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You are here: Home / News / Leaseholders should beware cheapo managing agents

Leaseholders should beware cheapo managing agents

September 5, 2012 //  by Sebastian O'Kelly

A managing agent writes a helpful guide, warning leaseholders that if a managing agent’s fees seem too good to be true, then take that as an alarm bell …

The adage “you get what you pay for” comes easily in many competitive sales scenarios, but it is particularly relevant when buying the services of a residential managing agent.

It has a greater meaning here because there is such a comprehensive and wide ranging choice of services that can be provided. Equally a management fee quotation can include or exclude many components of what is believed to be a full service. The array of services that should be involved in property management can be complex and can be easily misunderstood.

The ability to deliver value for money in this context could be looked at from two points of view:

1. The ability to fulfil service expectations and statutory requirements

It is relatively easy for a managing agent to propose fees that on the surface look extremely attractive but in reality will not fulfil the prospective client’s expectations. There is also the danger that the client may not necessarily appreciate the limited range of services the agent intends to provide, let alone whether or not it will fulfil their statutory obligation as a communal property owner.

2. Could the competitive pricing be so aggressive that the service is unsustainable?

As with any professional service a managing agent must be able to continue to invest in his service provision. This covers a range of issues from the on-going training and development of staff to the investment required for an increasingly sophisticated system infrastructure. Desperation pricing can compromise the need to fulfil these obligations.

So, to use another adage “if it looks too cheap – it probably is too cheap”

Sadly, a lack of professional qualification is another danger:

Unfortunately, there is no statutory regulation or accreditation of managing agents which means any individual or organisation can set up a business in this field offering the most inexpensive fees without necessarily having the knowledge or training to undertake a proper service.

This is very much a “buyer beware” market.  This is particularly so because it is the buyer (or in this case the collective property owners) to whom the responsibility to comply with the legal obligations for buildings of multiple occupancy will ultimately fall.

Examples of where the dangers lie for communal property owners who may be tempted by the ‘cheap and cheerful’ managing agent include:

Legal

•    Understanding the obligations of the lease
•    Familiarity with the requirements of legislation, particularly the Landlord and Tenant Act
•    Maintenance of statutory records for Companies House
•    Contract law for service providers
•    Health and safety obligations
•    Litigation and debt recovery

Financial

•    Accounting obligations under the Companies Act and Landlord and Tenant Act for service charge accounts (something involving complex multi-sector apportionments)
•    Necessity of external accounts examination
•    Separate reserve fund management
•    VAT and PAYE for site staff

Health & Safety

•    Compliance with all aspects of Health & Safety law which is automatically applicable to communal buildings and employers. This includes fire, asbestos and legionella risk assessments.
•    Advice on how Directors can be criminally liable for non-compliance (fines are not insurable and penalties include prison sentences)
•    Maintenance of Health & Safety policy, plans and procedures
•    Health & Safety training for site staff

Procurement authorisation

•    Suppliers who do not endanger leaseholders or property owners
•    Insurance – specific knowledge on communally owned buildings

Dealing with the unexpected

•    Major building issues such as service or service restriction problems that need competent and often multi-disciplined resources to be able to respond, both during office hours and beyond.
•    A reliable out of hours service that can call upon suitable knowledge and qualified staff to attend day or night when really needed.
•    Enough resources to deal with a major disaster such as fire; to assist residents in their short term needs and then being able to manage the aftermath without delay.

The permutations of these, and many more services and areas where knowledge and expertise are required are almost infinite.

Of course the drive for “value for money” has to be there for any decision maker and competitive tendering helps to ensure this happens.  There are significant dangers for a decision maker to consider only price competitiveness and not the quality of the service provider. Professionalism, trust and therefore reputation must play a significant part in this judgement call.

The right managing agent is the one that can be trusted to provide a professional and transparent service.  The wrong managing agent is the one that cuts corners to keep it cheap and finds clever and hidden ways to compensate himself for what appears to be real competitiveness.

As another saying goes: no one would venture to be in business if there isn’t a reasonable return in it.

Related posts:

Default ThumbnailBaroness Gardner calls for leaseholders’ money held by managing agents to be protected RTM facilitators issue 2 year ‘honeymoon’ contracts with favoured managing agents … without consulting ALL leaseholders Default ThumbnailManaging agents owned by landlords must come clean … says leading managing agent Default ThumbnailBungs ‘r’ Us: £250,000 ‘incentive payments’ offered to managing agents Default ThumbnailARMA-Q must expose managing agents’ ‘financial interests’

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