Profit or reputation first?

We’ll here is a right conundrum and it sheds a completely new angle on the role of managing agent and resident companies.

To make things as clear as possible to the less informed a resident company or RMC is set up to look after the shared areas of a development, this is done by the collection of service charges as set out in the lease. It is usual practice that the RMC will employ the services of a managing agent to both collect service charges and ensure that the RMC is run in accordance with all rules, regulations and by the terms of any lease.

So what would happen if the directors of the RMC were to instruct the managing agent to not only collect service charges contrary to the lease but also to apportion charges incorrectly?

You could argue that the overall responsibility lies with the directors of the RMC and that as long as those instructions are recorded in writing along with the managing agent’s argument the managing agent may cover themselves. The question is would the courts or LVT if ever service charges were challenged and whose feet would they lay the blame at the volunteer resident directors or the professional, employed managing agent?

You may think that this is just a hypothetical scenario unfortunately this type of situation is faced by managing agents on a regular basis and one that I had to face recently.

The conundrum being do you put profit before professionalism and reputation?

I am sure there are no doubt managing agents who would have taken the business I however took the decision not to on the grounds that it may have benefitted my company in the short term but long term it could have tarnished my business reputation and would go against my otherwise professional and transparent business approach.

I think I made the right decision, do you?

Contractor Selection.

Finding a reliable contractor can be hit and miss at the best of times, when you are however responsible to others the task can be even more difficult and other factors need to be taken into consideration. It is not enough to get work done at a cheap price you need to ensure not just a good level of workmanship is achieved but that all relevent health and safety regulations have been taken into account.

YES - the common areas both internal and external of a residential development are classed as work places.

You will often find contractors boasting of relevant health and safety qualifications and membership of various trade organisations all of which come at a cost. So not surprisingly their hourly rates are much higher than you'd expect to pay than if you were having work done in your actual home.

On TV of late have been various internet based recommendation sites to find a tradesperson, I am not so sure if that is such a good idea and I already will feel sorry for the poor tradesperson who upsets a customer for any minor reason as they will no doubt have their name and reputation questioned by any potential new customers.

Like so many industries the bigger the company the higher the costs this has always amazed me as you'd of thought the more work a company has the cheaper they can do the work for. In other industries when you buy bulk you'd expect some sort of discount, perhaps in the block management industry someone else apart from the residents are getting the discount?

Anyone following me on twitter may have seen various tweets regarding contractors of late, at a recent visit to a potential new site in Colchester I couldn't help but notice an electrician from Basildon changing a communal light fitting. I of course assume that they charge for travelling time, on that note is there any other profession who gets paid to travel to work?

There are of course exceptions to every rule for a large project like say external decoration you may find a more competitive quote by looking further afield where the cost of living is much lower. Then I suppose you will get the arguments about keeping things local and supporting the local community and traders.

Bring back the days of Fred,the jack of all trades who lives down the road and only charges enough for a few beers!

Managing Agents appointed by developers !

As previously advised the ideas behind these blogs often come from conversations and other information received from residents. 

Now here is a shocking example of how managing agents who are appointed by the developer seriously overcharge residents. 

I won’t mention the name of the existing agent or the development but needless to say I am in the process of helping them take control of their Management Company and remove the current agent.

A bit of background on the development this limited Management Company was set up to deal with the garden areas, there are neighbouring development each with their own limited Management Companies who are also members and contribute to this fund, a total of 161 residents.

This year’s estimated costs are:

 

You will see instantly the current agent is charging over £8700 in management fees, £1260 to be members of the board and £754 to act as Company Secretary a total of £10714 earned just from this development alone. Don’t forget they are also earning similar fess for managing the neighbouring developments that belong to this Management Company.

As you can see simply by having a fair, published pricing structure and including items within our management remit that other agents don’t we can reduce the total service charge budget by over £9000 and that’s without reviewing the other expenses.

A word of warning if you are living in a similiar development before you let any other managing agent review your budget make sure you are aware of their fee structure. It would have been all to easy for me just to have reduced the current fees by a few thousand pounds but then the residents would still be paying more than they should have done.

We were also provided with details of one of the actual Management Companies that also pay into this fund and unsurprisingly we were able to reduce their total service charge budget by over £10,500 a year without further reviews of costs.

You may think that something’s amiss and perhaps our fees are too low, as we always say they are not it’s just that for too long now residents have had to put up with paying unjustifiable fees in return for a less comprehensive and transparent service!

If you would like a comparative quote for your development call me today on:

 (01206) 561674

Is you managing agent taking more than their fee for managing your development?

Well the hot topic of late on the internet and in the press is in regards to the business practices of managing agents, or should I say the unscrupulous ones out there. Any reputable managing agent will declare all fees and earnings that are made from the management of your building the RICS Service Charge Code and ARMA guidelines goes so far to say this SHOULD be declared. Alas this is not always followed.

However with the new Bribery Act and other regulations this would mean any additional income should be declared and therefore for by not doing so is against the law!

I have therefore put together a Top Five of ways that SOME managing agents may earn additional income from the management of your development:

1.     Commission from placing your block insurance with a certain broker.

The amount of commission earned can be staggering and managing agents will often use the excuse that the commission goes towards the cost of administering insurance claims.

 

2.     Using associated companies.

This could be a contractor, service provider or even insurance broker. You will often find the same directors on the board of each of these companies, they go so far as declaring their interests with Companies House shame they don’t to leaseholders!

 

3.       Preferred contractor schemes.

Often managing agents will advise they work with a collection of contractors that they know are both qualified and competent to carry out any work. What they do not tell you is it is often the case that these contractors pay a fee to the managing agent for any work awarded. This fee they will of course get recouped from invoicing your development for any works carried out.

4.       Client accounts.

Service charge monies may be paid into one large client account. If a managing agent is managing a large number of developments that can mean a substantial amount of money is paid into this account every month. Now if service charges are collected on the 1^st of the month and not transferred to the designated development account until the last day of the month, there will be interest earned between those dates. So who is keeping the interest?

5.       Accountancy charges.

At first glance you may feel the fee paid to the accountant is rather on the high side but then again you may excuse it as you do live on a big development. It may be the case however that your managing agent is making an additional charge to collate all the end of year paper work to pass on to the accountant and therefore it is not the accountant charging such a large fee after all!

 

You may believe that the above practices would only relate to developments where the freeholder appoints the managing agent; this unfortunately is not always the case it even happens where the leaseholders themselves employ the managing agents.

If you are not sure whether your current agent is making any additional fees as detailed above then check your management agreement, failing that please feel free to copy any of the above and write to them. By law they have a duty to disclose such information and if they have failed to do this your development would be entitled to a full refund of any additional fees they earned whilst managing your development.

Then I would suggest you look for a new managing agent, one that is truly 100% transparent in not just their business practices but also when it comes to managing developments. Needless to say I know of at least one !

Section 20 confusion?

I briefly in a previous post mentioned the confusion in the industry with regards to various regulations that apply to managing agents and the management companies they work for.

One of the most, in my opinion confusing ones would have to be Section 20 consultation which was brought about by the Landlord and Tenant Act 1985. To ensure residents receive value for money and have an input, landlords must follow a set procedure when any major works are required that cost more than £250 per leaseholder.

You can download ARMA’s guideline on Section 20 – HERE

The Section 20 procedure can take over 3 months and consists of:

Stage 1:

Advise residents/leaseholder what work is required and invite them to suggest contractors, a period of 30 days must be given for them to do this.

At this point you usually find every resident knows of a relative, friend or odd job man who would like to be considered.

Stage 2:

The managing agents will go through all suggestions ensuring they have public liability and are competent to carry out the work also complying with all relevant Health & Safety regulations at this point a lot of the residents suggestions fall by the wayside. The managing agent will also send out a specification of works to remaining contractors and will also include other contractors that are known to them.

Once estimates are received from contractors a summary of all estimates is sent out to all residents and provision must be given for residents to come and inspect the estimates if they so wish.

Stage 3:

If the cheapest estimate is not chosen then resident/leaseholders must be advised the reason why.

Now here is my argument:

Where a resident management company (RMC) or even a RTM company is charged with the running of their development surely Section 20 would not apply because the residents are the management company and the landlord/freeholder would have no involvement in the process?

It is usual practise for any large works even if they do not fall into the Section 20 regulation to go out to tender to three contractors anyway.

This theory however has not been proven either way and not many managing agents are overly concerned as they make a charge for the management of any Section 20 works.

So what would happen in the event that the RMC ignore their managing agent and do not follow the procedure?

IF successfully challenged with the LVT residents/leaseholders would only be responsible for paying £250 each and the remaining monies would have to be met by the RMC.

See the confusion the residents/leaseholders are all members of the RMC!