Block Management in the UK a two tier system?

We often hear residential management in the UK referred to as a cottage industry. Apart from a few large players the industry comprises many thousands of small, usually local, providers and a widely differing range of services and qualities.

The current climate has seen many new entrants as property managers set up on their own and estate agents look to diversify. As I have previously discussed, a lack of barriers to entry is not always likely to promote better quality with, understandably, price reductions being the main selling point for many new entrants.

The consequence of this is an increasingly polarised service dependent greatly on the type, size and value of the estate or property in question. Clearly large complex blocks require sophisticated solutions that are technology led and fully compliant and asset values are greatly affected by a failure to deliver high class services. Small schemes on the other hand, with little or no mechanical and engineering requirements, require far less in terms of sophisticated response, compliance and ‘green’ efficiencies. They do not have site based staff and they do not have complex fire systems. The risks are considerably less.

There is rightly some concern when services provided by large agents are utilised on blocks without the need for an all encompassing approach, the cost of such a service will be considered too high because the ‘boiler-plate’ approach is not economic at this scale. Likewise low value ‘economy’ approaches are unlikely to suit large complex schemes where saving money could lead to safety issues or an overall reduction in asset values.

A compromise is usually best and any agent who is not seeking to provide best value at every level will suffer some losses – but this does not mean being the cheapest. The best quality services will always have customers as will the cheapest. Just make certain they are right for your development over the longer term.

Of course this brings us neatly to the difficulty that managing multi occupied schemes has always had: Not everyone wants the same thing. Some will want to save on costs at almost any level and any outcome. Others will want to spend and spend on maintaining values and creating quality. Clearly the answer lies in the middle and the challenge is to allow as many as possible to believe that they are receiving best value at the right price. This is very different for a suburban estate of starter homes to that of super prime apartments in London. It is also different for long leaseholders as opposed to short term renters and again different for commercial occupiers.

In summary then it seems that there remains plenty of space for a wide range of service levels across a huge number of agents. Just ensure that the important statutory and regulatory requirements are not overlooked for the sake of some short term savings.

Be Realistic about Regulation and we might just get it.

There has been much discussion in recent years about why the residential leasehold management sector needs regulating. Some of this debate is excellent and has already led to a huge change of attitudes and in particular to increasing transparency and increasing consumer knowledge. In themselves these are both excellent and long overdue changes for what remains a growing and increasingly important service to the built environment.

However, the fact that Grant Schapps has confirmed that Government will not regulate the industry directly should come as no surprise. They have not regulated industries with far greater consumer issues and where the pressure has been even greater. Some of the business areas where there are current calls for regulation include: Estate agents letting agents, hedge funds, oil and gas container products, hair smoothing products, foster homes, outsourcing businesses, sunbed shops, care homes, shale gas extraction, lap-dancing clubs and the list goes on and on and on.

The simple reason is that the cost of Government regulation is massive and faces constant challenge. They prefer legislation (of which there is plenty both in leasehold and consumer rights) and for the courts to decide.

Regulation then needs to come from the industry. Firstly, from ARMA and then from other interested parties such as IRPM, LEASE and consumer bodies. Insistence on qualifications, as well as expertise and experience and other fundamentals such as PI insurance must become the norm. Regulation will require an independent board of experts and lay members to uphold the standards set in agreement with the industry. Credibility will be assured when the hurdles required are set at a level that only allows the most transparent and diligent agents in. The rest will not survive because customers will insist on the regulated standard.

Increasingly I am seeing new entrants spouting on about why they don’t need to be members of ARMA. But let’s be honest, why would you choose an agent who wasn’t prepared to wear a badge confirming that they demonstrated external audit requirements were met, that PI insurance is in place and that agrees to act in accordance with a code as prescribed by RICS?  ARMA may be a 'trade body' but it has teeth and these are increasingly making it the obvious choice to self regulate the industry. Once that happens (in less then two years I believe) then you will need to be in it to have any credibility as a managing agent.

Finally, why would any one choose to use an agent who wasn’t prepared to publish on its website the names and contact numbers of its senior team? Too many websites promise the earth but will not reveal their principals.  If this is to be an entirely transparent industry then that might be a good starting point – after all, what could they have to hide?

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.