The former ARMA regulator Sally Keeble, who resigned her post last month claiming unacceptable interference in her independent role, outlines for LKP five areas where statutory regulation in leasehold is required.
The full reasons for her resignation are given here
In her article below, it is clear that Mrs Keeble – a Labour MP for 13 years and former leader of Southwark Council – believes that self-regulation by the leasehold sector has failed.
By Sally Keeble
However, in a fiercely competitive commercial environment, implementation has been difficult.
Self-regulation is voluntary, and a large number of companies have opted out, or have never been able to meet the basic standards required for membership of the scheme.
Mandatory standards are limited, and recommended standards do not have to be met – they are advised as best practice, but cannot be enforced.
Resources for regulation have to be met out of membership fees, and there is an inherent conflict between an organisation trying to increase its membership while at the same time applying regulatory oversight and sanction if rules are broken.
In deciding how statutory regulation could be applied, consideration needs to be given to the size of the property.
Regulation may not be necessary or appropriate for a house that is subdivided into a limited number of units that the owners – whether under a leasehold or commonhold scheme – are able to manage between themselves.
A practicable minimum size scheme should be specified, perhaps of four or more units, which would then be required to have a qualified managing agent, who may be a qualified member of an RMC (Residents’ Management Company), and which would be require to meet statutory standards.
During the past year, five key issues have emerged as problematic in a system of voluntary regulation. These, set out very briefly below, would particularly benefit from statutory regulation.
1. Written management contracts
At present there is no requirement for managing agents to have contracts to manage buildings. It is recommended, but is not mandatory.
On a number of occasions, difficulties arose because of apparent lack of a formal contract for the management of some very large and valuable buildings, leaving both leaseholders and agents exposed to risk.
In the current competitive climate, commercial pressures may militate against use of contracts.
There needs to be a statutory requirement for written management contracts to be agreed and signed on appointment of managing agents, with consideration to be given to renewal arrangements and the areas that they should cover. For example: fees and charges, frequency of services, debt collection, staffing arrangements, and contract termination and handover arrangements.
2. Procedures for use of in-house or associated companies
There are a variety of different arrangements for provision of services.
Sometimes these are provided by directly employed staff of the managing agent, sometimes they are outsourced to local firms, and sometimes they are provided by companies that are wholly or partially owned by the managing agent or in which the managing agent has a financial interest.
All methods of service provision can provide equal quality and value for money, but there is a need for transparency.
There is a requirement for managing agents to make an annual statement on this to their client and leaseholders. But there is no prescription of the form that this statement should take.
In addition, apart from section 20 consultations, there is no requirement for regular market testing such as is required in the public sector.
3. Banking requirements for client and company funds
There are statutory obligations in the Landlord and Tenant Act 1987 in relation to holding of client bank accounts. There are also detailed provisions in the codes of conduct of both ARMA and RICS for managing bank accounts and client and company funds.
However, many of these are recommendations rather than mandatory requirements, and practice can be variable.
Given the high level of service charges, and the high level of funding passing through service charge accounts, there is a pressing need for mandatory standards around how these funds are held and managed.
4. Responsibility for health and safety
Health and safety legislation, in particular the Health and Safety at Work Act 1974 and later regulations, place duties on managing agents, and these are well set out in current guides.
The difficulty is enforcing standards are met.
In some cases, leaseholders may be responsible, in other cases the freeholder may be responsible.
It may that neither is willing or able to meet the standards. For example, by meeting the cost of taking down external cladding, or replacing a lift that is beyond repair.
Conscientious managing agents may end contracts where there is a refusal to carry out work required for health and safety, or take action to protect themselves from prosecution. However, some form of statutory regulation is required to provide a solution.
5. Long term maintenance
Recent events have highlighted the need for careful long term maintenance and improvement of high-rise flats, especially to meet health and safety requirements.
There are detailed provisions for consultations about substantial improvements under section 20 of the Landlord and Tenant Act 1985.
However, these consultations can be derailed, and do not necessarily result in necessary improvements being undertaken.
There is a need for some regulations for building up of reserve funds to pay for longer-term maintenance – especially in relation to work needed to meet health and safety standards and protect the public.