If you are a freeholder or Right to Manage Company and you are thinking of employing a managing agent you need to ascertain what they charge and how they do it. Every managing agent will be different but they have to adhere to the Royal Institute of Chartered Surveyors code for managing agents known as RICS code.
You will need to contact the managing agent and potentially ask them for the following:-
- A copy of their contract.
- Copy of their terms and conditions
- A copy of what they charge in relation to the management
What are you looking for in a managing agent?
You need to decide what the most important thing is in relation to your management before you even consider employing a managing agent.
There are requirements that the managing agent has taken into account. There will be a relationship between you and the managing agent based on the terms of engagement, a management agreement or a contract which confirms the rights and duties of each individual party.
Money laundering is an international concern and as general guidance they must take every reasonable effort to confirm the suitability of you before accepting instructions so don’t be offended if they ask for a passport or some form of identification.
Do I need a management contract?
You should always have some form of management contract between yourself and your managing agent so you know what their responsibilities and duties are. You should give them your written confirmation that they can manage the property on your behalf. They should outline to you details of the fees and expenses and the business terms and conditions during the term of their instructions. This should include any notice period in the event that you are not happy with them. The contract should clearly state the scope of the duties that they will carry out to specify all activities for which any additional fee which is chargeable. Every managing agent will be different however they should have some form of good practice. The charges should be reasonable for the task involved and should always be pre-agreed with you before the contract starts. Where there is a service charge, basic fees are usually quoted as a fixed amount rather than a percentage of any outgoings or income. However, where the lease specifies a different form of charging the method in the lease needs to be used by the managing agents. You need to ensure that the lease entitles you to use a managing agent and ask them to check this for you.
In the event that you do employ them they would need to give you reasonable and adequate notice of any increase in charges in accordance with the terms of the contract again which you should read through. It may be worthwhile you getting your solicitor to read through the terms and conditions. For instance charges may often be subject to indexation and it should be outlined which index they are referring to and what is agreed in advance.
Charges that they may include are such things as a percentage – this is not accepted as good practice i.e. that they charge you a fee for what is expended during the year and is very rarely used by managing agents.
Average fees per unit – you often find fees are referred to as per unit of accommodation which means an average basic fee per flats. So for instance if the fee was £600.00 for 30 units the average would be £200.00 per flat. This doesn’t necessarily always mean that it is the average fee that they charge the leaseholders but it will be determined within your contact.
Major works and long term agreement and fees – it will be standard practice for your managing agent to charge additional fees for handling major works and long term agreements. These include any form of consultation as required by the Section 20 under the Landlord & Tenant Act 1985 and you should check what these are and who they employ to carry out the supervision of these works.
You will often find that managing agents often have an insurance commission and other sources of income arising out of management. These should always be declared from you from day one. You need to know exactly what your managing agent is going to charge for etc. You may also find that they charge an administration fee for other such items such as alterations to a flat, subletting, registering assignments and Deed of covenants which are classed as administration charges and normally paid by individual leaseholders depending on what is required.
Obviously if they are charging an insurance commission you may not be getting the best possible price for your building insurance. Contact us to see whether we can reduce your premium.
Did you know that you are entitled to request confirmation of what commission your managing agent is receiving by way of insurance? This was law some considerable time ago and it is often not used by leaseholders who don’t understand that some of their insurance premiums are inflated due to the fact that managing agents charge a commission. All you have to do is ask and see what they charge. You will find that managing agents often treat this commission as their administration for claims. However if you haven’t had any claims for three to five years then what is it for? It is always best to check before you start. If you have taken over on a right to manage what you don’t wish to go is go from a freeholder you want to get rid of to a managing agent that does exactly the same as what the previous person did. It is often the case on a right to manage that they are being entered into to reduce costs not increase them.
What is the annual fee for?
Subject to the terms and conditions an annual fee is provided and would normally include the following:-
- Prepare invoice for collection of service charges from all the leaseholders in accordance with the terms of the lease.
- Instruct with the clients consents solicitors and debt recovery agents to deal with unpaid service charges subject to any statutory provisions that will be required
- Prepare and submit a service charge statement and demand service charge contributions.
- Pay for general maintenance out of the funds provided and ensure that the service charge and all other outgoing monies are used for the purpose specified in the lease
- Produce an annual spending estimate budget to calculate the service charge as well as administrating funds.
- Produce and provide service charge accounts that comply with legislation to all leaseholders and residents associations
- Administered building and other insurance if needed and authorised subject to the FCA (Financial Conduct Authority)
- If required on behalf of the clients engaging supervised staff such as caretakers, gardeners and cleaners
- Arrange and manage contracts for service charges in respect of the property such as lifts, boilers, cleaning, etc.
- Arrange Health and Safety, fire and other inspections to the property. These include any risk assessments that may be required.
- Visit the property and visually check its condition and deal with any minor parts of the building plants and fixtures and fittings. It is dependent on the terms on how frequent the visits should be and agreed in the context of the contract.
- Do as reasonably and promptly as possible with enquiries from leaseholders of any requirements and constraints in the contract.
- Keep records on leases with regard to data protection legislation.
- Keep clients informed of any legal changes of statutory notices.
- Advise and deal with the day to day management of any policies.
What would constitute an additional charge?
This will depend on the terms and conditions of your contract and exactly what you have agreed with the managing agents. However it often includes the following:-
- Preparing statutory notices and dealing with consultations where qualified works and qualified long term agreements are proposed
- Preparing specifications and obtaining tenders and supervising additional repairs and work
- Attending courts and tribunals
- Considering applications for alternation by leaseholders
- Advising and dealing with any leases on subletting and change of use
- Dealing with breaches of lease for example late payment of service charge
- Giving information to prospective purchasers although often this is paid for by them
You might also find that they do provide if required for companies that deal with services. However, under a right to manage company often it is not required as these companies are dormant.
What are the duties and conduct of a managing agent?
You need to remember that managing agents should not act outside the scope of their authority and they should follow all instructions where necessary. It is therefore important that you have a contract to ascertain exactly what their terms and conditions are as well as what their limits are.
They must comply with the law and observe the terms and conditions of the lease. Also, they should have effective and fair policies and procedures for dealing with the responsible management matters.
They should always manage the property on an open and transparent basis. As soon as is reasonably practical and consistent with statutory obligations they should keep information confidential and be aware of the GDPR.
What are their general property activities?
They should respond promptly to all reasonable requests from leaseholders for information and observations to relevant management of the property including the time scale by which the request is to be dealt with. You should therefore always agree this with them in advance. A charge may be made if there are issues regarding a lease/tenancy agreement and you would need to agree this with them. They should always communicate with you as you have laid out to them for instance email or letter depending on what you require.
Part 2 is now available, click here.