Managing agents owned by landlords must come clean … says leading managing agent

A managing agent owned by the freeholder should be made to disclose this relationship clearly to the leaseholders, one of the country’s leading managing agents has announced.

“They should be obliged to disclose if they have, or any party to whom they are financially connected has, any beneficial interest in the freehold title,” says Rob Plumb (left), chief executive of HML Holdings plc.

“Such a relationship clearly gives rise to doubts about their impartiality.”

Plumb’s comments appear in a letter in response to the London Assembly’s continuing investigation into leasehold service charges. In March it issued a report, Highly Charged, which was critical of “opaque” charges and claimed that leasehold complaints had increased by more than 50 per cent in ten years (more here)

The letter has also been forwarded to the Association of Residential Managing Agents and the Leasehold Knowledge Partnership. HML manages 35,000 residential properties.

Plumb argues in favour of regulating residential managing agents, and welcomes ARMA’s proposed “self-regulated system of accreditation which is more demanding of the standards of its members than hitherto has been the case”.

But Plumb urges legislative action to make the qualification of managing agents compulsory, through organisations such as the Institute of Residential Property Management.

“Having formerly operated within the strictures of the FSA in the financial services industry and practised in the auditing profession, the freedom with which managing agents are legally able to operate is an enigma to me.

“In particular, the freedom to unrestrictedly manage the bank accounts of clients without any specific control requirements seems extremely relaxed to me when compared with others who manage Trust funds …

“Ultimately accreditation of individuals or companies would need to be supported by a regulatory authority with the ability to sanction those who do not comply.”

Plumb then turned to landlords or managing agents employing their own companies to provide services leaseholders.

“We believe that the overwhelming majority of leaseholder concerns could be met by a simple, but mandatory disclosure requirement describing the nature of the participation. This should, of course, be accompanied by the leaseholders’ collective right to insist on a supplier other than the one the landlord wishes to use (so long as that supplier is equally independent).”

On the highly controversial issue of loaded insurance commissions (more here), Plumb makes an interesting distinction between the commissions earned by a landlord and those earned by managing agents.

Landlords make fortunes out of these loaded fees for insurance, with the exquisite get-out that leaseholders have no right to know of the commissions in a contract between landlord and insurer, even though they ultimately pay for it.

In contrast, Plumb believes commissions to managing agents who actually do something are justified.

“The landlord seldom spends any time or incurs any administration [in placing the insurance] … This is not the case for the managing agent whose role is more akin to a broker than it is to a “commission earner”.

“ … the managing agent is actually assisting a broker in providing part of the insurance service on behalf of the insurance company.  That service includes information gathering for underwriting, collection of the premiums and assistance with claims management.

“An insurance company can understandably see this assistance as work for which for which the managing agent should be reasonably remunerated for.

“Perhaps the residential managing agent community should stop calling this income “commission” (which implies commission for selling or introducing) and start referring to it as an “insurance administration fee”.”

Regarding the resolution of disputes, Plumb is lukewarm on the issue of mediation prior to application to the Leasehold Valuation Tribunal – which was advocated by LEASE, the Leasehold Advisory Service.

“We agree that there could be merit in creating a forum or process for mediation or arbitration aimed at cases of limited complexity and value … [but] This stage, i.e. pre-trial review, would be more equal and accessible if the parties were not permitted to employ counsel.”

Rob Plumb’s full submission to the London Assembly can be read here
HMLtoLondonAssembly

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