By Harry Scoffin
The government-commissioned working group that Lord (Richard) Best was recruited to lead in October 2018 will tomorrow issue its final recommendations on leasehold managing agents and service charges.
The independent crossbencher, who has a background in social housing, is expected to urge the government to set up a new regulator to oversee all property agents.
According to Property Industry Eye, Lord Best has suggested he will advise ministers to ensure that individuals working in letting, estate or managing agents fall under the jurisdiction of any new government-backed watchdog.
EYE NEWSFLASH: ‘Agents could close down’ as regulation and minimum qualifications draw nearer
The Government is to be told to introduce regulation right across the agency sector. It will mean minimum qualifications and licences. Lord Best, chair of the working group on the regulation of property agents (ROPA), revealed that his group’s report will be delivered to the Government on Monday.
In remarks to the Property Ombudsman Conference on Wednesday, the crossbench peer said:
“We are going to say yes to a regulator, you are going to be regulated. You will become regulated bodies and licensed agents as individuals. You will need to be licensed and it will be a serious offence to operate without a licence.”
When asked whether his proposed reforms would cause disruption across the property world, including job losses, Lord Best asserted that change is coming. But professionals should embrace it.
The Regulation of Property Agents (RoPA) reforms will transform standards and deliver for consumers, he added.
Lord Best is thought to have said that firms may face closure if they cannot meet the requirements of the new accountability regime.
There has already been some disquiet over news that Lord Best’s report has refused to endorse grandfathering of existing property qualifications, with the buying agent and prolific Twitter user Henry Pryor suggesting that he could soon be unemployed.
Meanwhile, Nigel Howell, CEO of FirstPort, seems to have given the work a ringing endorsement in an article for Property Week.
His op-ed suggests that the days of managing agents marking their own homework are about to end:
“At present there are a number of voluntary codes of practice in the industry. This is set to change. The new regulatory system will require that all those who discharge responsibilities are properly trained, qualified and licensed under a single framework, giving clarity to consumers over their rights and responsibilities as well as those of their managing agent.
“… Two-tier regulation will give residents the confidence that the companies they employ are responsible commercial operators and that the individuals managing the day-to-day activity are fully trained and qualified.”
But the mooted body may not have the funds or powers to punish wrongdoing and defend consumers in the leasehold sector.
Mr Howell also accepts that the devil will be in the detail:
“For it to be truly effective, the new regulator will need teeth. By giving it the power to grant, suspend and remove licences, the report can help achieve that. With clear rules and powers in place, there will be nowhere for poor operators to hide.”
Lord Best: You wanted to hear what homeowners think about property management, so here is 22,000 words!
LKP will look out for the level of understanding in the RoPA report of the power and information asymmetries in leasehold. In the vast majority of cases, the consumer is not king.
The managing agent, professional and rogue alike, is typically appointed by the freehold landlord.
Most successful managing agents do not become big through consumer choice.
The third-party landlord gets to choose whether to keep using the same managing agent.
And their interest will not necessarily be the same as the residents who pay the bills.
Even the Rolls Royce of the managing agent world may struggle to be an honest broker between their client and the captive leasehold tenants. (Many leaseholders have no choice but to go to court to change provider.)
Take one example. The managing agent runs a site where the freeholder has kept responsibility for the building’s insurance.
This managing agent has already been informed by concerned leaseholders that they believe the policy fails to protect their financial interest … all because of an arcane clause which suggests the payout would go straight to the freeholder’s lender in the event of total loss.
In this hypothetical case, how does the “regulated” managing agent keep the contract and deliver for consumers at the same time? What will the watchdog expect? Will it be able to impose heavy fines and force a change of insurance policy?
Or will leaseholders still have to take the issue to tribunal and be splattered across the court by the landlord’s high-powered barrister?
It will be interesting to see if Lord Best’s report acknowledges that forfeiture is fundamental to service charge abuse.
As the late Nigel Wilkins, of CARL, wrote in summer 2004:
“A lease is the only contract in English law that permits one party (the landlord) to recover more (and in many cases considerably more) than he or she is owed by the other party (the leaseholder). Leaseholders do not have the equivalent right to force the landlord to forfeit the freehold when he or she is in breach of covenant.”
It is not altogether clear how Lord Best’s work will empower consumers in the leasehold sector so long as lessees have the threat of forfeiture hanging over them and there is no easy way of breaking the monopoly of a landlord-appointed managing agent.
RoPA’s final recommendations are expected to be published on the MHCLG website in the coming days.
Mr Howell is correct For any new body to be effective, it must have teeth.
It will of course be most helpful if any new body does not have senior management of managing agents heading up the regulator as happens with ARMA at present.
It is a matter for speculation as to what the fate of Firstport would have been had such a regulator as proposed by Lord Best had already existed during the price fixing scandal?
Or what would have happened as a result of the fatal Gibson Court fire for which Firstport received a record fine?
What I wonder would such a regulator make of the unexplained granting of residential house manager’s leaseholds and their subsequent sell off and lease back arrangements?
Would any such regulator allow a struggling property management company(holding £200,000,000 of residential service charge funds) to be effectively sold off to a venture fund company on terms that have been kept secret?
Would Nigel Howell CEO Firstport agree with me that many issues currently associated with leaseholders difficulties with managing agents arose from when some managing agents became too big largely as a result of being awarded developer or connected freeholder management contracts, or being written into the leasehold?
Does that not create a conflict of interest between the leaseholders and the developer/freeholders who are the actual customers?
Is there not a conflict of interest between leaseholders and venture fund investors since the fund managers role is to make the highest return on their investment in the shortest time possible?
That the manner in which larger companies pool services, such as having their own sales or insurance division can lead to a conflict of interest?
Do you agree that the better managing agents tend to be smaller, more local, more accountable and appointed freely by residents?
Do you agree that going forward be it developer/residential or social housing appointments for management contracts must be renewed every three years?
Do you agree that if residents are unhappy with their appointed managing agent it should be a simpler process for them to appoint a new managing agent?
Do you agree particularly in the area of social housing where authorities are under severe pressure to cut costs that the practice of some managing agents to artificially bid low for contracts to obtain them should be outlawed?
Do you agree that managing agents should be bonded as is the case in the travel industry with ABTA?
Do you agree more protection is needed for residential service charge accounts, and that the much vaunted protections are much less than residents are led to believe?
An example of this may be the fraudulent use of residential service charge funds for price fixing?
If those funds were truly protected then surely all residents affected by the price fixing (I believe an amount of £1,400,000 has been mentioned?) would have got all their funds back in full?
Do you agree that whatever regularity body is set up, senior Firstport management should not sit on the board of the regulator, nor should any such regulator hold awards ceremonies?
Finally,If you believe that member’s of Firstport’s management team should be on the regularity board someone else in the form of a representative from LKP,,NLC or About Firstport should also be on the board?
Seems reasonable …
Well, I agree with everything you say Michael