If you are the owner – whether occupier or landlord – of a flat or apartment in a block of similar dwellings, one of the inescapable costs of ownership is the annual property management fee you need to pay.
What are property management fees?
The fee covers the cost of common services from which all of the flats benefit and is typically paid by the landlord or freeholder of the entire block and who passes on a given proportion of that fee to individual leaseholders or tenants.
The Association of Residential Managing Agents (ARMA) explains that these fees typically cover the cost of:
- fees paid to a managing agent;
- repairs and maintenance to the exterior and common areas of the building;
- maintenance of any gardens and outside space;
- concierge services and cleaning; and
- buildings insurance.
Not only does this suggest quite a range of variables making up the management fees charged, but might also help to explain the recent rise in fees charged to the average owner of a leasehold property.
The cost of management fees
According to a report in the Mail Online in March 2016, the average property management fee currently costs the individual flat owner some £2,800 a year – and that is before the cost of ground rent is also taken into account. In some cases, the amount charged in service charges represents the equivalent of two times the rental of the property concerned.
Although management fees of course reflect the level of services and facilities provided to the block, there is little further explanation for the recent increases in those apparently charged by some property management companies.
Right to Manage
With management charges costing so much, it is understandable that many leaseholders take the view that they may be better off by managing the essential, common elements of maintaining and insuring the whole of the block themselves.
Their ability to do this is enshrined in legislation (the Commonhold and Leasehold Reform Act 2002), which gives leaseholders what is known as the Right to Manage (RTM).
The legislation ensures that the Right to Manage may be exercised irrespective of any objection by the freeholder and without giving any reasons for freeholders to take the decision to organise essential management services themselves.
Freeholders need to set up their own Right to Manage company and there are a number of rules regarding the types of flats and dwellings that qualify under the law. Although there are unlikely to be any overwhelming difficulties, setting up a Right to Manage company is not a step to be taken lightly and requires the involvement and commitment of a majority of the leaseholders to be successful.
Further details about the considerations of setting up a Right to Manage company are explained in our free guide we have published here at UKinsuranceNET which can be requested via our Right to Manage insurance page.
Probably the greatest incentive for leaseholders – especially given the evident increases in fees charged by property management companies – is the potential for reducing costs. It might be argued, for example, that the leaseholders themselves have a keener, more direct interest in controlling expenditure on essential management services than the freeholder. A Right to Manage company, therefore, is more likely to press for the most competitive rates from suppliers of the relevant services – from repairs and maintenance to building insurance.
Under the control of the leaseholders themselves, it might also be argued that greater care is exercised in maintaining repairs, maintenance and management services at a level that prevents any longer-term deterioration in the standard and quality of the building and its common areas.
The Right to Manage company, for example, might resolve to create a “sinking fund” or reserve to ensure that any major refurbishment projects may be carried out and paid for at some future date.