DCLG Consultation On Industry Regulations And Qualifications: Our Response
This October, the Department for Communities and Local Government (DCLG) launched a much-anticipated consultation on the regulations and qualifications of residential property and block managers. Announced at the ARMA Conference, the initiative has sweeping implications for regulation of the industry, which urbanbubble have long called for.
We welcome the consultation as an opportunity to improve the quality of property managers, but have concerns about how regulation or qualifications might work in practice. Buying a fire extinguisher doesn’t automatically put out the flames; the failure of ARMA’s new compliance standard, ARMA Q, to eliminate leaseholder issues is a perfect case in point.
To truly improve property management in the residential market, we need to get to the heart of three key problems: tenure, pricing and consumer choice.
No security of tenure
In the residential property sector, any service provider whose costs amount to more than £100 per leaseholder per year must go through a Section 20 Consultation. This is a lengthy and complex exercise, which deters the vast majority of managing agents from going through this process.
Instead, they must settle for year-long contracts – the consequence of which is having no security of tenure. This presents an obstacle to delivering high-quality, consistent and reliable block management, which ultimately impacts leaseholders. It’s a no-win situation.
To overcome this issue, qualifying managing agents could, as part of leasehold law, be made exempt from the Section 20 Consultation process, and awarded a 3-year contract subject to complying with standards defined by the DCLG.
It’s typical for a letting agent to charge anywhere between £80-100 per month for the management of a residential property building. However, when it comes to block schemes, managing agents are expected to work at a much lower cost per unit – often around £160 per year.
Freeholders routinely choose managing agents who work to the cheapest fees. This is despite the fact that block managers tend to have much more responsibility, with duties that can extend to weekend callouts.
If the DCLG want to address service delivery in the sector, they must first equip block managers to charge rates reflective of a quality service. Guidance on what is fair and reasonable for a qualified managing agent would be welcome, as would legislation on a minimum percentage or per unit fee.
No consumer choice
This is the only industry where people make annual payments for a service they have no control over or say in. Many blocks are still managed on a two-party lease basis, whereby the freeholder has sole responsibility for choosing the managing agent, which is funded by the leaseholder.
While a Right to Manage process exists, this currently requires 50% of leaseholders to trigger the review, and is both costly and risky for those involved. Reducing this percentage, streamlining the process and putting the tender for successful appeals out to only qualified agents would help to address this issue for current developments.
For new developments, we believe it should be mandatory to adopt a three-party system. Should the DCLG decide to bring in a qualification system, managing agents could then be chosen from a list of chartered agents in the local area, instilling confidence in everyone that the block will be managed to industry standards.
Launching a consultation surrounding regulation and qualification of residential property is a step in the right direction. However, to ensure that any legislative changes have the desired effect, the scope needs to be widened. Taking a closer look at the checks and balances in the sector, and how these impact service delivery, will ensure that any outcome of the consultation champions the consumer i.e. the leaseholder.