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New rights on the way for leaseholders

New rights on the way for leaseholders

Leaseholders should be able to oust management company their freeholder appoints to manage their property.

Reena Sewraz

Mortgages and Home

Reena Sewraz
Updated on 4 December 2014

Leaseholders should be given new powers to challenge the property management service appointed by their freeholder.

That’s the main conclusion of an eight-month investigation into the property management service sector in England and Wales by the Competition and Markets Authority (CMA).

The watchdog found that though the market works well overall for many leaseholders, some had experienced significant problems.

It’s made a series of recommendations including giving flat owners the right to ‘vote-out’ rubbish property managers, when the majority agree.

However, the CMA stopped short of recommending property management companies should be regulated.

The issues

There are around 5.37 million leasehold properties, most of which are flats, in England and Wales.

People that buy a leasehold property own it for the term of their lease, but don’t own the land it’s built on. This belongs to a landlord, also known as the freeholder.

Leaseholders have to pay an annual service charge to their freeholder. In exchange freeholders are responsible for repair and maintenance of communal areas and the structure of the building. However, these duties are often outsourced to a residential property management company.

It’s estimated 3.1 million leasehold properties are run by residential property management companies. But these arrangements have been less than harmonious.

After gathering information from a wide range of stakeholders the CMA identified a range of issues with these arrangements for leaseholders..

These included frustration at the lack of control over the appointment of property managers, high charges for services arranged by property managers, poor standards of services, unexpected costs, being charged for work considered unnecessary, poor communication and difficulties in getting redress.

The CMA also found that prospective purchasers of leasehold properties lacked awareness of the charges they would have to pay.

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Recommendations

The CMA investigation found the market works reasonably well overall, but when particular problems occur existing safeguards fail to provide adequate protection.

So it has suggested a range of targeted measures to improve the current model rather than calling for fundamental reform of the regulatory framework.

[SPOTLIGHT]The CMA wants better guidance for prospective purchasers before they buy a leasehold property. It recommends a key facts sheet made by estate agents which includes details on the current level of service charges.

It also wants improved transparency and communication between property managers and leaseholders, with a clear breakdown of responsibilities and the work covered by service charges, as well as the disclosure of any corporate relationships with contractors and commissions paid for things like buildings insurance.

The CMA also wants a cheaper and quicker alternative to taking claims to the First-tier tribunal.  The new mediation service will ensure leaseholders are better informed of their rights and responsibilities and improve access to redress.  

But the big legislative change will be the move to give leaseholders the right to get rid of bad property managers when at least 50% of them agree. Under this scheme, freeholders would be required to re-tender for a different property manager.

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Response

The Association of Residential Managing Agents (ARMA), the main trade association for property managers, welcomed the CMA’s findings and acknowledged that there is room for improvement.

Th body emphasised it was already working to improve standards in the industry, with the launch of a new code of conduct for members called ARMA-Q, due to come into effect from January 2015.

Martin Perry, chairman of ARMA, said: “We want our ARMA logo to be the badge of excellence – the natural choice for consumers. We are ready to work with the CMA, government and other residential property interests, to achieve the improvements that are needed.”

When will things change?

The CMA plans to work with industry bodies and the government to implement the recommendations.

The voluntary changes like clearer information are likely to be approved and carried out by industry bodies like ARMA.

However the change in law regarding the right to expel a property management service provider might not come into law until the next Parliament.

Are you a leaseholder? Do you think the CMA’s recommendations go far enough? Let us know in the comment box below.

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