The leasehold management sector is currently unregulated, which can lead to inconsistencies in the way in which leasehold schemes are managed.
The Association of Residential Managing Agents (ARMA) lobbied government for many years for a statutory regulatory scheme and, although this was considered by the Labour administration, the coalition government decided in 2010 not to proceed with the proposals. In response to this, the ARMA-Q regime has been formulated.
ARMA-Q is the new self-regulatory regime for ARMA members and it will govern the residential leasehold management sector. The regime goes fully live from January 2015, when all ARMA members will be independently regulated. In addition, members will have to comply with the ARMA-Q consumer charter and standards (“the standards”). As such, in the future, performance of managing agents will be measured against defined criteria.
In addition, ARMA members will be subject to a three-yearly audit to ensure that the standards are being complied with on a continuing basis.
Regulatory panel
A regulatory panel will be responsible for compliance and will operate entirely independently from ARMA. While the regulator, Keith Hill MP, was appointed by ARMA, his role as regulator is entirely independent.
The decisions made by the regulator and his supporting panel will be final and will be made public. The regulator will also issue an annual report to ARMA’s council on the operation of ARMA-Q.
A number of sanctions will be available to the panel to deal with members who breach the standards (see box).
The standards
The standards are designed to promote fairness, transparency and timeliness in the management of leasehold properties. It is hoped that the introduction of the standards and the regulation provided by the independent panel will instil greater confidence in consumers.
The standard covers six key areas, namely: instructing a managing agent; client matters; finance; management; legal compliance; and disputes/terminations. The standards are extensive but listed below are some of the main points.
Instructing a managing agent
Details are given in the standard about how a managing agent should seek new business and how any tendering process should be dealt with.
In particular, it specifies that management agreements should always be entered into and that the managing agent must be clear on the services to be provided and the likely cost of those services. Management fees should also be a fixed figure unless the lease provides to the contrary.
The managing agent must also provide an annual declaration of income received by it in relation to service charges (for example, in relation to insurance and interest).
Client matters
The standard considers how relationships with residents’ associations should be conducted and provides for processes to be set up when managing agents deal with recognised residents’ associations.
It also provides that procedures should be in place for dealing with permissions required by leaseholders under the terms of the lease, such as those needed for alterations, assignment and improvements.
The standard provides details of the steps that should be taken when dealing with a breach of covenant and enforcement (including forfeiture proceedings) and also information on what is required of the managing agent in terms of lease extensions, enfranchisement and lease variation.
Financial
This is one of the most extensive sections and covers a variety of financial aspects that need to be taken into account by a managing agent when dealing with residential leasehold properties. It covers budgeting and accounting, how demands should be dealt with and also how service charge money should be held (including reserve funds).
In addition to service charge monies it also covers ground rent collection, administration charges and insurance recovery.
Management
The standard includes requirements in terms of how the managing agent should conduct the day-to-day management of properties. It deals with appointment of contractors and employment/ management of staff, how to deal with repairs, maintenance, renewals and improvements, running the insurance contract (including dealing with claims and providing statutory information), section 20 consultation and the information to be provided as part of pre-sales enquiries.
Legal compliance
Standard references to legislation are made throughout the standards where appropriate. There is also a separate section detailing the legislative provisions that apply to leasehold management and in relation to which ARMA members must comply.
Disputes and terminations
Finally, there is a section that deals with complaints handling and procedures. There is provision for clients and leaseholders to have access to an independent ombudsman should the complaint be incapable of resolution in-house.
This section also provides information on how termination of management agreements and handovers to other members should be dealt with.
Reinforcing standards
The standards are extensive and the above is only a very short summary of the detailed criteria contained, which will apply to ARMA members. The majority of managing agents will already be managing leasehold properties in line with the standards, but it is hoped that the introduction of ARMA-Q will reinforce good working practices throughout the industry.
Sanctions for those who breach standards:
- requiring the member to undertake training;
- requiring an apology or acknowledgment of a specific action to be taken to remedy a complaint;
- issuing a formal warning letter to the member;
- imposing fines on the member;
- publishing disciplinary outcomes;
- suspending a member from membership for a specified period and on conditions; and
- permanently expelling a member.
Lynn James is a partner in the real estate litigation team at DWF LLP
Further information on arma-q is available at: http://arma.org.uk/regulation/arma-q
