Julian Knight: Managing agents rip off too many leaseholders

  • @ukmoneyguru

It is one of the great hidden rip-offs in our society: managing agents and the charges they levy on leaseholders.

I first came across the issue a decade ago when friends of mine started to complain that they were being charged through the nose by a managing agent for their block of flats, with seemingly no comeback and no control over how much they were being asked for.

I looked into the market and soon saw massive abuse. I found cases where managing agents were routinely employing suppliers such as insurance brokers or lift-maintenance firms that were actually part of their own group – in other words they had a common parent company – and were then offering work to these firms without any tendering.

I also came across one particularly shocking case where a managing agent was looking to charge a leaseholder £30,000 for a new fire escape, which it turned out was to be supplied by a company owned by the brother of the freeholder (who appoints the managing agent).

Not surprisingly, the leaseholders challenged this state of affairs at tribunal and provided evidence that they could source the said fire escape at a cost of just £3,000. This was one of the rare occasions where a tribunal actually worked and the freeholder and managing agent were sent packing.

More tellingly, there has been a swathe of court cases across the country where managing agents have been found to have effectively ripped off leaseholders, normally through overcharging over a long period for buildings insurance.

The legal protection a leaseholder has against rip-off freeholders and managing agents is minimal. When the work is worth more than £1,500, there has to be some sort of tendering process, but that actually only covers a small fraction of the work that leaseholders are charged for.

There is a tribunal system but managing agents often have a squad of lawyers ready to pounce whenever their right to levy charges is challenged – and the presence of QC silk can have a disproportionate effect on the outcome.

The final sanction that leaseholders have – to take over management of the property themselves – very often doesn't come to pass because many flats are owned by investors rather than owner occupiers and they can be both hard to contact and slightly indifferent.

By the way, if anyone refuses to pay the charges levied by the managing agent, this can – and does – lead to a loss of a home that the leaseholder has bought with their hard-earned cash.

Why am I telling you all this now? Well, the Office of Fair Trading (OFT) has said that it is now seeking views on its planned study into residential property management.

Frankly, I groan inwardly when I see the OFT set about this sort of thing, as the organisation is desperately slow in what it does. What's more, it already has a lot of evidence about the problems in the sector following a separate investigation into the activities of one of the biggest managing agents.

But it is what it is and I can only hope that this is the first step on what will no doubt be a long and winding road to better regulation of a sector that has an impact on the finances of some five million Britons living in leasehold property.

Ill tidings at Christmas

I have had a huge response to last week's exposé in this column about firms that are offering individual voluntary arrangements (IVAs).

Several people working on the front line of debt advice have contacted me to say they are glad the issue of high charges levied by IVA firms is getting an airing.

I have also had the debt-management industry predictably coming back at me. Apologists have pretended that their service is almost indistinguishable from that offered by debt charities.

Well if they are so charitable in their dealings, how can they afford to employ so many sales people (sorry, debt advisers) and spend a fortune on advertising and public relations?