By Ian Hollins
Clear Building Management
For leaseholders and RMC directors looking to switch managing agent or perhaps outsource their building management for the first time, cost will inevitably be a factor in the decision-making. Not least because it’s one of the easier metrics to assess: it’s hard to gauge service levels until you’re actually working with an agent or to assess their ability to tackle emergency repairs until that difficult situation crops up. But price – on the face of it – is easy to assess. Or is it? All too often managing agents will ‘low-ball’ on the headline price, ie: the cost per property, only to add in additional costs throughout the year or to shave off commission from sub-contractors and services such as insurance.
Think of it as being akin to the Ryanair pricing model, something we all now understand. You pay for your seat, fine. You then pay for your bag, your check-in, your drinks, food and, before you know it, the cost ends up being higher than the flight options you rejected because they were more expensive.
From a property management perspective, if the price seems to good to be true then it probably is.
At best, the agent will have been over-ambitious in pricing the management of your block and you will find this reflected in diminishing service levels as they struggle to deliver within the income constraints. At worst – and this is becoming increasingly common as the downward pressure on the service charge continues – the managing agent will have used a low headline figure to secure the management of the block and will then need to prop this up through opaque contractor commissions, with the end result that leaseholders end up paying more than they should. This lack of transparency makes it near impossible for leaseholders to gauge the real cost of the management of their building.
Managing agents with in-house maintenance teams can be as equally guilty of ramping up the cost for leaseholders. When maintenance is carried out in-house it can be difficult for leaseholders to get a market comparison on rates and there may be little redress for poor workmanship. There’s also the risk that unnecessary jobs are carried out to keep the maintenance team busy.
Our view?
If the management fee is set at the correct level then the agent can offer truly open and honest pricing, without the need to prop it up with additional income streams at the leaseholders’ expense. A ‘good’ managing agent will often be able to secure for leaseholders considerable savings by re-tendering supplier contracts. If the supplier is paying the agent a commission, there is arguably less incentive for them to negotiate on your behalf.
The managing agent’s total fee should be published, fair and not the sole basis of the decision; the temptation to choose the lowest price is unlikely to end in a happy block management experience.
About Clear Building Management
Clear Building Management Clear Building Management was founded in 2015 by experienced property management professionals, Ian Hollins and Peter McCabe and from its base on Oxford Street in Central Manchester, the team manages blocks across the North West, Yorkshire and East and West Midlands. Clear Building Management was founded on the principles of transparency, value and quality to deliver professional residential development management in a better, more inclusive way ensuring customers and their needs are at the heart of its operations.
www.clearbuildingmanagement.com
Related posts:
Managing agents owned by landlords must come clean … says leading managing agent
LKP managing agent Jones Associates wins right to manage for retirement site
Managing agent asked to explain his ethics …
DCLG told ‘incentive to remain an honest managing agent gets less with each passing year’
LKP accredited managing agent Premier Block Management ‘opens Pandora’s box’ by inviting critical social media reviews
John Christodoulou minions get the boot at Canary Riverside
The situation in the case of managing agents such as Peverel/Firstport is actually a lot worse than Ian’s article alludes to.
When they garnered their “not proven” appointments to manage from freeholders that were connected companies, any revenue generated from bulk purchases was allowed to be kept by them and ways were found (possibly by granting non repayable loans) to move the profits to the freeholders and ultimately off-shore.
Protection for service charge accounts are limited to action from the bank they are held in. Maladministration of the account or fraud is not protected.
What is claimed that is included in the management fee is double charged under the service charges(though headings are changed, or charges are hidden in different categories) in order to confuse residents.
Residents oddly, are not even allowed to see any evidence that Peverel/Firstport have a contract to manage?
Even their website refers to contracts to manage either being”commercially sensitive” or part of a “broader agreement”
In appointing any managing agent, never appoint a company that lumps all service charges into a “super account” and then sub allocates. Make sure any service charge account is fully independent.
And always make sure you have ready access to expense files and audit trails, so that any income and expenditure is completely transparent.
As a charitable organisation you are breaching rules by promoting advertising of a certain agent over others. You have no way of knowing if this agent actually does what the “tin says ” and it really lowers the value of what you do ,when you get involved in allowing agents to promote themselves. The article on its own was fine until the part when the agent got a chance to promote their services.
Nonsense.
We certainly promote the companies accredited to the Leasehold Knowledge Partnership good governance scheme over others in the sector.
It is explained here
The accreditation scheme was discussed with the Charities Commission and is referenced in point 3 here: TO PROMOTE ETHICAL STANDARDS AND COMPLIANCE WITH THE LAW BY RESIDENTIAL LANDLORDS AND MANAGING AGENTS.
(In fact, Clear Building Management is not accredited to LKP, but it demonstrates an ethos that we applaud and Mr Hollins has spoken out about problems in the sector on many occasions.)
Nonsense !!! Shows how open minded you are calling other people opinion “nonsense”. Anyone who does not agree with you is obviously speaking nonsense.. The facts are that many agents have an ethos they don’t in practice adhere to. You age promoted one company over others and I believe the charity commission should be made aware of this should you not remove the bit in the article which is nothing shot of promotion and advertising.
It is not the first time I encounter a closed minded approach from you guys and your opinion is “gospel” which will not be altered by any facts. Continue to promote and live in your fantasy world.
A Charitable organisation is a non profit organisation that centres on non profit making and philanthropic goals. As well as social well-being ( eg. Charitable, educational, religious, or other activities serving the public interest or common good.).
Interested,
As you are aware, I have posted comments many times on this site.
On some occasions I have been very critical of Campaign against retirement leasehold exploitation/LKP, and have caused great anger to those running the site. My view (for what it is worth) is that where I disagree with Campaign against retirement leasehold exploitation /LKP, they understand that I can be a “critical friend”
As such (even if with gritted teeth) my comments are published without editing.
You as well have been afforded this opportunity to express your views.
Personally, I have not got the faintest Idea if Clear Building Management are good, bad or indifferent? The point of the post was to highlight certain practices, which help residents understand the sharp practices employed by some property managers to gain contracts.
Having published an interesting and informative article,I see no harm or conflict of interest if they write something about themselves.
Imagine if Peverel/Firstport had put themselves above the parapet by writing a similar article? How long would it be before everyone piled in with their comments about them?
Dear interested
I believe that you are spouting complete nonsense and that Michael Holland / admin are bang on the money. I think you should consider your views before waxing lyrical. on subjects with which you are not terribly au fait. I have seen your contribution to the ‘forfeiture or not to forfeiture ‘ debate August 2016…..I found your stance most amusant. Turkeys never vote for Christmas- do they?
Broadly this article is correct.
However, there is a rather important matter that is not referred to AT ALL in this article, and that is accounting for your property manager’s time. It’s all very well having a property management company that doesn’t take kickbacks from suppliers or commission on insurance, but if you are paying handsomely for your property manager’s time and it is suddenly stretched because the firm has taken on some new developments you may not see it, and this is where property management companies make their money. Intensive engagement at the beginning to turn around buildings with problems and then collecting a nice income afterwards, with no fee reductions as the effort goes down. It’s a bit like commodity prices being sticky, with suppliers failing to pass on cost reductions.
It is, after all, somewhat surprising that other professionals, lawyers and doctors included, will bill you for their time in 6 minute intervals, but in the property management business it’s “have a guess, and trust me, I’m not honest”, where being honest means “I’m not actively trying to cheat you”.
I don’t know any other business where the fee for service is so non-transparent. The accreditation schemes (LKP and ARMA in order of usefulness) at best weed out the crooks. And there are an awful lot of those in the property business in the UK — it’s why LKP exists.
I’m a little surprised to see LKP publishing an article by a non-accredited firm. No disrespect to the author, but I wouldn’t touch any firm not accredited by LKP with bargepole. It’s just a mandatory, non-negotiable requirement in my book. After that, I would rule out any agent not willing to agree that its only source of income from our development would be an agreed management fee.
Both of those are achievable. We’ve done it. We have a good property manager, but everybody looking to choose a firm should realise it’s very common to be offered a good property manager who interviews well and who ends up being reassigned after the contract is signed (at worst) or whose time is spread across a larger number of sites than one was led to believe would be the case. Would anyone send their children to a school with high fixed fees whose class sizes varied as elastically? I don’t think so.
So, yes, the author is entirely right, but… it’s not the whole story. The property management business is a long way from where it could be in terms of transparent value for money. So far we’ve seen only one LKP accredited company commit to avoiding conflicts of interest–by working exclusively for RTM and RMC companies.
The standard excuse is “all buildings are different”. And so are all patients of doctors and clients of lawyers and other professionals who account for their time. If they can do it, why not property managers? It’s because it’s where they make their money and there is no pressure on them to do it.
Think what the “all buildings are different” excuse really means: “We’ve estimated the costs and if we go over our other clients will pay”–and, of course, vice versa. (The property manager is on a fixed salary, if his time is diverted disproportionately it’s at someone’s expense). Would you agree to be operated on by a surgeon who might get called away in mid-operation to deal with a more urgent case? Only those with large enough developments to have a dedicated property manager escape this problem. Surely, it’s time this was fixed. You never know, some developments might find the idea of paying ACTUAL costs a completely reasonable and ethical proposition.
Paul,
While a doctor or a lawyer or a plumber and a number of other trades/professions account for their time as the basis for their charges-at least in theory they do not seem comparable to the services provided in property management..
An agents sets a fee at the start of a contact rather than after they know how much time the contract may have taken. That sometimes means the managing agent may even make a loss especially in the early years. Their only additional charges should be things like the supervision of major works.
If we were to have a managing agents fee based on the number of hours they spent it provides absolutely no incentive to keep their costs under control. I suspect with certain agents there would be far more 6 minute time slots than there are minutes in the day?
The point of the article as I read it was the danger of believing a low management fee represents better value for money.. Those agents who offer to manage at fees which are way to low must recover their costs in other ways. Being transparent is the best way to have some certainty that the costs are real..
If we’re looking at the model for service charge costing is it not more analogous with outsourcing a service in the business world where the parties agree certain costs in advance while others remain variable. How can a managing agent know how much time it will take on a whole range of variables when the price is set. For example on our site we are very lucky and have just over 1% of service charge demands outstanding 3 months after the demand went out. I’ve also seen other sites who are regarded as being well run where debtors sit at over 25%. It inevitably takes less time for the agent chasing debts on a site like ours than it does on one where 25% or fees remain outstanding. I fully accept an agent will eventually appoint debt collectors who pass on their costs (or in some cases costs ++) to the individual leaseholder but it still imposes a cost on the agent in the mean time. A large set of debtors will also mean the agent has to spend more time juggling which bills can be paid and which monies spent.
Although managing agents will eventually start moving a debtors towards court action and then pass costs to the individual leaseholder there are still a number of costs absorbed into the fee if there needs to be second reminder letters to a large portion of leaseholders.
As a charity we of course have to tread a very careful line when talking about commercial companies many of who would be far happier if we did not criticism them. Interested is entitled to his view although he should understand that we spent a long time working with the charities commission to allow us to work as we do. Although the author of this article sets out their approach that does not mean we endorse their company over others. We have an article soon regarding FirtPorts accounts and no doubt the comments will be more than contentious.
.
Martin,
It’s a fair defence but not one I find hugely convincing.
The problem, as I see it, is not so much that the managing agent may make a loss but that accounting for the time of the property manager time simply doesn’t happen, and managing to stretch this to more than 100% in terms of billing clients is one of the main ways of earning a profit. In fact, I think it’s the MAIN way — that and subbing in a more junior person at a lower cost.
Neither are ethical in my book. I like to get what what I’ve paid for and to know that the price doesn’t come with any undisclosed conflicts of interest.
If you woke up in a private hospital having had your appendix out I think you’d be unhappy to be told
I’m certainly not casting any aspersions on LKP here and I think the exchange of views on this website should open people’s eyes as to the dynamics of this business. We know that leasehold has been abolished everywhere that inherited it from English common law, apart from England and Wales, but I have yet to read anything about property management operates outside the UK, in Australia, the US. and the like. That would be interesting. I’ll look into it if I have time. Perhaps someone who reads this can comment.
It was not a defense of the way the property management system works. More a description of how it operates in practice. We are aware of a number of surveyor and even lawyer managing agents who do work more on a model of adding a fee for their time or in proportion to the costs. Its not a model that seems to be well received.
In answer to your question about other jurisdictions. Yes there a number of similar issues in other jurisdictions starting with build quality and management costs including developers setting costs at too low a rate in the first years.. There are of course also the same sorts of arguments between neighbors . The fundamental difference we have. seems to be that on most sites the agent is accountable to the landlord not the leaseholders. .We also have a total lack of balance in that the landlord has the right to recover many of his costs in any dispute under most leases while the leaseholder has no corresponding right. Even if the Tribunal make an award limiting some or all of the landlords costs there is no gaurentee they will not find their way onto the service charges..
Just to add to the problems the Tribunals make some utterly bizarre and unfair and even silly decisions on costs. .The most unfair I’ve seen was in the Chelsea Harbor case where the judge sought to rule that the landlords legal costs could not be disputed as to reasonableness resulting in those who had not been part of the dispute having nearly £1000 added to their service charges , The same judge also decided in another case the landlord could seek to recover his costs both via the service charge and an administration charge provided he did not recover twice. .
Anyway I’m not sure the hospital analogy works as property management needs a range of skills at different times rather than just those of a property manager. Different companies have different systems place to provide the various skills.
If we’re talking about professions making a substitute you will know that solicitors often have clerks do much of the work and doctors have registrars. As we get older young people get younger and I’m sure I saw a GP the other week who looked no older than 19..
You may be interested to know we were talking with FirstPort recently who tell us they have now separated their purchasing team from the group that approve their suppliers who are in turn are a separate group to their property managers.. A very good idea.
As you know there are perhaps very good historic reasons for this particular agent to make such a change. In addition to the matters which resulted in the collusive tendering offense there were a number of issues they faced in the past. I still smile at the idea we were supplied at one time with rather expensive sugar, tea and coffee for our concierge staff in SW London by a very small “independent” supplier based in Luton. A supplier who happened to be just down the road from certain offices..
Have LKP taken notice of the growing tendency of developers to offer the incentive of bearing the cost of service charges for the first few years in order to encourage sales of property without it appearing that a discount has been offered on the selling price?
Is there not a danger that work that needs to be done will be delayed until after the developer’s obligation has ended? Could this not end up costing leaseholders more money in the long term?
As someone currently living in a place suffering from the most terrific disrepair, I d pay virtually anything to live in a well managed, well run block.
There is something utterly depressing about run down buildings- it also encourages anti social behaviour and attracts poor quality tenants. It is a disgrace that so many listed buildings in London are allowed to fall into such a state, especially taking into account the high property prices.
Dear leaseholder
Don’t despair. You should ” not have to pay anything” to live in a well run block. Call an EGM- get fellow leaseholders on side ( not easy, I know). Summon your current agent if you have one and hold them to account. Some unsrupulous agents rely on lethargic leaseholders, or ones who are too busy to ” get involved”. Don’t let them get away with it. Your lease is the ‘ Holy Grail’. Regardless of what agents/ fellow leaseholders wish to throw at you. BE STRONG and don’t be bullied..
Dear leaseholder
Don’t despair. You should ” not have to pay anything” to live in a well run block. Call an EGM- get fellow leaseholders on side ( not easy, I know). Summon your current agent if you have one and hold them to account. Some unsrupulous agents rely on lethargic leaseholders, or ones who are too busy to ” get involved”. Don’t let them get away with it. Your lease is the ‘ Holy Grail’. Regardless of what agents/ fellow leaseholders wish to throw at you. BE STRONG and don’t be bullied..
Dear “Interested”
What Agents ‘Ethos’ do you speak of? The AM one? If so, heaven help us all… I agree with admin- You are talking utter nonsense. You have a tendency to blunder forward without thought.