The only way to protect leaseholders is for the government to introduce regulation of the industry, argues Dr Nigel Glen.
The government’s move towards regulation of the residential block management sector has been heartily welcomed by ARMA - it's something that we have campaigned in favour of for many years.
Why? Because we feel that standards need to be raised in the industry and although ARMA’s self-regulatory regime is a significant step in that direction, it ironically puts those firms that abide by ARMA’s strict code at a business disadvantage against firms that do things on the cheap. And regrettably when price seems to be the leading factor to leaseholders when selecting a managing agent rather than value for money that means business can be lost by those firms that perhaps most deserve to get it.
Regulation is there to protect the consumer, in this case the leaseholder. It therefore follows that all leaseholders need to be protected and hence anyone who manages a block, whether they be professional managing agents or self-managing landlords, RTMs and RMCs all need to be regulated. This is the only way to ensure no loopholes and to protect all leaseholders. This can be a tiered system such that if you directly manage a block you need to be regulated, or alternatively you can employ someone regulated to manage on your behalf.
How should regulation look? The current direction is that anyone involved in management should hold some form of recognised qualification. This has holes in it though – for example who gives out the qualification, how much will it cost and how do you periodically check that the individual is up to scratch? Does everyone involved in a company need a qualification? The receptionist? The accounts department administrator? It seems likely there will need to be a range of qualifications based upon the role. There is a lot of detail to work out.
I do find it slightly odd that regulation is to be aimed at the individual and not the company as the latter would be easier to implement and administer in the first instance and can always be followed by the individual regulation at a later date. It would be far easier for a company to have to apply for a licence to operate, and the cost of the licence can help offset the cost to the taxpayer of the regulator. Professional bodies could apply to be accredited and by requiring firms to be a member of at least one professional body various administration tasks, such as ensuring applicable Professional Indemnity, Client Money Protection and so forth, can be dealt with by those bodies as a condition of membership. You could always add a phased requirement that X% of staff at senior level need to be either MRICS or MIRPM to further raise standards in order to join the professional body.
Another aspect of regulation that would help leaseholders is the training and CPD of those individuals instructing the managing agent. It need not be onerous (and most probably would be online) but it is vital that the people giving instructions fully understand the legal environment that they are operating in, whether they be landlords, RTMs or RMCs. In Australia, under the strata system operating there, 74% of block directors felt that training was necessary. In recognition of this need, ARMA has established a membership class for RMCs and RTMs that gives them access to online training and ARMA members can also give this out to their clients should they so wish.
So, it's an interesting time ahead and I really look forward to seeing the next stages in regulation.
Dr Nigel Glen is CEO at ARMA (The Association of Residential Managing Agents Ltd)
Current regulations don’t go far enough
In today’s day and age most people either rent or lease a property. The Department for Communities and Local Government estimates there are around four million leasehold homes in England. The growth of the leasehold sector has resulted in a multi-billion pound property agent market and with it a demand to ensure all agents are committed to providing a professional standard of service.
Current regulatory landscape
Many property agents submit to a system of self-regulation by belonging to trade associations, such as ARLA or ARMA. There is, however, a significant minority of rogue or incompetent property agents who do not submit to any voluntary regulation.
Since October 1 2014, the Enterprise and Regulatory Reform Act 2013 made membership of a government-approved redress scheme a legal requirement for both letting and managing agents. At present, consumers can complain to the Property Ombudsman or the Property Redress Scheme.
In the following year, the Consumer Rights Act 2015 came into force. Sections 83–89 and Schedule 9 impose a duty on letting agents to publish their fees.
The Housing and Planning Act 2016 introduced measures to discourage bad practice among property agents. It gives local authorities the power to apply to the first-tier tribunal (property chamber) for a banning order against letting and managing agents who commit certain offences. It also: (i) requires the Secretary of State to establish and operate a database of rogue property agents; and (ii) enables the Secretary of State to introduce regulations to make membership of a client money protection scheme (“CMP”) mandatory.
So, is there a need to introduce a different regulatory model?
The short answer is: yes. The above reforms do not go far enough. The whole focus is on introducing measures to provide redress to consumers after the harm has occurred, rather than seeking to promote professionalism within the sector and drive up standards.
Letting and managing agents are: (i) providing services in respect of people’s most valuable asset: their property; and (ii) holding significant sums of money on behalf of landlords and tenants.
Despite this huge responsibility anyone can enter the market, regardless of their qualifications or experience, because there are no minimum standard requirements to practise as a letting or managing agent. The position is not improved by the piecemeal approach that has been adopted in regulating the sector. There are a vast number of laws which consumers and property agents find difficult to navigate and research indicates that enforcement of these laws is inconsistent throughout the country.
The upshot of all of this is an overwhelming lack of confidence in parts of the market. Consumers feel dissatisfied with, inter alia, property agents’ unexpected fees and poor standard of service. In April 2018, the Government committed to introducing overarching statutory regulation for both letting and managing agents and expressed an intention to set up a working group with key stakeholders to establish the new regulatory model.
Ayesha Omar, Barrister at 4-5 Gray's Inn Square
Rules will impact profits of entire industry
Regulation is hitting the property industry hard and it is safe to say the barrage of new draconian rules and regulations will have an impact on profitability of everyone connected with property.
The Minimum Energy Efficiency Standards, commonly known as MEES, is well known in commercial property, but the same cannot be said for owners of residential property. There are a lot of heads buried in the sand, hoping that Brexit will change everything and MEES will go away.
The irony of the deadline of April Fool’s Day 2018 for the implementation was not lost on the Lee Baron team, and the message is clear: no new leases or lease renewals can be granted on buildings with an energy rating of “F” or “G”.
By April 2020 all owners of let residential properties will have to have an EPC rating of “E” or above. To make matters worse, in five years’ time “F” or “G” rated buildings cannot continue to be let on existing leases or new tenancies.
The tragic fire in West London is destined to have an impact with a price in insurance premiums and concern of tenants living in towers. This will have an impact on building costs, which are already sky-high and eat into builders profit margins when building towers.
A raft of new legislation will be hitting the letting agents and the Tenants’ Fee Bill has reached the House of Lords. Proposed legislation to ban the levying of letting agent’s fees on tenants in England will probably get Royal Assent in 2019. Already hit by the slowdown in the property market, we can see consolidation in this market.
The last word has to go to GDPR! It has been a costly exercise, with firms now creating new positions of GDPR officers in order to protect themselves from the threat heavy fines. And our prediction is that fines for noncompliance in 2019 will hit the headlines.
Ian Jones is chief operating officer at Lee Baron
