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Will statutory regulation of managing agents help flat-owners?

Parliament is now debating a bill which seeks to regulate the activities of those who let and manage flats. Will this help those who own flats on long-term leases

More and more people are now buying flats and apartments as the cost of housing escalates. With this has come an increasing number of complaints about the activities of those who own and manage such properties, especially about the service charges and management fees which they charge.

There have been many calls for some statutory regulation of the companies and individuals who own and manage blocks of flats. The Scots and Welsh are taking separate action but the government has generally been reluctant to consider doing anything for England.

However it was persuaded to include some provisions in the Enterprise and Regulatory Reform Act 2013. These will require “persons who engage in property management work” to sign up to a redress scheme.  

But the relevant provisions of the Act will only take effect when an order to that effect comes into force. When that will be is up to the government who probably do not see it as an urgent matter.

Debate on Bill to regulate landlords and managing agents

In the meantime several MPs have introduced bills which seek to provide for more effective regulation of the whole of the private rental sector. Last Friday the House of Commons debated a bill sponsored by Sir Alan Meale, the Labour MP for Mansfield. This bill if passed would establish a mandatory register of private landlords in England and provide for the registration and regulation of private sector landlords and letting and managing agents.

Although this bill is principally aimed at the short-term lettings sector its provisions could also apply to those who manage blocks of flats let on long-term leases.  

It was clear from the report of the debate on the bill that there was something of a split along party lines. Several Conservative MPs spoke against the bill saying that it was unnecessary ‘red tape’ as there is already a substantial volume of legislation relating to property letting and management.  

The bill will be further debated next Friday, but the chances are that it will be defeated.

Existing remedies for flat-owners are not always effective

It is of course true to say that those who own their flats do already have various legal remedies available to them – for instance if repairs are not done or if service charges are unreasonable. But this usually involves taking a case to a tribunal which is likely to be a costly and time-consuming exercise.  

Property and management companies will be able to employ expert solicitors and other property professionals if they are taken to a tribunal, which will always put the poor flat-owner at a disadvantage.

Furthermore even if flat-owners are successful on one occasion they may not always get any financial reimbursement. And they can still find the exactly the same problems occurring in the future.

Buying the freehold is one option – but an expensive one

Flat-owners may consider getting together to buy the freehold of their block. There is a statutory procedure which gives them the right to do this. The freeholder may also be required to give notice if he intends to sell the freehold so as to give the leaseholders a chance to buy it.

If buying the freehold is too expensive it is still possible for flat-owners to take over the property management themselves through a Right to Manage Company.

But in either case the legislative framework is weighted against the leaseholders. There are strict rules which have to be followed, and time-limits which apply. Again the freeholder will be employing a professional team which will have dealt with many other similar cases and will know how to play the rules to their advantage.

One of the points made in the debate on Alan Meale’s bill was that tenants have the freedom to choose their landlord and can move to other property if they encounter problems. But this is much less applicable to those who own flats under long-term leases.  

When you buy a flat you will be stuck with the existing management arrangements made by the freeholder. But the freeholder is quite at liberty to choose a different managing agent at any time, so even if everything was satisfactory when you bought the flat there is no guarantee that things will stay that way.

If you do find that the agents are over-charging you or are not getting necessary building repairs carried out you might want to move. But you will first have to sell the property. That will depend on the state of the market and in any case will involve expense. And buyers may be put off if they discover there is a problem. So many owners often feel they just have to put up with a bad situation.

Will registration help – or is there a better way forward?

There is perhaps no quick and easy solution. Registration would not itself weed out bad agents – indeed the bad ones would probably not even bother to register, especially if it was unlikely that any meaningful action was taken against them.

The real problem is that English law has failed to produce a satisfactory method for the legal ownership and management of flats and similar types of property. The present leasehold system leaves too much power in the hands of the freeholder.

Many countries such as the USA and Australia have set up different systems. The condominium title system which operates in many American states gives flat-owners far more say in the management of the building in which their flat is located.  

Legislation is now in place enabling similar titles (known as ‘commonhold’) to be created in this country. But very few have been created. This is no doubt because property developers and companies find the present leasehold system is far more to their financial advantage. Mortgage lenders have also been reluctant to accept the new form of title.

One possible avenue of reform would be to require flats in all new developments to be sold on commonhold titles. Although that would not benefit the owners of existing flats it would make the new form of title more widespread and accepted. In time that could lead to more pressure for the conversion of existing leases into commonhold titles.

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