BDC

More transparency and communication needed in property leasehold sector

Property managers should not be subject to more formal regulations by the government but there needs to be more transparency and communication in the leasehold market, it is claimed.

The Competition and Markets Authority (CMA) has, however, made a number of recommendations as a result of its market study into the residential property management services sector in England and Wales.

It had consulted extensively with consumer groups, leaseholders, the industry and government during the course of the study and found that overall while the market works well for many leaseholders, some have experienced significant problems in a sector where total annual service charges are estimated at £2.5 to £3.5 billion.

The issues identified include leaseholder frustration at a lack of control over the appointment of property managers, high charges for services arranged by property managers or poor standards of service.

It also found leaseholders suffered unexpected costs and were being charged for works they consider unnecessary, poor communication and transparency between property managers and leaseholders, and difficulties in getting redress.

The CMA has also identified some concerns about prospective purchasers’ understanding of leasehold, and their obligations and service charge liabilities for leasehold flats.

In light of its findings and on-going developments in the market, the CMA has made a number of detailed recommendations aimed at improving prospective purchasers’ awareness of leaseholders’ obligations.

It also wants to improve disclosure, transparency and communication between property managers and leaseholders and leaseholders’ access to appropriate forms of redress.

It says that these recommendations will make leaseholders better informed about the responsibilities and performance of property managers, while greater transparency will increase pressures on property managers and landlords to take account of leaseholder interests. They will also provide improved mechanisms for dispute resolution, should issues arise that require action.

The CMA is also recommending changes to legislation affecting rights of consultation relating to major works, as well as supplementing the existing Right to Manage legislation to enable leaseholders, where there is a majority in favour, to require the landlord to re-tender the property management of their block.

The CMA is not recommending that property managers should be subject to more formal regulation by government. It says that for many the market works reasonably well, and satisfaction levels are particularly high where leaseholders have exercised their Right to Manage.

It adds that existing legislation provides significant protections for many leaseholders, and the sector has engaged constructively with the CMA during the course of its study, recognising that there are improvements to be made and showing a willingness to address the issues that have been identified.

‘Many property managers provide a good service to leaseholders, but protection against the worst failures by property managers is vital because when problems do occur they have a major impact on leaseholders,’ said Rachel Merelie, the senior director at the CMA who led the study.

‘We are pleased that within the sector there is a consensus that change is needed and a genuine willingness to be part of that change. This is evidenced by the new and revised self-regulatory codes of practice and the enthusiasm of key players, including property managers, to improve how this market functions,’ she explained.

‘The CMA intends to work with the sector and government to implement its recommendations. However, should these not prove to be effective in addressing the issues identified, the CMA may choose to re-examine the market in due course,’ she concluded.

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BDC 299 December 2022