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Is your managing agent or freeholder on your side?

Whilst much debate has taken place recently in the press about letting agents and tenant fees with various accusations of letting agents making extortionate profits or brandishing the industry as rogues, little time has been given to highlight the area of leasehold management which is coming under the radar. In the last 10 to 15 years and particularly in the last property boom, apartments and flats were selling like hot cakes and as a result there is an estimated 3 to 5 million leaseholders in England and Wales. Some will be owner occupiers but many more will be buy to let landlords. The whole area of leasehold can be complex and educating the public is crucial. Whilst some managing agents and freeholders are to blame for a multitude of issues; equally some leaseholders do not understand the concept of freeholder, managing agent or service charges. Often a lease is considered by a buyer’s solicitor and so long as there is nothing wholly untoward, the solicitor advises all is well. Some buyers only realise the power of the freeholder and/or managing agent after they have purchased a property. A simple solution to this could be a few questions by the solicitor to confirm the buyer understands the service charge, the responsibility of the managing agent and that of the freeholder. An additional part of the lease that should be highlighted and even be compulsory to highlight, is whether the buyer will be a shareholder in the management company set up so in time can vote at AGMs or have the ability to join a board of directors made up of owners so they can remove any managing agent should they wish or whether the lease set up is a company limited by guarantee where sometimes owners have no additional rights. The biggest area of concern that should be highlighted is where the managing agent and freeholder are effectively the same and the lease affords no rights to leaseholders other than statute (e.g. the right to manage). It is this situation (where managing agent and freeholder are the same) that puts leaseholders in a precarious position and creates the highest level of allegations of poor service and profiteering at the expense of leaseholders. Freeholders have a tremendous amount of power in some scenarios with leaseholders unable to challenge how their leasehold property is managed other than attempting the right to manage. Baroness Maddock rightly pointed out that the right to manage was a little known provision. Indeed, a leading think-tank called CentreForum produced a report on leasehold where it strongly urged that information about leaseholders’ right to manage should be included in all service charge demands. Another area of concern, Baroness Maddock highlighted was improvements that leaseholders where being charged for but weren’t particularly required and just benefitted the freeholder as the leaseholders would pay for the improvement and then a freeholder selling the property would no doubt benefit from an increase in value. Think as it as someone else paying to improve your home whether or not the improvement is actually needed and then you benefiting when you come to sell without any of the expense of making the improvement in the first place! CentreForum suggested in its report that there needs to be great change in this area. Another problem area is whether leaseholders are getting value for money for their service charges. Questions have arisen as to whether contractors appointed to undertake works are the most cost effective or have been tendered properly or is the managing agent simply profiteering at the cost of leaseholders by awarding maintenance contracts to those contractors who offer the most commission to them. At Sheffield Residential, we deal with a multitude of managing agents from the one man “jump on the band wagon” operation to established large national managing agents. In our experience, there most certainly are rogues in the industry who have little experience or little concern for leaseholders. This equally applies to some freeholders. The overall aim is not to ensure leaseholder’s service charge funds are used to properly manage a block of apartments/flats and spend service charges for the benefit of the leaseholders who have paid it but merely putting in as less work as possible and using the service charges spuriously. These managing agents/freeholders have sometimes no interest at all in customer service, can be aggressive in their approach and have little respect for leaseholders as they know that it may be difficult for leaseholders to join forces to remove them if they are a managing agent or worst when the managing agent and freeholder are essentially the same and the lease provides no shareholder status to leaseholders and the only option for leaseholders is the right to manage (RTM) which can be a daunting process to say the least. The radar on this multi-million pound industry is moving in the right direction. In March, an investigation was launched by the Office of Fair Trading into the residential property management sector and on 3 April, the House of Lords had a short debate on leasehold issues which was initiated by Baroness Maddock and supported the case for reform to benefit leaseholders. The Office of Fair Trading will consider: If leaseholders are getting a fair deal Is the market working The conflicting interests of managing agents, freeholders and leaseholders on issues such as insurance and maintenance Barriers to switching managing agents Do leaseholders have sufficient influence over how their service charges are used Naturally, on the opposite end of the scale are managing agents and/or freeholders who go over and beyond what they are required to do and spend service charges wisely and efficiently but there is currently no regulation or compulsory redress scheme to dealt with the rogue managing agents/freeholders. The Royal Institute of Chartered Surveyors (RICS) has a code of practice for managing agents and the Association of Residential Managing Agents (ARMA) has a self-regulatory regime called ARMA-Q but we predict compulsory redress scheme membership as a minimum in the not too distant future as a minimum and eagerly await the conclusions of the OFT investigation.