Midweek money: Key to a flatowner's dream

It's time that the law offered flat leaseholders protection from disreputable managing agents, says Karen Woolfson

It has taken years, but at long last the Government appears prepared to take action to protect long-suffering leaseholders. Managing agents of blocks of flats will be required to obey tough new rules on how they manage the flat owners' affairs, according to proposals published in December. But leaseholders, local councils and even reputable agents are asking: "Who will license the managers?"

Increasingly, campaigners argue that the central plank of leasehold reform must be to regulate managers and managing agents. Otherwise, the Government's proposals will fail to create the framework necessary and will be incapable of operating as intended.

Kathryn Greig, a representative on the working group that is advising the Government on leasehold reform, says: "The signals are clear. Leaseholders currently have legal rights to information about service charges and to see supporting documentation, for example, but in practice these rights can be very difficult and costly to enforce.

"The proposals for a no-fault right for leaseholders to manage their blocks and making it simpler to purchase their freehold collectively are admirable, but there is no point in introducing change without creating a solid framework. The key is regulation. Until there are limitations on the way people manage properties, there are just too many opportunities for disreputable managers and agents to take advantage of their power. Regulation and licensing have to be statutory. It should also be made a duty for councils to enforce legislation, so they have no choice on whether or not to prosecute."

Brighton and Hove council, for which she works, will be setting up a pilot scheme for the licensing of managers and agents. Applicants for licences will be required to give details of their background and career and will have to conform to rigorous standards. Those who have, for example, been found guilty of offences relating to the mismanagement of money will not be licensed, and this fact will be publicised.

Ms Greig believes that approved codes of conduct, such as those prepared by the Royal Institute of Chartered Surveyors, do not go far enough. Barry Gardiner MP, chairman of the all-party parliamentary group on leasehold reform, stresses this point: "The voluntary code of the Association of Residential Managing Agents has clearly not been effective to date and when managing agents are dealing with other people's money, it is vital that this is covered by statutory regulation."

Peter and Wendy Deakins, who live in a flat in London, own a share of the freehold following the collective enfranchisement of the block some years ago. They have contested the service charges of their block and are unhappy with the way it is being run by directors who are also leaseholders.

Mr Deakins says: "Enfranchisement isn't working. A managing company should be required to follow a standard legal format containing extensive rules and regulations. Every sum in the service charge accounts, whatever size, should be itemised; there should be absolute transparency; and every single invoice, receipt and all the supporting documentation should be provided to leaseholders within 21 days of a request. Full details of the service charge accounts should be put on the Internet and given as a legal requirement to an industry regulator," Mr Deakins adds.

The Deakinses believe a regulator should be given the power to license managers, while meting out heavy fines and striking off people who flout the rules. The latter should apply to managers and agents who fail to present the service charges according to legal requirements; produce the full set of invoices (which must be made a key legal requirement), receipts and other supporting documentation.

Fines should also apply to failure to produce independently audited accounts each year, and failure to hold an AGM. Imprisonment for the worst offenders should be imposed where managers have tampered with service charge accounts, the Deakinses believe.

The Government has acknowledged the need for controlling managers and agents, but it is uncertain what form this will take. The consultation document on leasehold reform accepts, for example, that the current safeguards are not adequate to ensure the manager provides cost-effective insurance cover. This is due to the widespread practice of landlords placing insurance for a block of flats to maximise commission rather than give value for money to its leaseholders.

The document suggests requiring the manager to disclose any commission he receives on the insurance and periodically reviewing the level of cover as well as premiums. The new rules could also make it a requirement that if leaseholders secure an alternative quote from an insurer which is 10 per cent or more below the existing or proposed premium, the manager would be obliged to accept it unless his preferred insurer were able to match it.

Leasehold organisations welcome these developments. But they want people to focus on tightening existing legislation, so that managers are legally required to produce every single invoice to support the service charge accounts.

"If there is nothing to hide, why hide it?" they ask.

Karen Woolfson welcomes comments for her column. Write to: Homebattles c/o Nic Cicutti, Personal Finance section, `The Independent', 1 Canada Square, Canary Wharf, London E14 5DL. Karen regrets she is unable to reply personally to all letters