Management Fees based on a % of service charge?

I often find the ideas for these blogs from speaking to people on the telephone regarding problems with their current managing agents. A lady called me today not happy that their current agents have increased their management fee.

She lives in a block of 12 flats where the landlord employs the managing agents. Their managing agents used to charge a percentage of the service charge as their fee but have now adopted a per property fee which has increased the service charge by nearly £500.

When she enquired with them why, they replied they were simply following the ARMA and RICS Service Charge Code and have amended all their management agreements.

 
OK we also follow the RICS Service Charge Code but with regards to management fees they advise it is BEST PRACTICE to base this on a per unit fee they however do not say that you cannot charge a percentage fee. For some developments it is more beneficial to be on a percentage fee, especially the smaller developments.

RICS and ARMA’s argument is that if a percentage fee is charged a managing agent may increase other service charge costs and subsequently increase their fee. My argument to that would be that RICS and ARMA haven’t taken into account that landlords and residents have a much wider knowledge of expected running costs.

This is why we base our fee on whichever is more beneficial for the individual development be it a fixed per unit or percentage fee, we also will review and alter our fees annually to ensure that as well as other service charge expenses our fees are also kept to a minimum.

I also advised her, as I always do in the first instance to speak to the landlord who in this instance is a well-respected local builder and if her current management agent is not prepared to revert back to a percentage fee then I would be more than happy to manage her development and it would appear also at a lower percentage fee than that was previously charged.

It is also Block Manager’s policy where we are appointed by any landlord to involve the residents when it comes to matters relating to their development including the setting of the service charge. This really impressed her as she had lived on the development for nearly 10 years and the only communication her and the other residents received was the service charge demand dropping on the door stop every year!

At last some real protection for leaseholders!

I have just heard today that Block Managers Limited has been awarded accreditation status by the Leasehold Knowledge Partnership (LKP). 

For those not in the know the LKP was founded by leaseholders who continue to campaign against leasehold exploitation in the industry by other managing agents. On the board is Melissa Briggs an active campaigner who is responsible for the CarlEX website and Sebastian O’Kelly a property journalist with the Mail on Sunday who has highlighted the actions of unscrupulous managing agents.

The LKP was set up to protect leaseholders in light of past and present Governments, refusing to regulate managing agents or change leasehold law. Already a number of managing agents and property developers have signed up. 

Existing associations and trade bodies give guidelines and advice but do not enforce these guidelines the LKP does and will disqualify any accredited company who do not follow their rules and regulations.

Block Managers too would like to see changes in leasehold law if only to restore some faith in our industry but until such time we are not only proud to follow, but also agree with LKP’s rules and regulations. 

At last some real protection for leaseholders!

Changing the face of managing agents?

After a meeting this week with a group of resident directors I have to admit to being surprised on what an impact Block Managers is having on the block management industry in Essex.

Incidentally we do not just cover Essex we can manage any development in a 40 miles radius including London.

I am now questioning whether it was such a good idea publishing not only our fee structure but how we go about reducing service charge costs.  I guess that’s what being 100% transparent does for you, not only are our potential customers seeing this information so are our competitors.

Whatever way you look at it this is good news for all leaseholders who will hopefully benefit from reduced service charges and a better service whoever they appoint as their managing agent?

One thing I would like to ask of anyone considering either staying with their current agent or using another agent is why only now are they choosing to alter their managing remit and pricing structure and are they going to refund back to the development the previous higher priced management fees and other added extras they received when managing your development?

Anyone of them could have adopted our business principles years ago but chose not to, I wonder why?

I had adopted the slogan ‘Not all managing agents are the same!’ perhaps I need to reconsider changing that to  ‘Changing the face of managing agents!’

Never A Dull Moment

Well the dullest month of the year is nearly over. Although going by the weather you would be forgiven thinking Spring had arrived early.

 Usually during the winter months we are inundated with weather causing problems but it hasn’t been the case this year not a car stuck in the car park or guttering blown off a building in sight, gardeners have even reported flowers already are starting to bud. Whether this mild weather will continue who knows, this is England after all and we could have six inches of snow on the ground next week.

 January however is a busy time for managing agents as we need to finalise all accounts for those developments that had a December year end, collating and printing off all information to send to the accountants so that the company accounts can be prepared.

It is even busier here at Block Managers as we have opted to use an accounting system where individual files are created for each financial year as opposed to simply rolling on. Fortunately data is automatically transferred from the previous financial year which saves on a lot of manual inputting of data.

 January is also the time of year where we receive many new business enquiries. With Christmas now out of the way residents are reviewing, like many of us, their expenses and looking to save money.

On a personal note I just received my car insurance renewal and instantly by going online saved nearly £200 and I am getting a free cuddly meerkat thrown in for good measure – simples!

 With many residents finding they are paying more in service charges than they are in council tax they are looking more closely into these charges too and finding like most things in life they can get a better and cheaper service elsewhere and are calling us. It is good to know that last year’s radio campaign did have some effect even if we don’t throw in a cuddly toy!

 Over the next few months as well as dealing with new business enquiries and taking on the management of new developments I ensure service charge payments are being paid both on time and at the correct amount. Any managing agents will tell you this is one of; if not the most important job they do after all developments rely on these regular payments to survive. Meetings also have to be arranged with resident directors to get the just prepared company accounts reviewed and signed before filing them at Companies House.

Once that is done then perhaps I can relax? Unfortunately not it all starts again for those developments whose financial year ends in March!

I can honestly say there is never a dull moment in the world of block management it may seem repetitive at times but there is always a challenge of some sort waiting around the corner and now and again you will pick up the phone and it will be someone who has gone out of their way just to thank you for doing something as simple as fixing a banging communal door!

Change of Landlord's Attitudes

One thing I have noticed, what with the current financial climate is how leaseholders expectations have changed. 

A managing agent in the past would tout their business to the leaseholders who actually lived on the development as the buy to let landlords were not concerned as the rent they received easily covered the service charge. 

Today, with so many flats being built around the country the amount of rented accommodation out there has increased dramatically. 

If the rental income is £600 per month and £100 of that is going on service charges that is a considerable amount of money which is no doubt why landlords are taking a much keener interest in the developments.  

Unsurprising I have found that many landlords become directors of RMC companies  as not only do they want a good looking development that will attract tenants but they want running costs regularly reviewed and kept to a minimum. 

What is surprising is the lack of interest from the residents who actually own and live on the site or maybe that's because the landlords, in their role as directors of the RMC are doing such a good job!

The Changing Face of Developments

When I first started out in block management many moons ago developments were a lot different to many managed today. The only shared facilities that needed managing were the communal hallways, car parks and gardens. 

However, today’s modern developments can consist of not just mixed tenure properties but a wide array of communal facilities.  

It is not uncommon to expect some sort of controlled parking; gates, barriers or even underground car parking and residents are expected to share fewer visitor parking spaces which can lead to parking problems on an otherwise peaceful development. 

Developers are now building developments which resemble hotels with porters/concierges, lifts, gymnasiums and even swimming pools. 

At first glance these types of properties do appeal to buyers but when you look closer into the cost of maintaining such services it is not surprising that soon the services that once appealed are scrapped to save money. It was a novelty at the beginning to use the communal gymnasium or collect your post from the porter/concierge but when residents realised they were paying hundreds of pounds a year in service charges for such luxuries it isn’t long before the gymnasium gets shut and another person joins the unemployment line. 

Any potential buyer should always consider before purchasing a property what communal services are included on a development as they do come at a cost and any developer should strongly consider if there is a market for this type of development in the area?

How transparent is your managing agent?

Block Managers promotes and offers 100% transparency to its clients.

Income is only generated from the management of a development and the only sources of our income are:

·        Annual management fee collected on a month by month basis which is calculated purely on the number of properties on a development

·        Dealing with solicitor’s enquiries when a property is sold supplying information and documents. (charged to seller)

·        Service charge arrears when a resident fails to make service charge payments and further recovery action is required (charged to debtor)

Some managing agents however make additional charges for managing a development or find other methods of supplementing their income and in most cases this can only increase service charge costs:

·         Additional charge to act as Company Secretary

·         Additional charge for dealing with insurance claims
·         Additional charge for dealing with S20 or large works

·         Additional charge for provision of out of hours emergency service

·         Commission from placing block insurance with a broker

·         Commission for using a certain contractor or service provider

·        Use of an associated contractor or service provider where there is a connection between the managing agent, same board member etc.

·        Use of client accounts for the collection of service charges where the managing agent may earn interest from payments received.

Of course they will tell you that they have allowed for any of the above means of income when calculating the management fee your development pays!

Regulation of Managing Agents

There is much confusion surrounding the role of a managing agent and whether to regulate them or not.

The local and national press have highlighted various Leasehold Valuation Tribunal (LVT) cases where managing agents have been found to be taken excessive insurance commissions or management fees. Unfortunately those with a limited knowledge of managing agents can tar other managing agents with the same brush.

Most of the cases where the LVT has ruled against managing agents are where the freeholder appoints the managing agents and the residents of the development have no say in how their development is run. I would therefore agree completely that when a freeholder appoints a managing agent that managing agent should be regulated to protect the residents else they are free to do as they please at the resident’s expense.

Laws have now been changed and residents can enforce the Right To Manage (RTM) and take complete responsibility away from the freeholder and there are many managing agents and legal firms who will gladly help you with this – for a fee or long management contract of course!

My advice for any resident not happy with their freeholder appointed managing agent would be to contact the freeholder in the first instance as they may be happy for the residents to select their own managing agent.

The developments I currently manage mostly all have a freeholder but there was also a Resident Management Company (RMC) set up, this is a limited company whose sole responsibility is  the smooth running of the development. Anyone buying a property on the development through purchase also became a member/shareholder of this RMC.

A board of directors is elected from the residents and they are charged to oversee the running of the development and to ensure the RMC complies with all relevant regulations. Usually the RMC will appoint a managing agent to deal with the running of the development and they will be responsible to the RMC and its directors. So in this instance the RMC and its directors are regulating the managing agent.

You could question whether the directors are competent enough to ensure that the managing agent is running the development properly, but in my experience I have found that although their role is voluntary directors of RMCs take the role very seriously and more than competent enough to ask questions of their managing agent with regards to costs and regulations.