Beware! Lowballing is back. Did it ever leave?

I feel deflated.

Perhaps it never went away, but I am hearing more and more stories recently around the practice of 'lowballing'. Consumers and developers alike need to be aware that this will come back to bite them. I previously wrote about it in 2013 in response to the OFTs scoping document here: http://davidclarks.blogspot.co.uk/2013/12/response-to-ofts-residential-management.html

Lowballing is the practice of setting an artificially low service charge to either win a contract (agents) or to assist the sales process (developers). In some parts of the world it is illegal but in the UK not expicitly so. There is some legal sanction that service charges must be reasonable (works both ways, although I am not sure anyone has ever challenged a charge on the basis that it is too low...) and regulatory requirements set out in the ARMA Q Consumer code:

2.1 New Business & Tendering When seeking new business the Managing Agent: 

d) Must make it clear what services they are proposing to provide and at what cost, as well as the extent and limit of any additional services available; 
e) Must not purposely underestimate costs or provide misleading estimates of future Service Charge contributions required; 
f) Should quote their Management Fee as a fixed fee, unless the Lease specifies otherwise; 
g) Should pre-agree charges; 

Lowballing may take the form of artificially low prices for maintaining the development but often is more sophisticated and may involve ignoring areas of future costs and removing them as a line item. Health and Safety, mechanical and engineering costs as well as artificially low reserve/sinking fund allowances mean that charges are initially set to look very reasonable but quickly grow in the first few years to meet both large deficits and increased ongoing costs. Poor, or deliberately low, estimation of insurance costs often lead to significant hikes in later years. The use of phased and void costs to support an artificially low service charge. On estate schemes freehold house owners do not want to pay for managemenof the open spaces and charges sre often set innapropraitely low to offset this. Some stakeholders will want ot pay nothing, particularly housing associations buying under S.106. Anecdotally I am advised that we are increasingly asked to reduce overall costs despite the loss of quality.

Developers have a responsibility to check that each item of M&E in the specification is correctly priced and that there is a full health and safety regime. Is the manager likely to provide a worthwhile service for the fee proposed? 30 flats at £100 per year does not deliver many hours of service to leaseholders. Where there is an initial guarantee in place (for example lifts) then a note to the effect that there will be a significant future maintenance cost should be added to the estimate.

All agents have experienced a failure of the developer to provide all of the correct information upfront and the consequence of finding previously unmentioned plant at a scheme. Both parties must ensure real diligence in providing and obtaining all details that might lead to contractual, insurance or replacement costs.

We are in a competitive industry that is prepared to win work through artificial pricing and without more care on the part of developers then it is only consumers who will lose. Agents are still relying on the fact that initial management periods are often longer and more complex - allowing for a degree of stickiness and little consumer pressure for change.

I am pleased to be working with developers who recognise that their relationship with purchasers and the communities they create are not just transient. The best developers talk of whole life relationships from student accomodation to retirement villages and all homes in between. It pays them dividends to ensure that service charge budgets are set with honesty, that managing agents are rewarded appropriately as professionals and that cthe clear benefits of transparent management are set out clearly at the point of sale.

It pains me deply that I still lose work for being too 'expensive' by comparison to an agent who has not, for example,  had his engineer look at the M&E specification and whose insurance team haven't commented on the insurance reinstatement costs. Increasingly we pick up those schemes 3 or 4 years down the line when residents have tired of paying huge deficits every year whilst enduring massive hikes in costs. Personally I would like to see a requirement for managers to proveide three years of estimate for new devleopments with an element of  risk attaching to their fees. This would quickly ensure accuracy for consumers and fewer unpleasant surprises.

In summary:

• Developers must provide all development details accurately up front
• Agents must undertake to deliver accurate budgets and revise them when new information comes to light
• Notes must be added to explain missing or future costs
• Notes must explain how adequate reserves will be collected
• Fees should reflect the cost of management
• Other fees arising form the lease should be clarified
• Consumers should look for comparables and be wary

One Month Without Property Managers

At this year's IRPM Fellows' meeting there was much debate about how we can ensure that the value of residential property managers is fully recognised. The increasing professionalism of the industry and the rising importance of sector specific qualifications have shifted us some way to achieving this. However, many feel that front line practioners still bear the brunt of consumer dissatisfaction and anger driven by misunderstandings, inequities and the a poor image fostered by those only interested in stories of overcharging and mismanagement. Regretable as these are, they are  the domain of a small minority of rogues who abuse the system and continue to taint the whole industry. Their days are numbered as regulation, consumer pressure, social media and competition makes it increasingly difficult to perpetuate substandard services.

My experience of property managers is that they are some of the nicest people to know and work with and I count many amongst my friends. They are skilled in many areas, work long hours and rarely have anything but the best interests of their buildings and communities at heart. There are many amazing success stories out there that we fail to promote and that has led me to thinking about what the world would be like without the essential service that we offer. To celebrate the value of what we do and try to imagine a world without the critical services we provide.

Would a month without property management lead to street riots and civil insurrection? Sounds like a silly proposition doesn't it? But let's have a think about it; we live in strange times after all.

In my imaginary world all property managers and supporting teams have been mysteriously relocated to a pleasant tropical island with no means of escape for a month. As recognition of their hard work, every luxury has been afforded them whilst they wait to see what happens back home.

A number of buildings quickly suffer from issues that we would normally consider critical. One or two have pump failures, other have lifts that break down. Many experience leaks. There is no one down at the managing agent - phones are not answered and emails sit unopened. Whilst the normal day tpo day services break down, the managers continue to top up their tans, drink virgin cocktails, play complex board games and read novels about dystopian futures. Life is, for them at least, briefly idyllic.

Residents become restless and agitated when they realise the common areas are not going to be cleaned, the grass is getting long, weeds are sprouting from the paths. Cigarette ends litter the paths under balconies.

There is a fire. It is put out but no one comes to look at the damage, the extinguishers aren't replenished. The insurance has not been renewed so residents have to live with the smoke damage.

Security systems start to fail and strangers are found in common areas. Crime starts to rise, more break-ins are reported. The CCTV is still working but no one is looking at the screens. Some residents can't even get into their block, eventually they smash the door down. It'll get fixed they hope.

Some residents take on the management themselves but find it difficult to raise the money for essential repairs and even more difficult to get a line of credit from the engineering company that oversees their plant. Where are the keys for the plant room? What are those flashing lights on the fire panel? Having chosen not to use the Mansafe system, a contractor on a roof falls and is critically injured.

There seems to be more noise, more parties, more anti social behaviour generally. This can't go on say concerned leaseholders. For sale boards start to appear in windows, next to drying washing. There are blocks in the neighbourhood that have had no hot water for a couple of weeks. One has no water at all.

People start to behave with less care. After all, if no one is cleaning up why should they be the ones to do it? Rubbish hasn't been collected this week because the bin doors weren't unlocked for the dustmen. Is that a cockroach over there?

Talking of pests, those Pharaoh ants are back. The regular pest control hasn't happened for a couple of weeks. The rats seem bigger, more confident.

Residents get together to discuss what can be done. They argue loudly at meetings but eventually letters are drafted and sent to politicians. Something falls off the side of a building, narrowly missing a family waiting while their dog excretes on the pathway. No point in picking it up, it's already a disgrace round here.

The emergency services are flat out rescuing people stuck in their apartments because the lifts are out of order and trying to get the water back on. Standpipes are put up in the street.

The very fabric of our communities is quickly tested. Buildings start to look untidy and tenants stop paying their rents in large numbers. What can be done? It is proposed that there will be demonstrations in the major cities. 'Bring back our managing agents' the crowd chants. Some cars are set alight. A politician is 'roughed up'. People are very clear that they do not like their homes being affected by this. I've already paid my service charges in advance shouts one irate pensioner on Question Time. Safety, security, warmth and running water are fundamental rights say campaign leaders.

After one month (or so) most PMs return to their grateful customers and put everything back in order. Some, however, never return, after all the island is a lovely place, immaculately managed, spotlessly tidy and environmentally perfect after a month in the hands of the experts.

Yes, this is a very silly article, but let's foster stories of all the good that property managers do because most of them are brilliant, commited and valuable. Anyone who thinks that we are less than the glue that binds residential communities together can take it up with me.

IRPM goes from strength to strength

 I have reccently finished my period as chair at IRPM and handed over to Felix Keen from First Port who I know will continue to drive IRPM to further success and deliver yet more for our members.

Whilst I will remain as immediate past chair, for me it is the end of an era. I have been involved with IRPM from conception in 2000 and creation in 2002 and it has been close to my heart ever since. I believe that we have fundamentally improved the quality and skills of residential block management practitioners and this is confirmed by the many job adverts I see that mention IRPM as a desirable or necessary requirement.

IRPM would simply not exist without Janie Strange and Jeff Platt who nursed it through difficult growing pains, tight budgets and unforeseen obstacles in the early years. It is with regret that they too will be stepping down at the end of the year when we will be joined by our new CEO Andrew Bulmer. I wanted to take this opportunity to thank them for their relentless efforts to promote IRPM, to give us a real voice in the residential industry and to make IRPM the go-to qualification for leasehold (and factoring) managers. Their support during my tenure has been invaluable.

Excitingly, there are newer, younger, members coming forward to drive the agenda at IRPM and their efforts can be seen in the Resource Hub and other web led initiatives. Our membership is increasingly made up of under 35s who represent new smart ways of working, broader generalist approaches to management and are full of ideas that we are hoping to harness.

My thanks should also go to the working groups, all volunteers, who devote significant time and effort to delivering our promises to members.

We are all supported by Sarah, Aga and Dipti who have devoted their considerable talents to delivering huge changes in the last few years. The member database has been modernised, we have entered the world of social media and we have diligently managed our funds so that we can invest carefully in some great new initiatives including specific Build to Rent qualifications and Trailbazer Apprenticeships both of which launch in the new year. We have a small but incredibly hard working team serving all of the working groups and the executive. I thank them for keeping us on track and on time and delivering incredible value for members.

During my time as chair I am proud to have experience more than 10% membership growth year on year, testament to the continued value of our qualification and growth in all levels of membership.  I have hosted numerous road shows, training days, our free annual seminar and our fellows' day and spoken to many members on matters as diverse as Brexit, Scotland, LGBT voices and equality, MA/HA's and working together, the impact of mixed tenure, higher education and the skills gap.

IRPM will continue to work on delivering apprenticeships and the first PRS qualifications in the UK, as well as enhancing the Resource Hub so that it becomes the first area our members search when advice and information is needed in our complicated world. In recent years we have seen more emphasis on mixed use and mixed tenure schemes and the advent of the PRS build to rent sector further add to the skill sets that we need to prepare our members for. It is an exciting time for us and there will be many initiatives in the near future designed to broaden our offering, develop our members and attract new faces.

Education and continuing professional development is crucial to practitioners and it is important that we continue to promote our industry to schools and colleges as a valid career choice so that employers have a constant stream of new talent becoming available. These are the strategic matters that will fill the days of our new CEO and chair in the coming year. Janie, Jeff and I will remain available to assist where we can and we trust that we are leaving a great legacy.  

This article first appeared in The RPM magazine in August 2016

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 do we mean by PRS and who will manage it?

PRS is such a misleading accronym - I have taken it to refer to 'new built rental flats in the private sector with institutional investment', but clearly it means different things to different people. Journalists use it to cover the whole of the private rented sector and they are right to do so. However when talking about specifically the build to rent sector we will not want to be tarred with that brush which at the moment is largely reported on negatively and is even seen as a pejorative.

In the USA they talk about 'multi-family apartments' and this is perhaps closer to the truth but I don't think it suits the UK. What about PBR - Private Build to Rent? Any better ideas? Let me know.

And who will manage this growing opportunity? Whilst there are a few specialists, there remains a woeful lack of expertise in pure residential asset management in the UK. The real experts are housing associations and they have been quick, particularly in the South-East, to make a claim to this space. Another solution comes from US based experts with a long track record in the provision of purpose built to rent management.

I do, however, honestly believe that residential managing agents are likely to have more of the asset management skills in house than most of the solutions currently being offered. Complex buildings require specialist professional property management skills and long term capex plans if they are to work for institutional investors. High end rented buildings need to be constantly refreshed to stay competitive in what is becoming a fierce market and they need to be appealing to a new generation of people who see renting as a viable long term, flexible option. That means that a strategy that concentrates on real efficiencies and a 'right first time' approach must be applied contantly if schemes are to remain successful.

Modern buildings are complex and require real understanding of specific M&E and modern methods of heating, cooling and lighting, as well as access control, security and ultra high speed broadband and site staffing.

Value added scheme based services such as parcel collection, grocery delivery, reactive maintenance and laundry services, residents portals and myriad others must present a real opportunity for entreprenuers.

We should not be fooled into believing that the commercial property sector will provide a solution to this new opportunity - residential management is not like commercial management. Business to Customer (B2C) delivery requires a particularly customer focused approach that will be painful for those businesses to absorb.

Finally a ‘Build to Rent’ Use Class would usefully deter investors from simply retailing units after a few years by creating leases should they not deliver. That would be disastrous in my opinion for reputation and development of the confidence of local planners and, ultimately, renters.

My Residential Management Predictions for 2016

Belated Happy New Year to all, I think it is going to be a very exciting one.

Now amazingly in its 5th year, this is my prediction of what is going to be important for residential property managers in the coming year. Some themes just keep recurring and residential management is set for unprecedented changes. This is my take on those recurrent themes:

1. Are we training our teams to manage yesterday’s model? This was the theme of the IRPM Fellow's Day late last year. It remains an important current theme. Things are changing. Better value, retention and reputation comes from doing a good job that focuses on the tenant (read customer) and not just the client. We have been training property managers to act solely in accordance with the lease and prevailing statute but ignoring the softer skills that are needed for a new world of consumer confidence, education and social media. New managers are very different animals in 2016.
2. Service and customer focused residential asset managers - not just 'block managers' but experts in a much wider field that takes in communities, placemaking and customer care whilst understanding the built environment sufficiently to add value to residential assets at all levels. In a market where high quality rental environments are likely to become a real alternative option, competing to have the best managed most attractive properties with real kerb appeal becomes an necessity. 
3. Institutional PRS - purpose built to rent. Try as I might I cannot get the numbers to stack up, particularly given interest rates will only go one way and margins for retailing long leases remain fairly strong. However, the evidence remains overwhelmingly against me and this year is the year that will prove the genuine interest that is out there is not all talk. Expect rents to be the highest you've seen. If the model does work then we will see real large scale investment - but it needs a few more years to prove itself and there are other obvious factors at play. Housing Associations will probably lead the way outside London. 
4. The rise of the Housing Association in the private sector - as above. The world of the social landlord is being shaken up, no more automatic rent increases, fewer S.106 opportunities for starter homes, less subsidy. I anticipate more HAs stating that 'we are providers of housing - in any form that takes' not 'we are providers of social housing'. Is it now their aim to assist in meeting the annual housing shortfall by any means?  Let's not forget, top 50 providers aside, the average number of new homes HAs develop each year is around 15.... Social rented property is potentially declining whilst property for private rental is increasing. Their model is being forced through very significant changes.
5. Partnership - always one of my favourite themes - expect to hear more about how managing agents and housing associations can better work together on mixed tenure developments. Meetings are taking place. The word 'partnership' will be used alot... sadly, we remain mired in suspicion of eachother (we need to grow up) so alot of hard work is still needed.
6. The rise of mixed tenure - this is ongoing but continuing from last year, there will be much talk of truly integrating communities and making them work for social and private renters, owners, part owners and families who are inevitably springing up as a new factor in flats - people simply cannot afford to move on. Expect the demise of signs saying 'No Ball Games'. ..Expect practical steps to get communities talking and working together. Expect managing agents to have an important role in this.
7. CHP - a new local way to power schemes with built in savings....lots of schemes will push the green button on their big plants. Fingers crossed! The Heat Network (Metering and Billing) Regulations 2014 will begin to impact how we measure supply and pass on costs, I suspect many are not yet geared up for this complicated piece of regulation. 
8. Over here... - Here come the big multi-family providers from the US. And their trade association, the NAA.
9. A different model - the rise of the new style agents. Those who now put customers at the centre of their operations and add proper value will surge ahead. The US model will (if not already) change the way managers behave. More importantly it will affect landlords and what they offer and how they chose to manage.
10. ARMA Q - it really does have teeth - expect to see them bared in 2016. It also is becoming  a common requirement in tenders that I see. No, I dont know who the new CEO of ARMA is, best kept secret in the leakiest industry ever.

We managing agents still underestimate and undersell ourselves.  It takes experience, time and constant training to deliver a good professional service and we sometimes dismiss how important our role in building communities is.  A modern development may contain every type of tenure and we need to understand the practicalities of dealing with every one of them.  Our service needs to reflect that but also incorporate the same level of service for all - not just for our clients.  We need to anticipate the way the market is changing and adapt for the future, not just react when the change has taken place. Those who have adopted portfolio and asset management skills, learnt to be customer focused and efficient in response will be ready for new and very high standards that will be set by the PRS suppliers who succeed. 

The new players in our sector include HAs, who are now delivering in the PRS, qualifying for IRPM in leasehold and joining ARMA. U.S. multi-family specialists will build and manage to a standard that we must aspire to match or beat. Institutional investors who are currently putting countless millions in residential assets will require exceptionally skilled residential asset managers. Most of all, residential managing agents need to learn and adopt best practice from the new players in our markets and adapt or quickly be left behind. 

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.

Why is management so important when creating communities?

We rarely stop and think about the impact that we as property managers have on the environment and on the communities who live in the schemes we manage. But if we take some time to think about what our developments would look like with just a year without management. Grounds would be completely overgrown, lifts and other services would have been switched off and/or vandalised. Payments of charges would all but cease and the appearance of just about every aspect of the schemes would devalue the asset considerably. Behaviours of occupants would change significantly too. It quickly becomes obvious that far from being the irritant that managing agents are sometimes seen as, we are in fact essential to the feel and the quality of the built environment and this in turn has an effect on the well being of the communities that live there.

Terms such as 'placemaking' are often attributed to design and build inputs at the outset and this is an important element. But it must also includes how managing agents keep their schemes looking good and feeling safe and inclusive, and how they bring neighbours together with a common purpose.

Increasingly the mixture of tenure types challenges how managing agents interact and deliver services to a wide range of the community, some of whom will have very different needs and ambitions for their living environments. All such challenges will need to be met by sophisticated solutions. Some of these solutions will be achieved by bringing the whole community into the discussion and others by a combination of soft and hard services that allow the collection of funds and maintenance of the quality of the environment. As ever this is a complex role that we property managers have been doing instinctively for a long time but subtle changes mean that we must begin regard ourselves as important factors in the delivery of wider well-being of our customers.

What is this change? New schemes may routinely include leasehold and shared ownership, market rented, fair rented and social rented tenancies. Price pressures will see shared renters next door to families and older people trading down living next door to young professionals, key workers or those previously in housing need. In such mixed communities there is a new responsibility for the managing agent and that is to listen to the needs of all and ensure there is a continuous and community wide discussion taking place. This includes allowing full representation of different groups and engaging with community leaders. Allowing collective action gives managers the power and support to make changes and improvements significantly more efficiently.

As an industry we remain bogged down in technical jargon, regulation and limited working patterns and defensive behaviours that curtail the real improvements that we are able to bring. Whilst continuing to recognise the importance of the safety and technical elements of our role, we need to embrace the wider opportunity to be the hub around which communities, particularly in large developments, can control and bring continuous improvement to their environment.

What an opportunity that must represent to further our importance as the experts in the residential built environment.

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.

Phillips & Goddard V Francis Episode 5. Halloween - The search for a new case to moan about.

Excitement has been building for months now and the chatter amongst managers had reached a fever pitch of wild speculation, fantasy and urban myth. Yes, Phillips v Francis, the most exciting thing to happen in leasehold management for years, has had managing agents scratching their heads or burying them for nearly two years. But now the waiting is over and I can confirm that judgement in the appeal of Phillips and Goddard v Francis has been handed down and, in summary, the bit we didn't agree with has been overturned. So concerned were we that there was an 'Intervener' in the form of the Secretary of State for Communities and Local Government. This sounds quite threatening to me - I am imagining a black cloaked Machiavellian character, who says nothing but is there to observe the 'correct' outcome.

Nothing too scary this Halloween

Anyway, this is an excellent outcome since pretty much nobody I know has been endeavouring to comply in any event. Apart from the fact that it simply wasn't clear how it was possible to comply, doing so would have required significant additional expense for leaseholders as well as additional mire and confusion. In the current days of value for money and transparency, Phillips was never going to cut it. Once again the simple problem of some landlords failing to comply with the spirit of the law led to the sledgehammer approach affecting everyone. On this occasion common sense seems to have prevailed... Eventually.

Looking at the judgement more closely, Judge Cotter remarked:

“In my judgment a commonsense approach to
construction needs to be taken and in view of the fact that it
acts as a trigger for the protection afforded by consultation. If
the threshold were too low and all minor or non permanent
works covered, the result would be commercially
unmanageable to the detriment of both lessor and lessee. The
phrase building works use to describe significant works with a
permanent effect by way of modification of what was there
before. Whether works are indeed qualifying works, is a
question of fact having regard to the nature and extent of the
works in question.”

Martin v Maryland Estates Limited [1999] L&TR 541 is the relevant piece of case law to which the Master of the Rolls, Lord Justice Kitchin and the Chancellor of the High Court, no less, turned their not inconsiderable attention. Effectively Martin was overturned by the Chancellor in the previous appeal. Martin's common sense approach over whether works are 'qualifying works' and whether they exceed the 'triviality threshold' was the basis on which we all operated prior to Phillips and, it seems, will continue to do.

I do however remain sympathetic with the owners at Point Curlew - Disaggregating major works, to my mind, was already a clear breach of the law as it stands and there is already much case law to support this. Three years in the courts has done nothing but come to the conclusion that everyone already knew was right and proper. Furthermore, the appeal wasn't allowed on the point of management charges, hinging largely on the somewhat unclear lease in this instance. '...it is reasonable to expect that, if the parties to a lease intend that the lessor shall be entitled to receive payment from the tenant in addition to the rent, that obligation
and its extent will be clearly spelled out in the lease...' It isn't clear in this lease and the original Chancellor's decision was upheld on this point by the current Chancellor. He made the further point:

"Lack of clarity on these common issues is capable of affecting huge numbers of lessors and tenants across the country and involving them in expense and disharmony. The reported cases show that many of the disputes turn on similar or nearly similar provisions. Those who draw up or approve residential leases for their clients are plainly under a duty to take care that there is clarity and certainty in relation to those matters."

Once again I am reminded that adding further complexity only makes for more loopholes for the unscrupulous and more penalties for the innocent. Now, who fancies revisiting S.20 consultation levels?

A very happy and slightly less scary Halloween everyone. I'm off to steal sweets from kids. Bye.

Full case can be read here: http://www.irpm.org.uk/docs/public/Phillipsfinal3110.pdf

CMA Update Paper - Please don't add further Complexity.

Unnecessary complexity?

The CMA update paper for its market study of residential leasehold management fails to understand some fundamental tenets of the leasehold system and cannot succeed until it gets them right. Perhaps they would benefit from some IRPM training?!

But more seriously, this is a real reflection of why consumers misunderstand the role of managing agents consistently. Let's face it, residential leasehold is complex and further complicated by layers of ownership that lead to misunderstandings about who is freeholder or head leaseholder and who is landlord or has landlord's covenants. The CMA have still not nailed this one.

Given the highly detailed response to this part of the consultation undertaken by Jeff Platt on behalf of the IRPM, I did not respond directly this time but contented myself with the knowledge that IRPM have really covered everything.

The full 35 page response can be found here:

http://www.irpm.org.uk/docs/public/CMAMarketStudyupdatepaperresponsefinal.pdf

It is well worth a read.

I do think it is important that we are aware of the limitations of the CMA's understanding so far. Allowing these errors to permeate into any final recommendations will do no one any favours - excepting those who make a living pulling apart badly drafted legislation, regulation and codes in the tribunals.

We operate in a complex legal framework with case law dating back many years and enshrined within that is the concept of 'reasonableness'. This shapes our behaviour as agents. When it doesn't consumers have various routes to achieve redress, shortly to include ARMA Q. All agents are required to be members of an Ombudsman and the sector has it's very own tribunal. Both RICS and ARMA members are bound by the RICS UK Residential Property Standards. In fact all agents are bound by the RICS Code since it has statutory backing.

There is much talk in the review of 'switching' opportunities. I think there as a misunderstanding of the relative ease with which this is taking place now, particularly where the threat of RTM is sufficient to either force a change of behaviour or for a landlord to agree to switching in order to avoid the RTM process. RTM is a fairly big and effective hammer given it is a 'no fault' right. Just the threat of it has caused both agents and landlords to change their approach. There is no mention of this in the report.

Switching of agents is currently, in part, being driven by price. But managing agents are not selling a simple one-stop product, it is an essential and relatively complex one. Prices should reflect that level of complexity and not be driven entirely by cost. We need to see our industry valued as essential and professional and not treated as a simple commodity. That alone will allow standards to continue the push to service excellence. Understanding what agents do is the responsibility of not just agents but intermediaries across the purchase process.

Finally, there is the education of managers and other suppliers. Specialist qualifications are now the norm for those involved in block management and more and more specialist topics are being added, including finance, mixed use, PRS and soft skills such as customer services. Managers are better equipped and qualified than ever before.

Residential management is on the right trajectory. Any poorly drafted interference in that process has the potential to create yet more confusion and potentially ignores the raft of regulation and case law that already envelops surrounds consumers in this sector.

A simple recommendation that all agents must abide by the RICS Code and must aim to meet the requirements of the self regulatory regime ARMA Q within a stated period would more than exceed the ambition of the CMA as reflected by their interim report. Poorly performing agents are being weeded out by increased barriers to entry, significantly higher levels of competition and increased consumer understanding. Further complexity helps no one.

Resources for managers and leasehold owners.

Information is the missing link in our world. So many issues would be alleviated were we all up to speed with current legislation, regulation, the snappily titled First-Tier Tribunal (Property Chamber) (FTT(PC)) and the overwhelming amount of knowledge needed to understand leases, budgets, accounts, consultation process and the myriad other areas involved in running residential blocks.

Suffice to say there are  few of us who can claim to have a handle on all of it. Not me.

So here is a list of great places to keep in your bookmarks and to review whenever you have a spare moment:

• ARMA  http://www.arma.org.uk - a brilliant source of guidance with over 300 notes for members and much more besides. Even non-members and leaseholders are well served by the freely available documentation and there is so much more if you join.
• Leasehold Advisory Service  http://www.lease-advice.org - again a fantastic source of well written and clear advice as well as case updates.
• IRPM  http://www.irpm.org.uk - great resource for members in particular and growing source of quality analysis
• FPRA http://www.fpra.org.uk/ The Federation of Private Residents' Associations is a not for profit organisation dedicated to supporting leaseholders and lobbying on their behalf. An excellent resource for residents' groups it should also be followed by conscientious managers.
• ALEP http://www.alep.org.uk/ everything you could ever want to know about enfanchisement.

• SLC Solicitors - http://www.slcsolicitors.com/ have an excellent section on their website entitled 'Guides'
• Brady Solicitors - http://bradysolicitors.com/ likewise
• Brethertons - http://www.brethertons.co.uk/

• www.lawandlease.co.uk/  Amanda Gourlay's (of Tanfield Chambers) eloquent dissection of all the latest case news and, for my money, the best sector analysis out there. If you have any involvement in this sector you have to keep this one bookmarked and visit regularly.
• http://leaseholdlawyer.wordpress.com/ - Chris Alexander's blog is also an excellent source of comment.
• http://www.leaseholdlife.info
• www.leaseholdknowledge.com/
• www.leaseholdinfo.com/
• The Residential Manager https://davidclark'sblogspot.co.uk  - In all honesty this one is rubbish.

• News on the Block - http://www.newsontheblock.com/ growing web resource
• FlatLiving - http://www.flat-living.co.uk/ similarly a growing resource
• Property Week - http://www.propertyweek.com/ the old favourite and a little more engaged with the residential sector than Estates Gazette in my opinion.

Is your managing agent solvent?

 There will soon be a perfect storm that includes the CMA (OFT) report into residential leasehold management, ARMA Q going live, increased competition and ongoing consumer pressure that will lead to many small to medium managing agents throwing in the towel once and for all. Some will find sale or merger opportunities, some will simply shut up shop and one or two, possibly, will run off with your money. It's coming, I promise.

Sounds dramatic, but I have researched my case well. I have looked at many  managing agents  financials (more than 30) in detail over the last month and I have spoken to many. Balance sheets and histories are freely available on sites like Duedil and they tell a sorry story for some, well quite a lot actually. Reduced turnovers, negative balance sheets, tiny net worth, squeezed profits, senior staff leaving or worse.

For me it is the financial history of many firms that is most telling where, despite what we are being told, turnovers are static and profits are being squeezed by growing wage demands and increased and often justified client and customer requirements for visible value for money.

Those that are succeeding have two things in common; they have scale and they offer a wider range of integrated services. Whether as estate agents, facilities managers or general practice surveyors, you need a broader slice of the delivery cake to make residential leasehold management work as a business proposition. Self delivery of health and safety compliance, surveying, soft services such as cleaning and concierge and debt collection all make businesses more stable and embedded. Look to the commercial facilities management industry for a potted history.

Those promising different levels of service, new standards of response, less units per manager, etc.etc. are still having to deliver at the same or at lower price per unit. We are in a period of unprecedented competition and that is driving service standards and pricing. This is a good thing but inevitably it will shake out the weakest, good or bad.

I get asked a lot by leaseholders what they should look for when deciding on an agent. There are the obvious things that all guides will give you but they rarely mention the financial aspects. So here are my easy steps to ensure that you, as a freeholder, a director of an RMC/RTM company or simply as a leaseholder need to do, in addition to the obvious things, to ensure you are protected:

1. Have a look at your managing agents financial history. Use one of the freely available web services which will give you much of the information you need like turnover, profits, balance sheets, ratios and ownership. Buy the last accounts - usually no more than a few £s.
2. Take into account the size of the business and the number of staff relative to the service promises being made. Are you happy that turnover and profit is sufficient for the type of business.
3. Are they trading solvently? Are they improving their numbers year on year? Do they have the scale to survive a major loss of business such as a big instruction?
4. Is their client base varied and broad?
5. Is your money properly protected and held in trust in a separately identifiable account?
6. Are they ARMA Q accredited or working towards it. If not, why not? (Being a member of RICS does not cut it as a substitute for Q- they may well audit periodically but they will not be looking for the same signs.) If they imply that cost is prohibitive then that in itself tells you something important. Regulation should not be optional.
7. Ask about the plan for the business, succession, retirements, sale etc.

Remember it doesn't matter how good your agent is, how solid their reputation is, if they are unable to trade at a profit or to meet their commitments. Add this to the list of essentials when looking for a new one...

FRED 50 - unhelpful, unfriendly and getting on a bit, WLTM clear thinker.

Just one comment to the Financial Reporting Council, to start with:

It's a Residents' Management Company NOT a Residential Management Company. Look at any lease with an RMC for clarification.

This demonstrates a fundamental misunderstanding of what it is that you are dealing with. Whilst it may only be semantics in some eyes, in my view it is an entirely different thing and at very least is confusing for consumers and members/shareholders of RMCs.

This is the first of many areas that need clarification, most of them raised by respondents to the FRED 50 consultation (see below).


 The consultation document can be seen here:

 http://www.frc.org.uk/Our-Work/Publications/Accounting-and-Reporting-Policy/FRED-50-Draft-FRC-Abstract-1-Residential-Managemen-File.pdf



Read the fascinating responses to FRED 50 here:

https://www.frc.org.uk/Our-Work/Publications/Accounting-and-Reporting-Policy/FRED-50-Draft-FRC-Abstract-1-Residential-Managemen/Responses-to-FRED-50.aspx