Sweeping changes are urged across all areas of property management and agency, including leasehold, in an important review published today by the independent peer Lord Best.
The aim is to bring order into an area where cowboys have roamed the range with control of millions of pounds of other people’s money with very little effective oversight.
The practices of developers, monetising freeholders and their appointed managers have led directly the leasehold scandals now reported with frequency by Parliament and the mainstream media.
This is an effort to bring order to the money’s appointed managers.
The report urges that all property agents have an independent regulator, mandatory qualifications and a code of practice and that leaseholders’ funds are protected.
No existing body could take on the role of regulator, so a new public body is required, accountable to the Secretary of State for Housing, Communities and Local Government.
The report says:
“We recommend that the new regulator take over responsibility for the approval of property agent redress and client money protection schemes.
“The new regulator should have the power to appoint a single ombudsman for property agents, rather than competing redress schemes, if they believe this to be the best way of improving standards.
“There are numerous potential sources of complaints against property agents (e.g. other agents, whistle blowers, accountants) that have few if any places to go to raise concerns. The new regulator should be able to consider complaints from all sources. Where solicitors, lawyers or other professionals have evidence of possible illegal agent behaviour, they should be obliged to present it to the new regulator.”
For leasehold the report says:
“The new regulator should be given a statutory duty to ensure transparency of leaseholder and freeholder charges, and should work with the sector (property agents, developers and consumers) to draw up the detail of the regulatory codes to underpin this aim as it applies to property agents.
“The regulatory code should include standards for transparency; potential conflicts of interest (e.g. mandatory disclosure of commissions and management fee charges); communication and use of service charges; administration charges; permission fees; use of covenants; and protection of client money.
“Standard industry cost codes, as have been developed for commercial service charges, should be developed to help consumers to more easily identify and compare items of expenditure, and to form a standard basis for accounts for managing agents.”
The report also urges that a freeholder’s stooge property manager – the means by which an aggressive freeholder can monetise the site – can be vetoed by the regulator:
“We recommend that the new regulator takes over from the First-tier Tribunal the power to block a landlord’s chosen managing agent where the leaseholders have reasonably exercised a veto. We also recommend that the new regulator provides information on managing agent performance to allow landlord freeholders – and where relevant, leaseholders – to make an informed choice of managing agent.”
“As Government considers broader reforms to the leasehold and freehold charges regime, we recommend that the new regulator has a role in enforcing compliance with any new requirements that apply to managing agents.
“We have also provided suggestions for Government to consider around boarder reforms to the leasehold and freehold charges regime.
“These include introducing a standardised form for service charges; revisions to major works consultations; extending the use of sinking funds and asset management plans to help avoid surprise or large one-off bills for leaseholders; improving transparency and protection of client money; setting a framework around the use of administration and permission fees; and reviewing the process for replacing an under-performing managing agent.”
The full report can be read here: 001 ADVANCE EMBARGOED COPY Regulation of Property Agents Working Group report-2
One simple transparency reform would be to ban annual accrual account summaries that virtually nobody understands and hide the bodies anyway, and mandate that all payers of charges receive a fully itemised trial balance (software generates these if the agent knows which key to click). These would show all the murky adjustments brought forward and carried forward where the bodies can lay. In addition a copy of the period’s transactions in and out of the bank, with identifiers of leaseholders removed. Again, software produces these at a click and the bookkeeping won’t work unless there are such records.
All the current so-called codes are designed on the absurd idea that accounting software either doesn’t exist or is too complicated to expect ‘professional managers’ to use.
It is literally a mouse click to transparency.
I wonder how many MPs can really understand annual accrual summaries? Imagine your sainted nan doing so.
Looking at the list accredited to the report I see the same old names that crop up all the time.
For example LEASE. Was it not LEASE who while supposed to be the leaseholders’ protector was organising seminars on how freeholders could add insurance commissions without having to inform leaseholders?
That other protector the RICS? Look at the complete shambles they made over the Benjamin Mire Case.
While many of the reports findings can be seen as being broadly positive, it still appears like poachers self-regulating poaching!
The first name on the list should have been LKP for leaseholders to have any true confidence.
Ginger tea is allegedly good for nausea.
Who will populate a new regulator if not the “professional block guardians” and Sajid’s “Good Guys”?
Walter Mitty would be apt as Chair.
I’m not usually a cynic as you may know .
So you have a regulator with the power to expel a miscreant?
The miscreant though is a major financial supporter of the regulator,worse they have access to overwhelming legal power that can be brought to the fore in the case of any threat to expel?
What will the regulator then do?
That one of the largest property management companies with a highly controversial record in the industry welcomes the report is concerning?
Had such a company been railing against it, I would have more confidence.
It would likely do the same as RICS and do nothing in support of the leaseholder and only support its member, it may even go as far as to comment at the end of a long poor investigation “Thank you for contacting RICS Regulation and assisting us in enhancing the risk profiling of our
Members and Firms.”
I agree with Michael above regarding the “usual suspects” involved in the report and the interwoven relationship of the regulating bodies and its members.
After reading the report, well, it is going to be some major legislation. But leaves me feeling it is a sticking plaster over a carbuncle. Leasehold needs to be gone, a defunct property tenure not fit for the 21st century Though, even with common hold, I guess there will have to be regulatory regime over managing agents, even if employed by common owners.
There are many positive changes outlined in the report. Overall, it is positive effort to redress the imbalance, dependant on the success of the implementation of good intentions.
Lord Best`s report did highlight the concern over Administration charges, permission fees and covenants and recognise the absence of regulation around these, has led to increased costs for consumers. Though it noted that the Select Committee recommended that permission fees are only ever used where absolutely necessary and that charges set should not exceed the true administrative costs. “We agree with these principles and have been considering how they could be implemented.”
The was no mention of Purchasers Information pack managing agent fees (£450). These are no more than copies of documents that are produced in accordance with the administrative and legislative requirements of running the block and are available by request (if not publicly displayed) to leaseholders. Documents that are provided within the service charge fees and I have a right to get a copy of as leaseholder under Section 21 LTA 1987. Retirement leaseholders must cough up an extra £1000 or thereabouts to the freeholders agent and managing agents.
I do not have such an issue with covenants in most cases, if well thought out and not an income stream opportunity. They protect the leaseholders from damaging the structure of the building, nuisance from pets or other tenants. If the lease says no pets, then fine. Do not buy the lease.
1. “A possible exemption from consultation for utility contracts was also suggested, as the best energy prices often change more quickly than the current consultation process allows.” – This would be a disadvantage where the freeholder sets up third party companies to supply electricity to its portfolio. In fact this needs even more scrutiny.
2. “An alternative would be to set a prescribed list of fees. A statutory list of permissible fees could be reviewed by the new regulator and be updated periodically via a statutory instrument.” – But a prescribed list – is that not just legitimising the fees and setting the costs linked to RPI? Again this may be subject to who is in the regulator or in with the government that set the acceptable fees and their cost.
3. “Consumers could be given the opportunity to veto the landlord’s choice of managing agent. However, a veto should not be used unjustifiably to frustrate a landlord’s choice of managing agent. Rather, a set of conditions could be devised to offer a framework for any veto.” – If the leaseholders pay the service charges then they should be able to appoint a managing agent by tender, lets say after 60% of the block is sold.
4. “Retirement Developers. These operators are the freehold owners/landlords as well as the ongoing managers, so fall outside our definition”. – Are the granny monetisers going to get another Pass Go collect £200 card? They must have some political clout with all these exemptions.
5. “A key concern has been the threshold for consultation. The current £250 threshold to trigger a consultation has not been revised since 2003, and has created both an administrative and financial burden. The group suggested it could be revised to £350.” – The lower the figure the better protection for leaseholders. Lower it to £200 per unit.
On the other side of the coin. nobody is suggesting upper the £350 limit on Section 167 of Commonhold and Leasehold Reform Act 2002 to protect from forfeiture as ground rents are far in excess of the 2002 values?
6. “Other suggestions from the group included allowing potential dispensation from the requirement to consult, should all leaseholders confirm they agree.” – A recent case with Firstport. Firstport suggested to the elderly residents that there was an issue with the Section 20 process on consultation and got the residents to agree dispensing with tendering process. Many in the development are elderly and probably not fully aware of rights and legislation. The delays on the process can only have been down to FirstPort, if they existed in the first case. Seems a very likely avenue in getting the contract awarded to their preferred contractor only.
7. All managing contracts with third parties (ie. Insurers, maintenance contracts) to be transparent and made available to leaseholders with details of terms, aside to detailed accounts and invoices. An online portal could do this effectively and at much lower cost than physical documents.
I hope the CMA will address the issues of Exit Fees on sales, another freeholder scam.