Sajid Javid’s speech came with a lot of schmoozing but was a devastating critique of modern property management by someone who has at last understood these issues
You can respond to Mr Javid’s ‘Call for evidence’ of leasehold property management here:
This call for evidence seeks views on the regulation of letting and managing agents and the approaches government could take to implement any such regulation.
By Sebastian O’Kelly
The speech by Sajid Javid, the Communities Secretary, this morning to the ARMA conference came prefaced with such a soothing dose of syrup that for a while I feared being revisited by my breakfast.
“I know you’re not the Rachman-esque ogres that some on the internet claim [Oh, dear. Is that us?]. I look around this room today and I see the good guys.”
It can be read in full here, although almost all is below.
ARMA members, the good guys? Well, there are indeed good guys in ARMA, and we are positive about the organisation.
But ALL good guys? Including, say, Y and Y Management, where every single retirement site it took over in the South West broke out into open rebellion and epic right to manage battles?
Or, indeed, our old friends Peverel / FirstPort? Are they unambiguously good guys, no longer owned by but still serving the Tchenguiz interests, ultimately based in the British Virgin islands? It is a company that systematically cheated pensioners in 65 retirement sites, according to a protracted, tokenistic, feeble Office of Fair Trading investigation where no one was punished but where there was a ruling – better repeat that, where there was a RULING – of collusive tendering to favour its subsidiary Cirrus.
Peverel cheated pensioners in £1.4 million tenders at 65 sites, says OFT – Better Retirement Housing
now ALL sites should exercise right to manage and be rid of them … ‘the system is rotten’ to have allowed Peverel / Cirrus to get off, says Bottomley UPDATE: Guardian reports OFT / Peverel / Cirrus scandal UPDATE: BBC reports Peverel / Cirrus price-fixing scandal The Peverel / Cirrus price-fixing scandal was finally confirmed by the Office of Fair Trading today, which found that retirement leaseholders had been cheated in tenders worth £1.4 million.
“You’re members of ARMA because you subscribe to their code of conduct,” said Mr Javid.
Er … actually, Minister, ARMA’s self-regulation is in disarray after former regulator and ex-Labour minister Sally Keeble resigned and announced that professional self-regulation had failed.
Along with a £160,000 hole in the accounts – a disgruntled member had up before the disciplinary process took legal action against the trade body: there was no court case but massive costs – has cured ARMA of any further enthusiasm for self-regulation.
The regulator role is terminated and complaints now head off to the anonymous, mimsy Property Ombudsman.
There are certainly “good guys” and honest professionals in ARMA – many also members of LKP, in fact. But the truth is that it is back to its core function as a trade body.
But after this wobbly beginning, Mr Javid slammed his foot on the accelerator and the speech surged forward.
“Sadly, though, you can’t have good guys without bad guys.
“And, there’s no avoiding the fact that too many people in your industry are simply not good enough …
“As we build the houses this country needs, we’re also seeing many new housing estates with shared public spaces that need taking care of.
“That has led to a growth in the demand for property management services.
“And as the sector has grown so has the file of horror stories.”
All too true, and mentioned in the Commons later by Lucy Allan, Conservative MP for Telford, who named the Lawley Village private estate for its egregious charges.
“Some rogue agents over-charge for their services, adding a huge personal take for themselves or passing contracts to friends and subsidiaries.
“I heard of one situation where an agent had charged a commission of more than 30% when arranging an insurance policy, 3 times the recommended limit.”
Actually, our old friend Vincent Tchenguiz worked on 43% and higher rake-offs are also routine.
“In another case, leaseholders were charged 10 times the market rate to have a new fire escape fitted – with the £30,000 contract being handed to the freeholder’s brother.
“One landlord was billed £500 by his agent for repairing a shower door.
“Others boost their income by cutting costs, charging for a 5-star service while providing a budget version.
“Repairs are skipped, jobs are botched, as little as possible is done …
“Then there are the agents who “can’t do enough” for their tenants.”
At this point, I feared we were back to the schmoozing, but … what’s this?
“In fact they deliberately do too much, over-managing the property in order to rack up as many charges as possible and take the largest possible commission.
“With up to a fifth of managing agents getting paid based on a fixed percentage of the fees they charge tenants, it’s not surprising that some choose this option.
“The impact on the public is enormous.
“Some industry experts claim that, every year, British households are overcharged by as much as £1.4 billion.
“That means that, since I started talking to you this morning, rogue agents have pocketed around £15,000 in unjustified service charges.
“By the time I leave the stage, that figure will have reached nearly £40,000.
“The figures are so large because property management is a massive industry.
“Around £3.5 billion of service charges are collected each year.
“Yet despite its size and importance, it is almost completely unregulated.
“Literally anyone can put on a suit, order some business cards, and call themselves a managing agent.”
Sir Peter Bottomley obliging named a trio of game-players later in the Commons.
“You don’t have to any qualifications or experience, or a criminal records check.
“You don’t even have to know what a managing agent does.
“That will come as a huge shock to many outside this room.
“People assume they’re paying their service charges to a skilled, experienced professional.
“In fact, they could be handing their hard-earned cash to the sort of self-regarding spiv who doesn’t even make it past the first challenge on The Apprentice.
“In a multi-billion pound industry that’s crucial to the safety and wellbeing of millions of people, that is simply not acceptable.
“Nor is it the only problem.
“If people decide they’re being over-charged or under-served, it can be almost impossible for them to do anything about it.
“And that’s because the system is stacked against them and in favour of rogue agents.”
Mr Javid then turned to right to manage.
“Right to Manage is a great idea.
“It can and does work well.
“But the process behind it is far too complicated and too easy for unscrupulous landlords to abuse.
“In one recent case, claiming their right to manage took a group of pensioners 3 attempts, 6 years, and a trip to the Court of Appeal.”
This is a reference to the retirement site Elim Court, where the manager was Y and Y Management, run by Joseph Gurvits for his business partner Israel Moskovitz. Both have been named in the Commons.
Please follow and like us:Elim Court in Plymouth has escaped from its right to manage debacle by the skin of its teeth, having been led to near ruin by right to manage facilitators. After having had its right to manage application turned down in the lower tribunal (freeholder’s costs: £10,000) and then thrown out by …
“Leaseholders risk losing their homes if they fall behind on paying even a tiny amount of service charges.
“Freeholders on new-build estates increasingly have to pay service charges for the upkeep of common areas.
“But they have absolutely no say over who provides services and at what cost, and no way of taking over management themselves.
“This is supposed to be the age of the empowered consumer, of unprecedented choice.
“If you don’t like your gas supplier, your phone company, your bank, then you can quickly and easily switch to another provider.
“Parents have a say in where their children go to school, patients have a choice about which hospital they get treated at.
“But in the world of property management, we’re still living in the past.
“In an age when ordinary working people are expected to put up and shut up.
“The result is a market in which the people who pay for and receive services have absolutely no say over who provides them.
“A market that simply does not work for the people it is supposed to serve.
“That can’t be allowed to continue.
“And I won’t allow it to continue.”
At this point, this speech was getting very good indeed. It augers well for Mr Javid’s review of the leasehold houses and onerous ground rent scandals which has left 100,000 with unsellable homes.
“When our housing white paper was published, most of the attention and the headlines covered the vital task of building more homes.
“But it also talked about the need for urgent action to help people already on the property ladder or living in rented accommodation.
“I’ve already announced plans to regulate letting agents, including banning fees for tenants.
“I’ve also made clear that I want to see an end to unjustified use of leasehold in new-build houses.
“And today, I’m setting out plans for fixing the problems in property management.
“I’m publishing a call for evidence, a document that talks about the challenges facing the sector, suggests some possible solutions, and asks for the views of the people who know the market best, whether that’s people who work in it or the people who pay the service charges.
“Should leasehold tenants have a greater say over appointment of managing agents?”
Yes, of course they should. Hopefully this is simply a rhetorical question.
“How can we increase transparency in the system and give the people who pay service charges more access to accounts and decisions?
“What’s the best way to ensure fairness and openness around relations between freeholders and agents, and between agents and their subcontractors?
“How can we make it easier to challenge services charges or to change managing agent?
“And what about the current model of voluntary self-regulation?
“ARMA-Q has done a lot to raise standards, but has the system had its day?”
Er … ARMA-Q is a bit of a dead duck, after the regulator walked off in a huff – an issue ARMA tried to disguise as though the conference were some sort of Politburo congress from Soviet times.
“Many say we need an entirely independent regulator to oversee property management – is that the best way forward?
“This paper, which you’ll be able to read and respond to on our website, is the first step in creating a property management system that works for everybody.
“And that includes the property managers themselves.
“I say that because I’m a businessman at heart.
“I don’t like unnecessary red tape.
“I hate to see good companies and forward-thinking entrepreneurs struggling under the weight of burdensome regulation.
“I’m proud to be part of a government that has removed and continues to remove all manner of pointless, petty restrictions.
“But I also know that, sometimes, a completely unregulated market can turn into a kind of free-for-all wild west.
“And, as everyone knows, one thing the wild west doesn’t lack is cowboys.
Millions of people who own leasehold property are to be protected against high service charges in a crackdown on the £3.5 billion management industry. Under proposals to be published today, property managers could be regulated and the owners of freeholds would lose the right to unilaterally appoint companies to manage properties, mostly blocks of flats, on their behalf.
“I’ve already talked about cowboy property managers are bad news for consumers.
“But, as ARMA has long recognised, they’re also bad news for hardworking, honest members of the profession like you.
“That’s because the current system effectively penalises the good guys.
“The ARMA members.
“The agents who sign up to standards, invest in their staff and provide the quality service that people deserve.
“You’re the responsible ones, but you’re not competing on a level playing field.
“You invest in training, the cowboys make it up as they go along.
“You put time and money into maintaining standards, some of your competitors cut corners in order to line their pockets.
“Your priority is delivering a quality service, theirs is making a quick buck.
“You can’t blame amateur or accidental landlords for picking the cheapest option when appointing an agent.
“Many don’t know any better.
“But a race to the bottom will always be won by agents who don’t care about standards and safety.
“That’s not fair on the people paying for services, and it’s not fair on you.
“It can also do untold damage to the sector’s reputation, making it easier for populist politicians to tar you all with the same brush.
“Appropriate regulation, properly designed, will force rogue agents to either raise their game or quit the business.”
“That’s good news for tenants and it’s good news for responsible, professional agents like yourselves.
“It’s popular, in some corners of politics, to point the finger at everyone involved in the housing market.
“To say that you’re all just in it for yourselves, “Sheriff Fatman” capitalists taking advantage of desperate people and so on.
“I don’t believe that for a minute.
“The private rented sector and justified use of leasehold deliver millions of homes for millions of hardworking people.
“And the people in this room today do a vital job of servicing and maintaining those homes and protecting the people who live in them.
“Thank you for that.
“As we build more homes we’re going to need more people like you to help take care of them.
“That’s why it has never been more important for all of us – government and industry – to work together to celebrate what works in your sector and to fix what doesn’t.
“I want you to join me as this government cleans up the property management industry, evicts the cowboys who harm consumers and give you a bad name, and delivers better value and better services for tenants, for leaseholders and for hardworking people right across the country.”
Well, it was a good speech and many congratulations to Mr Javid.
He showed awareness of the issues in the leasehold sector – stuff the likes of ARMA have been quiet about for years – he was ringing out the right noises.
Dealing with the property managers, and making right to manage easier and more effective are the easier bits of leasehold.
We will see soon what Sajid Javid intends to do about the leasehold houses and onerous ground rents scandal.
In that field, the smooth lobbying from the housebuilders and ground rent investors will be on a different level to anything encountered in the modestly remunerated profession of property management.
The clichés de jour coming from the housebuilders and investors is: beware “unintended consequences”.
Touch leasehold and you will cramp housebuilding and unbox a host of intractable legal problems.
Let’s hope Sajid Javid’s business sense lets him spot a self-interested play when he sees it. But the play will have been good.