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 1st 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 !